Part II: Where are Models Most Needed Now in Mortgages?

(Click here if you missed Part I of this post.)

A first important question should always be are all of your models, model uses, and model testing strategies, and your non-model processes, sound and optimal for your business?  But in today’s environment, two areas in mortgage stand out where better models and decision systems are most needed now: mortgage servicing and loan-quality assurance.  I will discuss loan-quality assurance in a future...

Part I: Types and Complexity of Models, and Unobservable or Omitted Variables or Relationships

Since the financial crisis, it’s not unusual to read articles here and there about the “failure of models.” For example, a recent piece in Scientific American critiqued financial model “calibration,” proclaiming in its title, Why Economic Models are Always Wrong. In the mortgage business, for example, it is important to understand where models have continued to work, as well as where they failed, and...

This installment proposes a new type of mortgage product that could help to lower current risks of home-price bubbles in various strongly growing economies—and perhaps future risks in the U.S. and other countries as well.

In booming economies like Brazil, China, Singapore, and Hong Kong, housing market concerns are now very different from those in the U.S. and other nations still dealing with the fallouts of real-estate meltdowns.

Home prices have been rising sharply in the booming...

It’s here!

July 21 marks the official launch of the Consumer Financial Protection Bureau (CFPB). This new government agency gains the power to write and enforce 18 consumer protection laws that guide financial products and services, including the Fair Credit Reporting Act, the Equal Credit Opportunity Act, and the Fair Debt Collection Practices Act.

There’s one snag, however: a director has yet to be approved by the Senate to lead the CFPB. Earlier this week, President Obama nominated former Ohio...

The end of 2010 was a transitional time for credit card lenders.  Card issuers were faced with the need to jump-start “return to growth strategies” as a result of diminished profits stemming from the great recession and all of the credit tightening actions deployed over the last two years.  Lenders were deliberate in their actions to shrink balance sheets eliminating higher risk customers.  At the same time, risk adverse consumers were, and continue to be, more thoughtful about spending, taking...

The Consumer Financial Protection Bureau (CFPB) is a new regulatory agency that is still evolving. But even now it’s clear that it will have unprecedented powers with a broad reach across industries – including communications. Although there are questions about how the CFPB will operate, there are still steps you can take to prepare.

To help you get ready, let’s review a few of the areas you should expect CFPB to affect your business, followed by three questions you can help your customers...

The next time a consumer asks about his or her credit score, consider it an opportunity.

Recent changes to the Risk-Based Pricing (RBP) rule may provide new opportunities to strengthen relationships by educating consumers about what their credit scores mean, how they’re used, and how they can be improved. For many lenders and other businesses, this could be the first time they’ve had a chance to speak directly and openly with customers about their credit scores.

The RBP rule is intended to improve...

Heads up! Change is coming that could have a far-reaching impact on risk-based pricing and the way telecommunications, cable and energy companies do business.

Get ready for June
Effective June 25, 2011, The Social Security Administration (SSA) will be changing the way Social Security Numbers (SSNs) are issued. The change is known as “randomization.”

Why Randomization?
“Randomization” is simply the random assignment of SSNs. At some point, the nine-digit SSN will be exhausted. The SSA believes this...

The passage of the Telecommunications Act of 1996 increased competition in the telecom industry. These days, nearly every telecommunications company is offering, or considering offering, bundled services to attract new customers, increase retention of current customers, or both.

Every time I turn around, there seems to be a new variety of bundled services. Quality, ease of use, and the right price points in a market, make these bundles very attractive to consumers.

Most offers are directed at...

-- By Kari Michel

 What are you doing to prepare for the new credit score disclosure requirements for taking adverse action on the basis of information contained in a consumer credit profile report, including scoring models?        

The Dodd-Frank Wall Street Reform and Consumer Protection Act (CFPB) which was signed by President Obama on July 21, 2010, have prescribed new rules for Adverse Action and Risk Based Pricing notifications.  The new credit score disclosure rules will become...