FICO Announces New Service to Help Lenders Predict Impact of Future Economic Fluctuations on Consumer Credit Risk
Incorporates Moody’s Analytics detailed regional economic data under the Fed’s CCAR scenarios
SAN JOSE, Calif., Dec. 3, 2013 /PRNewswire/ — To meet the needs of lenders to have a reliable “crystal ball” into the impact of future changes in the economy on consumers, FICO (NYSE:FICO), a leading predictive analytics and decision management software company, introduces FICO(®) Score Economic Calibration Service. This new product allows lenders to better understand how different economic scenarios, provided by Moody’s Analytics, a leading economic forecasting firm, are likely to affect consumer credit portfolios in the future by simulating the impact on FICO(®) Scores and associated probability of default. These forecasted FICO Scores and associated probability of defaults are forecasted over the Federal Reserve Comprehensive Capital Analysis and Review (CCAR) mandated nine-quarter forward horizon.
“Lenders are challenged to quantify probability of default at both the portfolio and individual account to make capital allocation planning decisions,” noted Andrew Jennings, FICO’s chief analytics officer. “FICO has developed a patented approach that allows banks to understand how different economic scenarios are likely to impact consumer credit portfolios in the future, adding a forward-looking element to capital and risk management decisions.”
FICO(®) Score Economic Calibration Service supports a bank’s efforts in making strategic capital planning decisions that can be implemented at both a portfolio level and individual account level by providing forward-looking odds-to-score relationships estimates based on multiple economic scenarios. FICO’s methodology incorporates regional economic indicators, provided by Moody’s Analytics, such as unemployment, GDP, interest rates and house price changes to model forecasted probabilities of default.
By incorporating Moody’s Analytics regionalized data, FICO Score Economic Calibration Service users will also have access to FICO® Score probability of defaults by industry type – auto, credit card and real estate at the national level, state level and the top 29 MSAs (metropolitan statistical area).
“By expanding beyond the 26 variables provided by the Federal Reserve, Moody’s Analytics has made projections available for more than 1,800 variables at the national and regional level, including unemployment insurance claims, consumer credit debt outstanding, auto sales volumes, oil prices, used car prices, ABA/MBA delinquency rates and personal savings rates,” said Mark Zandi, chief economist of Moody’s Analytics. “The sub-national data that Moody’s Analytics provides allows for more accurate modeling and forecasting that can capture the regional nuances of an individual lender’s portfolio.”
Based on past economic and consumer payment dynamics, FICO derives an empirical relationship between the default rates observed at different score ranges and historical changes in economic conditions, to project an expected odds-to-score outcome under those economic conditions. This sensitivity to economic risk drivers can support a lender in its benchmarking of internal models or incorporating forward-looking FICO® Scores into internal models.
“Banks are looking for a trusted and reliable measure of loss probabilities so they can submit compliant capital plans and conduct ongoing stress testing,” Jennings said. “FICO Score Economic Calibration Service is their answer.”
FICO® Score Economic Calibration Service will be available through Moody’s Analytics Data Buffet.
For more information about Moody’s Analytics expanded and regionalized CCAR forecast scenarios, visit www.economy.com/ccar.
FICO (NYSE: FICO) is a leading analytics software company, helping businesses in 80+ countries make better decisions that drive higher levels of growth, profitability and customer satisfaction. The company’s groundbreaking use of Big Data and mathematical algorithms to predict consumer behavior has transformed entire industries. FICO provides analytics software and tools used across multiple industries to manage risk, fight fraud, build more profitable customer relationships, optimize operations and meet strict government regulations. Many of our products reach industry-wide adoption — such as the FICO(®) Score, the standard measure of consumer credit risk in the United States. FICO solutions leverage open-source standards and cloud computing to maximize flexibility, speed deployment and reduce costs. The company also helps millions of people manage their personal credit health. FICO: Make every decision count((TM)). Learn more at www.fico.com.
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