What does the mortgage interest rate, currently at an all time low of 3.55% (for 30 yr. fixed), mean for financial institutions? According to the latest Experian-Oliver Wyman Market Intelligence Report, 75% of the mortgage originations are refinancing vs. purchasing loans. As mortgage rates decrease, financial institutions face losing mortgage loans to other lenders in the refinance climate. Consumers are looking to save money and mortgage payments are generally the largest monthly expense.  Economic indicators, such as decreasing credit card and mortgage delinquency rates, reveal that consumers are more watchful of their spending and more closely managing their debt. Overall consumer debt has come down 11% from the peak in 2008, with a majority coming from the lowest VantageScore® model credit populations. Consumer confidence continues to drop, indicating consumer pessimism due to increasing gas prices and declining job growth. Given the mixed trends in the economic landscape, we can conclude that some consumers are still doubtful on economic recovery and will seek ways to save more and pay down their debt. Consumers with existing mortgages will most likely take advantage of the lower mortgage rates and refinance. So how can financial institutions help prevent attrition? With the current economic situation, managing retention efforts on a daily basis is imperative to retaining consumers. By monitoring their portfolio and receiving information daily, financial institutions are quickly informed if an existing mortgage client is shopping for a new mortgage with another lender, enabling them to act swiftly to retain the business. Information obtained from daily monitoring of accounts helps financial institutions speak with customers more intelligently about their needs. Because of this competitive environment, and often irrelevance of brand loyalty, financial institutions need to build relationships and increase customer loyalty by quickly meeting the financial needs of their most profitable customers. To demonstrate how taking daily actions can help boost loyalty, reduce attrition, and increase profitability, the Technology Credit Union recently revealed how they obtained a 788% ROI. Access the case study here. What efforts has your institution taken to reduce attrition over the past year?   VantageScore is a registered trademark of VantageScore Solutions, LLC.

Loans to customers in the nonprime, subprime and deep-subprime credit risk tiers accounted for more than one in four new vehicle loans in Q2 2012. With 25.41 percent of all new vehicle loans opened by customers in the nonprime, subprime and deep-subprime credit risk tiers, loans for this group were up 14 percent when compared with Q2 2011. Listen to our recent Webinar on Q2 2012 automotive credit trends Source: Experian Automotive's quarterly credit trend analysis

By: Kyle Aiman For more than 20 years, creditors have been using scores in their lending operations.  They use risk models such as the VantageScore® credit score, FICO or others to predict what kind of risk to expect before making credit-granting decisions. Risk models like these do a great job of separating the “goods” from the “bads.” Debt recovery models are built differently-their job is to predict who is likely to pay once they have already become delinquent. While recovery models have not been around as long as risk models, recent improvements in analytics are producing great results.  In fact, the latest generation of recovery models can even predict who will pay the most. Hopefully, you are not using a risk model in your debt collection operations.  If you are, or if you are not using a model at all, here are five reasons to start using a recovery model: Increase debt recovery rates – Segmenting and prioritizing your portfolios will help increase recovery rates by allowing you to place emphasis on those accounts most likely to pay. Manage and reduce debt recovery costs – Develop treatment strategies of varying costs and apply appropriately. Do not waste time and money on uncollectible accounts. Outsource accounts to third party collection agencies – If you use outside agencies, use recovery scoring to identify accounts best suited for assignment; take the cream off the top to keep in house. Send accounts to legal – Identify accounts that would be better served using a legal strategy versus spending time and money using traditional treatments. Price accounts appropriately for sale – If you are in a position to sell accounts, recovery scoring can help you develop a pricing strategy based on expected collectibility. What recovery scoring tools are you using to optimize your company's debt collection efforts? Feel free to ask questions or share your thoughts below.   VantageScore® is a registered trademark of VantageScore Solutions, LLC.

Mortgage delinquencies continued to reach multi-year lows with the delinquency rate for those 60 plus days past due falling to 4.68 percent in Q2 2012 compared to 5.04 percent for the same quarter last year. The decline may be the result of lenders further tightening their criteria, as the average VantageScore® credit score for consumers who opened a new mortgage trade in Q1 2012 was seven points higher when compared to the same quarter in 2011 - 878 versus 871. Sign up now for a detailed overview of consumer credit trends from the Q2 2012 Experian-Oliver Wyman Market Intelligence Reports and an in-depth look at the current state of the U.S. real estate market. Source: Experian-Oliver Wyman Market Intelligence Reports. VantageScore® is owned by VantageScore Solutions, LLC.

