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1 Credit Underwriting and Default ManagementCredit Underwriting and Default Management
Credit Underwriting and Default Management in Today’s
Cosigner FICOFMD Score Version 1FMD Score Version 2 (Extant)
To Remove 75% of Defaults• Eliminate worst 55% using FICO• Eliminate worst 35% using FMD1• Eliminate worst 26% using FMD2
• Worst 15% assigned by FMD Score Version 2 (Extant) captures 58% of defaults• Worst 15% assigned by FMD Score Version 1 captures 50% of defaults• Worst 15% assigned by FICO Score captures 35% of defaults
11 Credit Underwriting and Default ManagementCredit Underwriting and Default Management
Agency Management
12 Credit Underwriting and Default ManagementCredit Underwriting and Default Management12 12
Aggressive Agency Management Approach
Define Strategy
Develop Network
Manage
Define the agency type (experience, client base, management, etc) Performance drives future volume placements Incentive plan must be meaningful to agency to align performance
Optimizing number of agencies per segment to foster competition Continuous refresh of agencies based on results Robust bullpen for quick change-out for performance or client need
Goals and volume forecasts clearly communicated Monitoring in place for outcomes; activity monitoring progressing Mutual transparency into operations Deep dives on root causes of performance gaps Volume shift algorithms for Recovery agencies Agencies now know they are being watched
Credit Underwriting and Default Management
Data & Analytics
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Data and Analytics
NOT one-size-fits-all Collectability scorecard
• Origination, monthly performance, refreshed credit bureau data
• Probability of a delinquent loan curing
Strategies driven by data
• When to place a file vs. leaving it with servicer
• Which collection agency to place with
• How long to leave loan at a given collection agency
• Which strategies (FB, MGRS, etc) available per customer
• Test-and-learn approach
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Data and Analytics
Agency level
• Daily, weekly, monthly
• Performance by batch, by risk segment, by placement stream/strategy
• Transparent view of competition
Agent level
• Daily, weekly, monthly
• Keep track of what happens to top performers
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Data and Analytics
Data Dialer data
• Daily details of every call
Skip-tracing
• Refreshed credit bureau data
• Phone, cell phone data
• USPS (and others) data to track relocations
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Data and Analytics: Example Agent level reporting
Prevent best performer migration
Plans for lower performers
Resulted in 3 better supervisors transferred in
They know we are watching
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Data and Analytics: Example Test-and-Learn
Mailing Strategy Test
Timing of communications strategy
Borrower vs. Cosigner Delivery / Channel
options Agency integration /
talking points
No Cosigner With Cosigner
Credit Underwriting and Default Management
Student Loan Idiosyncrasies
Credit Underwriting and Default Management2020
Student Loan Idiosyncrasies
Deferment does not build a habit of making payments Credit policy should encourage cash-flowing loans
Early Awareness Program
• Reach out to both student and cosigner before repayment
• Email, phone, mail package
Most loans need a cosigner—utilize this early and often Contact cosigner at any sign of trouble
Include cosigner in all communications
Require cosigner participation in FB or similar decisions
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Student Loan Idiosyncrasies: Example Deferment
Credit Underwriting and Default Management
Results: A Case Study
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Case Study: FMD reduced delinquencies and defaults for one major bank’s PSL portfolio by 50%
After taking over, delinquencies immediately improved. Within 6 months, annualized monthly charge-off rates were cut in half.