ABA Banking Journal - November 2008 - (Page 24C)

2 Fitch Ratings’ Huxley Somerville discusses the recent decision to include VantageScore in its RMBS model. Mr. Somerville serves as Group Managing Director and head of U.S. RMBS at Fitch. Why has Fitch chosen to incorporate VantageScore into its mortgage model? The mortgage crisis has shown the need for a more accurate scoring model that can better evaluate and predict consumer creditworthiness. Fitch’s testing has shown that VantageScore offers significant advantages. Are you suggesting that if VantageScore was in widespread use at the height of the housing bubble, the market wouldn’t have collapsed? The current mortgage crisis happened because of a number of reasons, not just credit scoring. VantageScore is a meaningful improvement, but it isn’t a panacea for some of the other problems that caused the market collapse. What specific advantages does VantageScore offer? The VantageScore model was built using data that reflects the more than doubling level of debt load that U.S. consumers have assumed since 2001. VantageScore’s model has been revalidated twice since its introduction two years ago, thereby ensuring the integrity and predictiveness of the model over time. This gives us greater confidence as we evaluate securities containing loans scored on VantageScore. What Were Some of the Other Reasons? Regardless of how accurate and powerful, the best credit scoring models provide little value if not applied to diligent underwriting standards. For example, one major cause of the current crisis is that many participants failed to adequately assess some borrowers’ ability to repay the loan, or relied on home value constantly increasing and didn’t even consider that home values can also decline. Why introduce VantageScore at this time? The secondary market is frozen right now, in large measure because a significant portion of mortgage loans contained in many RMBS didn’t perform as expected. VantageScore came to market just prior to the unfolding of the current crisis. We evaluated VantageScore over the last several months and believe that incorporating this new credit scoring model into Fitch’s ratings models can help restore confidence among securitizers and investors. Why Haven’t the Other Credit Rating Agencies Incorporated VantageScore? We can’t speak for the other rating agencies, but Fitch prides itself at being at the forefront of product innovation and development.

Table of Contents Feed for the Digital Edition of ABA Banking Journal - November 2008

ABA Banking Journal - November 2008 Contents Editor's Column Banking 2.0: Credit, Banking's Essence, Set for Rethinking Snapshot: The Few, the Proud, the Banks that Can Raise Capital Will Strong and Simple Banks Inherit the Business? Back to the Future ABA Resources ABA Chairman's Position Farm Lenders Must Take Care When Lending in Indian Country Pass the Aspirin Into the Breach Adventures Across A Century What the Future Holds, Post Crisis Paul Volcker: A Financial Legend Still Speaks Strong Ed Yingling: Weathering the Storm Dick Kovacevich: "Boring" Banking to Dynamic Financial Services Jim Culberson: Community Banking: What has Changed and What Shouldn't Walter Shipley: How a Chemical Reaction Helped to Mold Today's JPMorgan Chase William Isaac: Challenges and Opportunities Ahead for Banks A Hundred Years from Our Pages Eight Tech Innovations that Brought Banks into 21st Century Bank Cherokee: Third Generaton Marks 100th Year The First National Bank of Altavista: Railroad Gave Birth to a Town, a Hope Chest, and a Bank Rosedales Federal Savings and Loan Association: How a Friendly Game of Cards Turned into a 100-Year Mutual New Washington State Bank: Cooking Up the Next 100 Years Mailbox Banker's Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - November 2008

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