Wednesday, August 22, 2012

FICO or Veritas?

So, we've heard some buzz about FICO re-working their scoring to help accommodate the Short-Sale and Foreclosure dings, if those are the only dings.

A newer evaluation system called Veritas (Latin for Truth) developed by a company called Digital Risk is suggesting their way of determining a borrowers credit-worthiness is much better than the old faithful FICO.

They've been doing a lot of studying due to the housing bust, focusing on strategic defaults it would appear. Why someone would be a risk of strategic default and another not, with the exact same FICO scoring.

From my article reading activity this morning, LA Times writes: In early August it introduced a multidimensional risk evaluation system it calls "Veritas," which it says integrates borrower credit characteristics with property and local real estate market data along with proprietary behavioral prediction models. The behavioral component includes what the firm calls statistical "clusters" of borrower, property and market situations — 123 in all — that give lenders a better idea of how an applicant will react to financial problems, such as the next recession or housing downturn. 

You can read the entire article here: Reading Article of The Day

I think an updated version of FICO scoring is great, I am concerned that lenders may have to rely on psychoanalysis of their clients now. That's a pretty subjective arena. What do you think?

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