CHICAGO — Consumers applying for a mortgage are going to start sharing more personal data with lenders next year, like it or not.
FICO scores, the industry standard for deciding credit risk in mortgages backed by Fannie Mae, Freddie Mac, and the Federal Housing Administration, largely have been based on personal credit history. But in trying to develop a well-rounded picture of a person’s finances beyond credit, tools are being crafted to help dig deeper.
Fair Isaac Corp., or FICO, the company behind the scoring formula, and data provider CoreLogic are collaborating on a separate score available to mortgage lenders that incorporates payday loans, evictions, child support payments, and other information. Soon, the status of utility, rent, and cellphone payments may be included.
Separately, credit reporting agencies Experian, Equifax and TransUnion have begun estimating consumer income as a report option. And earlier this year, Experian began including data on on-time rental payments.
The information could be a double-edged sword for consumers: It may open the door to homeownership to consumers who have a “thin file” or worse, a “no-file,” meaning they lack sufficient credit histories.
On the other hand, the extra data may make a borderline borrower look worse on paper. And it’s unlikely to quiet critics who complain too much emphasis is put on a single number.
Still, there is a thought that transparency, if it demonstrates good and bad behavior, has its place. “You’re trying to convince someone to loan you an awful lot of money at a low interest rate,” said Michael Turner, president of the Policy and Economic Research Council. “Only you know whether you’re going to pay it back. There is a harmony in this data exchange.”
The FICO-CoreLogic partnership won’t result in a credit score that rules out a borrower for a mortgage backed by Fannie Mae, Freddie Mac, or the FHA, which together own or guarantee at least 90 percent of mortgages written. That’s because the “tri-merge” report required for such a loan does not rely on CoreLogic data. But it could mean more or fewer mortgage fees or higher or lower interest charged by lenders that have heartily adopted risk-based pricing.
“We’re fascinated to see, as we get into the data, whether that may expand the universe of people who can get a mortgage,” said Joanne Gaskin, director of product management global scoring for FICO. “Banks are saying, ‘How do I find ways to safely increase loan volume, to find the gems out there?’ “