FICO® Score · PDF fileConfidential. The material in this presentation is the property of...

Confidential. The material in this presentation is the property of Fair Isaac Corporation, is provided for the recipient only, and shall not be used, reproduced, or disclosed without Fair Isaac Corporation's express consent.© 2009 Fair Isaac Corporation. 1

FICO® Score TrendsInsights into Changing Credit Behaviors

Rachel BellDirector, Analytic ScienceFICO

Joanne GaskinDirector, Global ScoringFICO

May 6, 2009

© 2009 Fair Isaac Corporation. Confidential.2 © 2009 Fair Isaac Corporation. Confidential.2

Agenda» Overview of Market Trends

» Industry » Federal District» New Accounts

» FICO® Score Trends» Existing Accounts» Score Distributions» Newly Booked Accounts

» Analysis to Action Plan

» FICO® Score Trends Demonstration

© 2009 Fair Isaac Corporation. Confidential.3

Current Market Challenges

» Rapidly changing trends due to economic instability pose unknown risk in portfolios

» Specific geo markets more deeply effected than others, but difficult to quantify

» Lack of new loan originations puts additional pressure to properly mitigate risk in portfolios

» Need to recognize shifting market trends rapidly for different lending lines to drive overall business strategies

» Forecasting becomes inaccurate without updated input on changing trends


Delinquency Rates Continue to Grow Residential Loans Delinquency Rates Have Risen Above Consumer Loans

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Consumer Loans Residential Loans Credit Card Loans

US Top 100 Lenders (2002–2008)Percentage of Loans Delinquent 30+ Days

Note: Residential real estate loans include loans secured by one- to four-family properties, including home equity lines of credit.200720052002 20042003

Source: Federal Reserve, Delinquency Rates; 100 Largest Banks, NSA

2006 2008


Overall Population Risk Increasing Dramatically

5.3 (55.4%)

3.4(27.3%)

2.7Real Estate Loans Only

90+ Delinquency Rate (% increase Y/Y)

9.3(11.0%)

8.4(7.9%)

7.8Bankcards Only

5.4(17.2%)

4.6(9.7%)

4.2Auto Loans Only

13.2 (12.7%)

11.7 (3.3%)

11.3All Accounts‘07-’08‘06-’07‘05-’06Population Segment

12-Month Performance on Existing Accounts

Performance measured over 12-month window from Nov through October for each period (e.g., Nov 2005-October 2006)


Key Federal Reserve Districts Significantly Impacted

16.6(5.0%)

15.8(-4.0%)

16.5FRD 11 - Dallas

13.1 (25.0%)

10.5(6.9%)

9.8FRD 12 - San Francisco

13.2 (12.7%)

11.7 (3.3%)

11.3All Accounts

90+ Delinquency Rate (% increase Y/Y)

16.5 (17.8%)

14.0 (4.2%)

13.5FRD 6 - Atlanta

‘07-’08‘06-’07‘05-’06Population Segment

12-Month Performance on Existing Accounts

Performance measured over 12-month window from Nov through October for each period (e.g., Nov 2005-October 2006)


Decline in Rate of New Account Opening

1.7%(-30.5%)

2.4%(-6.6%)

2.6%Real Estate Loans

% Consumer Population that Opened a New Account

(% increase Y/Y)

7.2%(-7.8%)

7.9%(10.4%)

7.1%Bankcards

3.5%(--)

3.5%(--)

3.5%Auto Loans

20.4%(-11.4%)

23.1%(3.1%)

22.4%All Accounts‘07-’08‘06-’07‘05-’06Population Segment

Bankcard and Real Estate New Accounts Decline

A New Account is defined as an account (of the specified type) opened within 3 months following the observation date (e.g., Accounts opened between November 2005 and January 2006; performance measured from account opening through October 2006).