With mortgage interest rates at historic lows, the risk of attrition and its impact on ongoing revenue has become a paramount concern for credit unions. By implementing an automated trigger program as part of its member retention efforts, one credit union was able to improve retention rates and grow its portfolio – achieving a return on investment of 788 percent. Find out how implementing a daily triggers program can help you improve retention rates and alert you when members are looking for new credit. Source: Notification Services Case Study.

When it comes to short sales, a status of "account paid in full for less than full balance" or "settled" will still have a negative impact on a credit score because it means the debt was not paid in full as agreed. According to VantageScore® Solutions LLC, a mortgage loan settled through a short sale typically results in a change of 120 to 130 points to the VantageScore® credit score. A foreclosure generally causes a decline of 130 to 140 points. The impact of the short sale or foreclosure will vary since scores take into account the individual's overall credit history. VantageScore® is owned by VantageScore Solutions, LLC. Register now for a detailed overview of consumer credit trends from the Q2 2012 Market Intelligence Reports. Also during this event, we'll take an in-depth look at understanding the current state of the U.S. real estate market. Source: The Ask Experian team advice blog.

By: Uzma Aziz They say, “a bird in the hand is better than two in the bush” …and the same can be said about customers in a portfolio. Studies have shown time and again that the cost of acquiring a new financial services customer is many times higher than the cost of keeping an existing one. Retention has always been an integral part of portfolio management, and with the market finally on an upward trajectory, there is all the more need to hold on to profitable customers. Experts at CEB TowerGroup are forecasting a combined annual growth rate of over 12% for new credit cards alone through 2015. Combine that with a growing market with better-informed and savvy customers, and you have a very good reason to be diligent about retaining your best ones. Also, different sized institutions have varying degrees of success. According to a study by J.D. Power & Associates, in 2011 overall, 9.6% of customers indicated they switched their primary bank account during the past year, up from 8.7% a year ago. Smaller banks and credit unions did see drastically lower attrition than they did in prior years: just 0.9% on average, down from 8.8% a year earlier. For large, mid-sized and regional banks unfortunately, it was a different story with attrition rates at 10 to 11.3%. It gets even more complex when you drill down to a specific type of financial product such as a credit card. Experian’s own analysis of credit card customer retention shows that while the majority of customers are loyal, a good percentage attrite actively—that is, close their accounts and open new ones—while a bigger percent are silent attriters, those that do not close accounts but pay down balances and move their spend to others. Obviously, attrition is a continual topic that needs to be addressed, but to minimize it you first need to understand the root cause. Poor service seems to be the leading factor and one study* showed that 31% of consumers who switched banks did so because of poor service, followed by product features and finding a better offer elsewhere. So what are financial institutions doing to retain their profitable customers? There are lots of tools ranging from easy to more complex e.g., fee and interest waiver, line increases, rewards, and call center priority to name a few. But the key to successful customer retention is to look within the portfolio combining both internal and external information. This encompasses both proactive and reactive strategies. Proactive strategies include identifying customer behaviors which lead to balance or account attrition and taking action before a customer does. This includes monitoring changes over time and identifying thresholds for action as well as segmentation and modeling to identify problem. Reactive strategies, as the name suggests, is reacting to when a customer has already taken action which will lead to attrition; these include monitoring portfolios for new inquiries and account openings or response to customer complaints. In some cases, this maybe too little too late, but in others reactive response may be what saves a customer relationship. Whichever strategy or combination of these you choose, the key points to remember to retain customers and keep them happy are: Understand your current customers’ perceptions about credit, as they many have changed—customers are likely to be more educated, and the most profitable ones expect only the best customer service experience Be approachable and personal – meet customer needs—or better yet, anticipate those needs, focusing on loyalty and customer experience You don’t need to “give away the farm” – sometimes a partial fee waiver works * Global Consumer Banking Survey 2011, by Ernst & Young  

Total balances of automotive loan portfolios rose for all types of lending organizations in Q2 2012, reaching $682 billion, compared with $646 billion in Q2 2011. Despite this strong growth, overall loan balances still lag behind prerecession levels. In Q2 2007, outstanding loan balances reached $701 billion. The average 30 and 60 day delinquency rate fell slightly year over year across all types of lending organizations, including banks, captive finance, finance companies and credit unions. Sign up for our Sept. 6th Webinar for more information on Q2 2012 automotive credit trends. Source: Experian press release dated — Aug 8, 2012: Loan delinquencies and automotive repossessions drop in Q2, according to Experian Automotive.

