00:00Okay, we are live from Dallas. I'm Diego Sanchez, President of HousingWire, and I'm joined today
00:13by Joe Marsocci, Senior Director of Mortgage at FICO. Thanks for joining us today, Joe.
00:20Thank you, Diego. It's great to be here.
00:23First off, congratulations on winning a HousingWire Tech Trendsetter Award. That's awesome.
00:27Thanks, Diego. Yeah, it's really an honor to be recognized by HousingWire for that award,
00:32alongside so many other great contributors to our industry.
00:36So before we dive in, what is your role at FICO?
00:40Our team has 10 team members with experience across different sectors of the mortgage industry,
00:45so capital markets, credit risk, origination servicing, and the tech space. And I was really
00:50excited to join FICO and the MCM team. I spent 20 years of my career at several different
00:56lenders helping consumers, and I love what we do. And now I'm able to help clients utilize
01:00the FICO score more effectively and make it a win-win for lenders, investors, and customers.
01:07And you're going through a little bit of an evolution right now in terms of your scoring
01:13model at FICO. What exactly is FICO Score 10T?
01:2010T is our newest scoring model. Really, it's kind of our continual innovation to address
01:28market and data advancements, and it provides continuity with the other FICO Score versions
01:33now in use. So FICO comes out with new versions every few years. The mortgage industry has
01:38just been on the classic FICO Score since the 90s. And so the 10 in 10T stands for trended
01:45data, and it's really looking at a person's use of credit over a 24-month time period.
01:50So it changes from that single snapshot in time and captures behaviors over a longer
01:55period. And we know with the changes in consumer behaviors, it's a great representation of
01:59where we are today. And the research that we're doing is showing that 10T provides about
02:05a 5% lift in loan approval rates over the classic FICO Score without additional credit
02:10risk. So lenders can better control their default rates. I spent a large portion of
02:15my career focused on credit risk. And so I had the opportunity to manage or play a role
02:21in the entire origination system. And to know that I can get a lift in approvals while maintaining
02:25a strong risk profile was very comforting for me. I just wish it was around when I was
02:30still in lending. But getting both more loans and less risk is really like magic.
02:37Can you tell us a little bit more about how your team is amplifying awareness about FICO
02:44Score 10T?
02:45Of course. Some people don't even realize that FICO is an independent, publicly held
02:50company, not a government organization. So our team is focused on bringing awareness
02:54to new innovative tools like the recently announced FICO Score Mortgage Simulator. That
02:59simulator helps would-be borrowers understand how taking certain actions may impact their
03:03FICO scores. And now we have several lenders that are utilizing it today. But to talk about
03:09the value of the score across the ecosystem, because of the FICO Score, a borrower can
03:13apply for a loan and second later, the loan officer can quote a price up front. That's
03:17pretty significant. So they know which products borrowers are eligible for based on different
03:21FICO Score guidelines for various mortgage products. And for investors, it's a primary
03:26factor in determining a loan's risk profile, cash flow predictability, and liquidity, accurately
03:32identifying charge-offs from prepayment risk or risk of default. And I also want to talk
03:36about how pricing works, because it's very critical. In terms of FICO pricing, we collect
03:41a wholesale royalty of $4.95 for the score used to originate a mortgage loan. It's only
03:47a small percentage of the $80 to well over $100 tri-merge bundle costs. And that score
03:51is used many times more in places like product decisioning, loan and mortgage insurance pricing,
03:56loss modeling, loan pooling, and so much more. However, today FICO generally doesn't collect
04:01any additional amounts beyond the per score amount collected for the initial origination
04:05use. So we are constantly finding ways to make the FICO Score model more powerful,
04:10predictive and useful like with FICO Score 10T.
04:12And huge in this environment where it has been difficult to originate for the past couple
04:17of years. So you mentioned the increase in approval rates. Are there any other benefits
04:22that are involved with FICO Score 10T?
04:27Yeah. I mean, I think there's obviously the lift in approvals that we talked about. There's
04:31also conversely because of that trend of data, a reduction in kind of overall defaults. So
04:38we see about a 17% reduction in default rates, which is also a huge benefit for our lenders.
04:47And so those two things together, there's also different treatments that we could go
04:51kind of deeper into the score on the way medical collections are captured, the way
04:57additional users on your credit cards, so authorized users are treated differently.
05:02So kind of things that we see. So one of the things that I've said before is when we look
05:07at kind of the way that the GSEs that set up their AUS systems, they've been capturing
05:11trended data in their AUS for years. So now with the 10T score, the consumers get that
05:18benefit on the score side of it as well. So certainly a great addition to the industry
05:23when it gets adopted.
05:24And I understand that you're already rolling out this new model with clients.