» Existing Accounts» Score Distributions» Newly Booked Accounts

FICO® Score Trends


FICO Score Odds-to-Score Relationship

FICO® Score Rank OrderingExisting Accounts – National

Application: Customer Management

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All Industry Accounts October 2007 (12 months performance) National


Increase in 90+ Delinquency Rate Evident across Score Range

FICO® Score Rank OrderingComparing relationship over time


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All Industry Accounts October 2005 (12 months performance) National All Industry Accounts October 2006 (12 months performance) National All Industry Accounts October 2007 (12 months performance) National


Regional Differences in Odds to Score

FICO® Score Rank OrderingExisting Accounts - 12 Month Performance


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All Industry Accounts October 2007 (12 months performance) National All Industry Accounts October 2007 (12 months performance) Federal Reserve District 6 - Atlanta All Industry Accounts October 2007 (12 months performance) Federal Reserve District 11 - Dallas All Industry Accounts October 2007 (12 months performance) Federal Reserve District 9 - Minneapolis


San Francisco Federal Reserve District (FRD) Experiencing Highest Increases in 90+ Rates

FRD 12 (San Francisco)Existing Accounts - 12 Month Performance


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All Industry Accounts October 2005 (12 months performance) Federal Reserve District 12 - San Francisco All Industry Accounts October 2006 (12 months performance) Federal Reserve District 12 - San Francisco All Industry Accounts October 2007 (12 months performance) Federal Reserve District 12 - San Francisco


Existing Auto Loans Odds-to-Score Variance by RegionFRD New York to RichmondExisting Accounts – 12 Month Performance


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Auto Finance Loans October 2007 (12 months performance) National Auto Finance Loans October 2007 (12 months performance) Federal Reserve District 2 - New York Auto Finance Loans October 2007 (12 months performance) Federal Reserve District 5 - Richmond


Real Estate LoansSharpest Decline in Quality

Real Estate LoansExisting Accounts – 12 Month Performance


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Real Estate Loans October 2005 (12 months performance) National Real Estate Loans October 2006 (12 months performance) National Real Estate Loans October 2007 (12 months performance) National


Real Estate LoansSharpest Decline in Quality

Real Estate Loans – Less than 1 Year Vintage (at time of scoring)12 Month Performance


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< 1 year Real Estate Loans October 2005 (12 months performance) National< 1 year Real Estate Loans October 2006 (12 months performance) National< 1 year Real Estate Loans October 2007 (12 months performance) National


Real Estate Loans Originated prior to 2005 Holding Steadier than Later Vintages

3 to 5 year Real Estate Loan Vintage Performance holding steady from 2006 to 2008


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3-<5 years Real Estate Loans October 2005 (12 months performance) National3-<5 years Real Estate Loans October 2006 (12 months performance) National3-<5 years Real Estate Loans October 2007 (12 months performance) National


» Existing Accounts» Score Distributions » Newly Booked Accounts

FICO® Score Trends


Federal Reserve District Risk Differences Evident in Score Distributions

Interval Score Distribution – October 2008Regional Differences

Cumulative Score Distribution

0.0%

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90.0%

100.0%

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Score Range

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All Industry Accounts October 2008 National All Industry Accounts October 2008 Federal Reserve District 6 - Atlanta All Industry Accounts October 2008 Federal Reserve District 9 - Minneapolis All Industry Accounts October 2008 Federal Reserve District 11 - Dallas


Bankcard Score Distributions Vary By State

Scores of 655 and below capture the following volumes:Georgia: 37%; Nation: 30%; Iowa: 22%

Cumulative Score Distribution

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Score Range

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Bank National Revolving Accounts October 2008 National Bank National Revolving Accounts October 2008 Georgia Bank National Revolving Accounts October 2008 Iowa


» Existing Accounts» Score Distributions» Newly Booked Accounts

Impact on FICO® Score Trends


Broad Industry Based New Account Performance

New Account Performance9-12 Month Performance ’05-’06, ’06-’07 vs. ’07 to ‘08

Application: Acquisitions

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All Industry Accounts October 2005 (12 months performance) National All Industry Accounts October 2006 (12 months performance) National All Industry Accounts October 2007 (12 months performance) National

A New Account is defined as an account within 3 months following the observation date (e.g., Accounts opened between November 2005 and January 2006; performance measured from account opening through October 2006).


Newly Opened Bankcard AccountsLower Odds-to-Score Over 2005-2006-2007

New Account Performance – Bankcard9-12 Month Performance ’05-’06, ’06-’07 vs. ’07 to ‘08


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Bank National Revolving Accounts October 2005 (12 months performance) National Bank National Revolving Accounts October 2006 (12 months performance) National Bank National Revolving Accounts October 2007 (12 months performance) National

A New Account is defined as a new bankcard account within 3 months following the observation date (e.g., Accounts opened between November 2005 and January 2006; performance measured from account opening through October 2006).