By: Ken Pruett The great thing about being in front of customers is that you learn something from every meeting.  Over the years I have figured out that there is typically no “right” or “wrong” way to do something.  Even in the world of fraud and compliance I find that each client's approach varies greatly.  It typically comes down to what the business need is in combination with meeting some sort of compliance obligation like the Red Flag Rules or the Patriot Act.  For example, the trend we see in the prepaid space is that basic verification of common identity elements is really the only need.   The one exception might be the use of a few key fraud indicators like a deceased SSN.  The thought process here is that the fraud risk is relatively low vs. someone opening up a credit card account.  So in this space, pass rates drive the business objective of getting customers through the application process as quickly and easily as possible….while meeting basic compliance obligations. In the world of credit, fraud prevention is front and center and plays a key role in the application process.  Our most conservative customers often use the traditional bureau alerts to drive fraud prevention.  This typically creates high manual review rates but they feel that they want to be very customer focused. Therefore, they are willing to take on the costs of these reviews to maintain that focus.  The feedback we often get is that these alerts often lead to a high number of false positives. Examples of messages they may key off of are things like the SSN not being issued or the On-File Inquiry address not matching.  The trend is this space is typically focused on fraud scoring. Review rates are what drive score cut-offs leading to review rates that are typically 5% or less.  Compliance issues are often resolved by using some combination of the score and data matching. For example, if there is a name and address mismatch that does not necessarily mean the application will kick out for review.  If the Name, SSN, and DOB match…and the score shows very little chance of fraud, the application can be passed through in an automated fashion.  This risk based approach is typically what we feel is a best practice.  This moves them away from looking at the binary results from individual messages like the SSN alerts mentioned above. The bottom line is that everyone seems to do things differently, but the key is that each company takes compliance and fraud prevention seriously.  That is why meeting with our customers is such an enjoyable part of my job.

Join us Sept 12-13 in New York City for the Finovate conference to check out the best new innovations in financial and banking technology from a mixture of leading established companies and startups. As part of Finovate's signature demo-only format for this event, Steve Wagner, President, Consumer Information Services and Michele Pearson, Vice President of Marketing, Consumer Information Services, from Experian will demonstrate how providers and lead generators can access a powerful new marketing tool to: Drive new traffic Lower online customer acquisition costs Generate high-quality, credit-qualified leads Proactively utilize individual consumer credit data online in real time Networking sessions will follow company demos each day, giving attendees the chance to speak directly with the Experian innovators they saw on stage. Finovate 2011 had more than 1,000 financial institution executives, venture capitalists, members of the press and entrepreneurs in attendance, and they expecting an even larger audience at the 2012 event. We look forward to seeing you at Finovate! 

  In this three-part series, Everything you wanted to know about credit risk scores, but were afraid to ask, I will provide a high level overview of: What a credit risk score predicts; Common myths about credit risk scores and how to educate consumers; and finally, Scoring traditionally unscoreable consumers Part I: So what exactly does a credit risk score predict? A credit risk score predicts the probability that a consumer will become 90 days past due or greater on any given account over the next 24 months. A three digit risk score relates to probability; or in some circles, probability of default. An example of the probability of default: For a consumer who has a VantageScore® credit score of 900, there is a 0.21% chance they will have a 90 day or greater past due occurrence in the next 24 months or odds of 2 out of 1,000 consumers A consumer with a VantageScore® credit score of 560 will have a 35% chance they will have a 90 day or greater past due occurrence in the next 24 months or odds of 350 out of 1,000 consumers This concept comes to life in light of changes being made on the regulatory front from the FDIC in the new proposed large bank pricing rule, which will change the way large lenders define and calculate risk for their FDIC Deposit Insurance Assessment. One of the key changes is that the traditional three-digit credit score used to set its risk threshold will be replaced with “probability of default” (PD) metric.  Based on the proposed rule, the new definition for a higher risk loan is one that has a 20% or higher probability of defaulting in two years. The new rule has a number of wide-ranging implications. It will impact a lender’s FDIC assessment and will allow them to uniformly and easily assess risk regardless of their use of proprietary or generic credit risk scoring modes. In part 2, I will dispel some common consumer myths about credit scores and how lenders can provide credit education to their customers.