05:29Yeah, yeah, we are. So currently we have about 25 lenders that are currently utilizing and
05:38pulling the score. Right now, we're encouraging everyone to start utilizing as much as they
05:42possibly can to get the benefits of our early adopters already seeing. And today, lenders
05:48can start getting 10T alongside of their existing credit score. So if they're pulling
05:56the FICO score, we're giving 10T alongside of that. So they can start evaluating the
06:01performance of their own portfolios to see the value that FICO score 10T brings for them.
06:06And today, we're already seeing lenders use it on Jumbo loans, VA loans, DSCR loans, non-QM
06:12loans, so kind of that non-GSE production.
06:16A few of those lenders, just to give you a list, is United Wholesale Mortgages, One Planet
06:20Home, Cross Country, Cardinal Financial, and then several banks, credit unions, and other
06:25lenders. And one of the things I do when I meet with lenders in the industry, I talk
06:30about kind of how I ended up here at FICO. So I spent years doing community reinvestment
06:34or CRA lending, and I also worked in commercial lending and focused on workforce housing.
06:40So for me, providing individuals with a roof over their head has always been a driving
06:44factor. So coming to FICO allowed me to transition from doing this one lender at a time, and
06:49now helping multiple lenders at once, reaching even more consumers. So it was a no-brainer
06:53for me to come here. It's funny, I have a teenage daughter who, now that she's getting
06:58older, she hears a little bit more of kind of what I'm doing, what I'm talking about.
07:02And so she now says she wants to do the same thing that I'm doing, which she's only on
07:06career choice, I think number eight at this time. So we certainly have a long way to go.
07:11But at least with the teenager, I blame half my gray hair on her and then the other half
07:15on our kind of industry. So it's a win for me.
07:19Well, and hey, we need fresh blood in mortgages. That is the way.
07:22That's right. Second generation, right? It's necessary.
07:25Absolutely. And those are some big lenders that are already testing out this new model.
07:29Yeah, I think it makes up for about $264 billion in originations and about $1.4 trillion in
07:36servicing portfolios. So yeah, significant numbers there.
07:40So your team also looks at the capital market side. What has the capital markets appetite
07:44been for FICO Score 10T?
07:47Yeah, there's a lot of excitement around the new scoring model and the capital market space.
07:51So securitizing on 10T offers a more predictable cash flow and greater liquidity for all type
07:58of securitized assets, not just mortgages. So we also see it in auto loans, personal
08:02loans, credit and the ABS market. And really that more predictable cash flow equals more
08:06value. So FICO Score 10T has the potential to increase the overall value of the mortgage
08:11backed security as an investment instrument. And since MBS is a global investment, it makes
08:16perfect sense to use the FICO Score that is universally accepted and is expected to become
08:22the universal standard for investors. And we also recently announced the FICO partnership
08:27with MCT, Mortgage Capital Trading, which I think a lot of our industry is familiar
08:31with and FICO Score 10T loans are now actively trading on the MCT marketplace.
08:36Yeah, digging in a little bit there. Last year, Cardinal Financial issued the first
08:41MBS that was entirely composed of loans that were decisioned on FICO Score 10T. What do
08:48you think that issuance means for the broader mortgage ecosystem?
08:53Yeah, that's correct. Cardinal was one of the first lenders to adopt FICO Score 10T
08:58for its non-GSE loans and began utilizing the score model to originate VA loans in October
09:03of last year. And they reported that the majority of the borrowers received higher credit scores
09:07with the use of FICO Score 10T, allowing for more favorable loan terms to be offered with
09:12no observable increase in credit risk. And then in November, they formed and traded their
09:17first mortgage backed security decision by FICO Score 10T to a primary dealer that traded
09:22that same day. So the new score not only improves credit risk transparency for the
09:28investors, but this first MBS also expanded homeownership opportunities for military members,
09:33veterans, and their families. And we also have early adopters like Primus who are actively
09:38trading FICO Score 10T loans in addition to VA and MCT's platform. So needless to say,
09:44we're seeing a lot of traction in the market with positive results and investors should
09:47really think about updating their buy guides, especially for the non-QM and portfolio loans,
09:52to leverage FICO Score 10T so they're not missing out on quality loans.
09:56Who should lenders go to, whether they're clients or prospects,
10:01if they're interested in starting to integrate FICO Score 10T?
10:05Yeah, certainly we want to connect with everyone in the mortgage ecosystems,
10:09not just lenders, to help them minimize risks and maximize profitability. So we encourage lenders,
10:15servicers, and investors to reach out to our mortgage and capital markets team. And for more
10:19details, they can go to FICO.com forward slash FICO Score 10T, or email us at FICO Score Info
10:25at FICO.com. And we also attend a number of industry events. So come find us at any time
10:31or schedule some time to connect in person. Well, Joe, it's been really good catching up
10:36with you this morning. Thank you so much for joining me today. Thank you, Diego,
10:40for the opportunity. It's been great.
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