The credit scoring blind spot – Macroeconomics

Posted on Posted in Portfolio Analytics

In February 2016, about six months after rating a securitization, Moody’s found “faster buildup of delinquencies and charge-offs than expected” in the pool of Prosper loans backing the ABS. Experts had noticed deterioration months earlier…pundits discerned a signal…insights followed—macro trend…credit cycle…borrower stress. But then in July, Moody’s decided there was “absence of substantial deterioration”.  So, what […]

Credit scoring with an eye to the future

Posted on Posted in Marketplace Lending, Research

Much has been written about the death of the FICO credit score.  See Wall Street Journal’s “Silicon Valley: We Don’t Trust FICO Scores” and American Banker’s “Will Fintechs Kill the FICO Score?” for recent (Summer 2016) articles.  The narrative invariably revolves around how the score is backward looking…considers limited individual past behavior…and can occasionally misfire […]

Winning @ Lending Club

Posted on Posted in Marketplace Lending

By including information concerning the economic vitality of a borrower’s locality as a decisioning criteria, investors can improve the performance of their Lending Club loan portfolio.  Overlaying local economic vitality data provides additional insights about borrower creditworthiness that is not captured by traditional credit scoring models.  Our framework blends this additional information into an expected […]

Mass Customizing Loan Pricing

Posted on Posted in Research

Is a loan to a baker in Hampden County, MA as risky as a loan to a baker in Orange County, CA?  Is a loan to a plumber in AZ as risky as a loan to a dentist in AZ?  Intuitively, the answer is no.  The point of Localizing Risk is that the intuition can be […]