New Auto AccountsLower Odds-to-Score Over 2005-2006-2007

New Account Performance – Auto9-12 Month Performance ’05-’06, ’06-’07 vs. ’07 to ’08


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Auto Finance Loans October 2005 (12 months performance) National Auto Finance Loans October 2006 (12 months performance) National Auto Finance Loans October 2007 (12 months performance) National

A New Account is defined as a new auto finance account within 3 months following the observation date (e.g., Accounts opened between November 2005 and January 2006; performance measured from account opening through October 2006).


Real Estate Loans

New Account Performance – Real EstatePerformance holding steady from loans opened late 2006 vs. late 2007


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Real Estate Loans October 2005 (12 months performance) National Real Estate Loans October 2006 (12 months performance) National Real Estate Loans October 2007 (12 months performance) National

A New Account is defined as a new real estate account within 3 months following the observation date (e.g., Accounts opened between November 2005 and January 2006; performance measured from account opening through October 2006).


Analysis to Action Plan


Analysis to Action Plan

» Increased population risk across all industries» Most pronounced increased risk in Real Estate, but also observed in

bankcard and auto» Industry and geographic trend insights aid in portfolio review and

benchmarking activity » Monitor your portfolio performance regularly» Re-evaluate traditional assumptions about credit risk, credit product

features and default, and pricing» Re-evaluate traditional tools

» Credit scores» Automated underwriting systems» Data sources

» Assess the impact of short-term policy changes and re-calibrate customer relationships along with decisioning

» Adjust strategies based on new information


Introducing FICO® Score Trends


FICO® Score Trends

Service DescriptionFICO and Equifax have teamed to deliver a trend reporting subscription service comprising FICO® score distributions, performance and underlying market shifts in credit behaviors over time. Data is updated every six months.

Value PropositionFor the first time lenders can analyze their portfolio leveraging industry trends for FICO® Scores at a more detailed and frequent level. Based on Equifax data, these new views can drive changes in policies and strategies that lower portfolio risk and maximize business opportunities.


Solution Overview

» Help benchmark and gain insight into customer credit usage patterns and trendsCharacteristic Trends

» Provides direct benchmark comparison against internal scores and portfolio trendsData Export Capability

» Benchmark credit risk of customer population to broader market population

» Refine acquisition strategies to align risk management and expansion opportunities

Score Distributions

» Provides insight into how consumers across the score range are shifting over timeScore Movement Table

» Provide insight into odds-to-score trends by segments or by time-periodAlignment Plots

» Help benchmark portfolio performance to general industry performance

» Provide general performance expectations at given score ranges

Validation (odds) Charts

Benefit/ImpactCharts Provided

Note: Over 15,000 unique report combinations are available.


FICO® Score Trends – Product Demo


FICO® Score Trends – Uses and Benefits


FICO® Score TrendsUses and Benefits

» Identify risk trends on broad national population» Action: Modify score cutoffs in strategies » Benefit: Prevent an influx of lower credit quality customers that will

lead to higher charge off rates

» Incorporate geography into strategies & forecasting » Action: Modify marketing efforts or forecasting models by geography» Benefit: Better reflect the expected losses of your portfolio» Benefit: Better allocate resources to less risky areas

» Learn from other industries» Action: Modify score cut-offs » Benefit: Avoid increased risk fall-out from other industries

» Evaluate FICO score cutoffs for specific segments» Action: Modify score cut-off based on changes observed in risk

patterns » Benefit: Reduce exposure to riskier segments of the population


Let’s Continue the Discussion – FICO Community

» URL: decisions.fico.com

» To obtain the presentation slides

Confidential. The material in this presentation is the property of Fair Isaac Corporation, is provided for the recipient only, and shall not be used, reproduced, or disclosed without Fair Isaac Corporation's express consent.© 2009 Fair Isaac Corporation. 34

THANK YOU

For more information on FICO® Score Trends,Please email [email protected] URL:http://www.fico.com/en/Products/Scoring/Page

s/FICO-Score-Trends.aspx

Let’s continue the discussion:FICO® Scoring Communityhttp:// decisions.fico.com

May 6, 2009

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