By: Mike Horrocks In 1950 Alice Stewart, a British medical professor, embarked on a study to identify what was causing so many cases of cancer in children.  Her broad study covered many aspects of the lives of both child and mother, and the final result was that a large spike in the number of children struck with cancer came from mothers that were x-rayed during pregnancy.   The data was clear and statistically beyond reproach and yet for nearly 25 more years, the practice of using x-rays during pregnancy continued. Why didn't doctors stop using x-rays?  They clearly thought the benefits outweighed the risk and they also had a hard time accepting Dr. Stewart’s study.  So how, did Dr. Stewart gain more acceptance of the study – she had a colleague, George Kneale, whose sole job was to disprove her study.  Only by challenging her theories, could she gain the confidence to prove them right.  I believe that theory of challenging the outcome carries over to the practice of risk management as well, as we look to avoid or exploit the next risk around the corner. So how can we as risk managers find the next trends in risk management?  I don’t pretend to have all the answers, but here are some great ideas. Analyze your analysis.  Are you drawing conclusions off of what would be obvious data sources or a rather simplified hypothesis?  If you are, you can bet your competitors are too.  Look for data, tools and trends that can enrich your analysis.  In a recent discussion with a lending institution that has a relationship with a logistics firm, they said that the insights they get from the logistical experts has been spot-on in terms of regional business indicators and lending risks.   Stop thinking about the next 90 days and start thinking about the next 9 quarters. Don’t get me wrong, the next 90 days are vital, but what is coming in the next 2+ years is critical.   Expand the discussion around risk with a holistic risk team. Seek out people with different backgrounds, different ways of thinking and different experiences as a part of your risk management team.  The broader the coverage of disciplines the more likely opportunities will be uncovered. Taking these steps may introduce some interesting discussions, even to the point of conflict in some meetings.  However, when we look back at Dr. Stewart and Mr. Kneale, their conflicts brought great results and allowed for some of the best thinking at the time.   So go ahead, open yourself and your organization to a little conflict and let’s discover the best thinking in risk management.

The Experian/Moody's Analytics Small Business Credit Index edged up 0.9 points in Q2 2012, to 104.1 from 103.2. High-level findings from the Q2 report show that credit quality will be slow to improve in coming months, and threats to consumer confidence and spending have become more prominent. Business confidence is in line with an economy growing below potential. This factor could affect hiring through the rest of the year, postponing the emergence of a strong, consumer-led recovery. Download the entire report on Small Business Credit. Source: Experian press release—Aug 7, 2012: Small-business credit conditions slightly improve as economy shows signs of stalling

By: Teri Tassara The intense focus and competition among lenders for the super prime and prime prospect population has become saturated, requiring lenders to look outside of their safety net for profitable growth.  This leads to the question “Where are the growth opportunities in a post-recession world?” Interestingly, the most active and positive movement in consumer credit is in what we are terming “emerging prime” consumers, represented by a VantageScore® of 701-800, or letter grade “C”. We’ve seen that of those consumers classified as VantageScore C in 3Q 2006, 32% had migrated to a VantageScore B and another 4% to an A grade over a 5-year window of time.  And as more of the emerging prime consumers rebuild credit and recover from the economic downturn, demand for credit is increasing once again.  Case in point, the auto lending industry to the “subprime” population is expected to increase the most, fueled by consumer demand.  Lenders striving for market advantage are looking to find the next sweet spot, and ahead of the competition. Fortunately, lenders can apply sophisticated and advanced analytical methods to confidently segment the emerging prime consumers into the appropriate risk classification and predict their responsiveness for a variety of consumer loans.  Here are some recommended steps to identifying consumers most likely to add significant value to a lender’s portfolio: Identify emerging prime consumers Understand how prospects are using credit Apply the most predictive credit attributes and scores for risk assessment Understand responsiveness level The stops and starts that have shaped this recovery have contributed to years of slow growth and increased competition for the same “super prime” consumers.  However, these post-recession market conditions are gradually paving the way to opportunistic profitable growth.  With advanced science, lenders can pair caution with a profitable growth strategy, applying greater rigor and discipline in their decision-making.

Some borrowers who are deemed subprime by traditional credit scoring criteria are actually quite creditworthy and are identified as prime or near-prime consumers when using the more inclusive VantageScore® credit score. Based on a VantageScore® Solutions' study of infrequent users of credit, 15.5 percent were found to have either prime or super-prime risk. In addition, among new entrants to the credit scene — including students who recently graduated, immigrants and recently divorced consumers — 26.5 percent were found to have either prime or super-prime risk profiles. Learn more about VantageScore® Solutions, identified as a Preferred Partner by the National Association of Federal Credit Unions (NAFCU). Source: VantageScore Solutions summer 2012 newsletter, The Score VantageScore® is owned by VantageScore Solutions, LLC.