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Confidential. The material in this presentation is the property of Fair Isaac Corporation, is provided for the recipient only, and shall not be used, reproduced, or disclosed without Fair Isaac Corporation's express consent.© 2009 Fair Isaac Corporation. 1
FICO® Score TrendsInsights into Changing Credit Behaviors
Rachel BellDirector, Analytic ScienceFICO
Joanne GaskinDirector, Global ScoringFICO
May 6, 2009
© 2009 Fair Isaac Corporation. Confidential.2 © 2009 Fair Isaac Corporation. Confidential.2
Agenda» Overview of Market Trends
» Industry » Federal District» New Accounts
» FICO® Score Trends» Existing Accounts» Score Distributions» Newly Booked Accounts
» Analysis to Action Plan
» FICO® Score Trends Demonstration
© 2009 Fair Isaac Corporation. Confidential.3
Current Market Challenges
» Rapidly changing trends due to economic instability pose unknown risk in portfolios
» Specific geo markets more deeply effected than others, but difficult to quantify
» Lack of new loan originations puts additional pressure to properly mitigate risk in portfolios
» Need to recognize shifting market trends rapidly for different lending lines to drive overall business strategies
» Forecasting becomes inaccurate without updated input on changing trends
© 2009 Fair Isaac Corporation. Confidential.4
Delinquency Rates Continue to Grow Residential Loans Delinquency Rates Have Risen Above Consumer Loans
1
2
3
4
5
6
7
8
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Consumer Loans Residential Loans Credit Card Loans
US Top 100 Lenders (2002–2008)Percentage of Loans Delinquent 30+ Days
Note: Residential real estate loans include loans secured by one- to four-family properties, including home equity lines of credit.200720052002 20042003
Source: Federal Reserve, Delinquency Rates; 100 Largest Banks, NSA
2006 2008
© 2009 Fair Isaac Corporation. Confidential.5
Overall Population Risk Increasing Dramatically
5.3 (55.4%)
3.4(27.3%)
2.7Real Estate Loans Only
90+ Delinquency Rate (% increase Y/Y)
9.3(11.0%)
8.4(7.9%)
7.8Bankcards Only
5.4(17.2%)
4.6(9.7%)
4.2Auto Loans Only
13.2 (12.7%)
11.7 (3.3%)
11.3All Accounts‘07-’08‘06-’07‘05-’06Population Segment
12-Month Performance on Existing Accounts
Performance measured over 12-month window from Nov through October for each period (e.g., Nov 2005-October 2006)
© 2009 Fair Isaac Corporation. Confidential.6
Key Federal Reserve Districts Significantly Impacted
16.6(5.0%)
15.8(-4.0%)
16.5FRD 11 - Dallas
13.1 (25.0%)
10.5(6.9%)
9.8FRD 12 - San Francisco
13.2 (12.7%)
11.7 (3.3%)
11.3All Accounts
90+ Delinquency Rate (% increase Y/Y)
16.5 (17.8%)
14.0 (4.2%)
13.5FRD 6 - Atlanta
‘07-’08‘06-’07‘05-’06Population Segment
12-Month Performance on Existing Accounts
Performance measured over 12-month window from Nov through October for each period (e.g., Nov 2005-October 2006)
© 2009 Fair Isaac Corporation. Confidential.7
Decline in Rate of New Account Opening
1.7%(-30.5%)
2.4%(-6.6%)
2.6%Real Estate Loans
% Consumer Population that Opened a New Account
(% increase Y/Y)
7.2%(-7.8%)
7.9%(10.4%)
7.1%Bankcards
3.5%(--)
3.5%(--)
3.5%Auto Loans
20.4%(-11.4%)
23.1%(3.1%)
22.4%All Accounts‘07-’08‘06-’07‘05-’06Population Segment
Bankcard and Real Estate New Accounts Decline
A New Account is defined as an account (of the specified type) opened within 3 months following the observation date (e.g., Accounts opened between November 2005 and January 2006; performance measured from account opening through October 2006).
© 2009 Fair Isaac Corporation. Confidential.8 © 2009 Fair Isaac Corporation. Confidential.8
» Existing Accounts» Score Distributions» Newly Booked Accounts
FICO® Score Trends
© 2009 Fair Isaac Corporation. Confidential.9
FICO Score Odds-to-Score Relationship
FICO® Score Rank OrderingExisting Accounts – National
Application: Customer Management
0.1
1
10
100
1000
500
550
600
650
700
750
800
BEACON® 5.0
Fitte
d O
dds
All Industry Accounts October 2007 (12 months performance) National
© 2009 Fair Isaac Corporation. Confidential.10
Increase in 90+ Delinquency Rate Evident across Score Range
FICO® Score Rank OrderingComparing relationship over time
Application: Customer Management
0.1
1
10
100
1000
500
550
600
650
700
750
800
BEACON® 5.0
Fitte
d O
dds
All Industry Accounts October 2005 (12 months performance) National All Industry Accounts October 2006 (12 months performance) National All Industry Accounts October 2007 (12 months performance) National
© 2009 Fair Isaac Corporation. Confidential.11
Regional Differences in Odds to Score
FICO® Score Rank OrderingExisting Accounts - 12 Month Performance
Application: Customer Management
0.1
1
10
100
1000
500
550
600
650
700
750
800
BEACON® 5.0
Fitte
d O
dds
All Industry Accounts October 2007 (12 months performance) National All Industry Accounts October 2007 (12 months performance) Federal Reserve District 6 - Atlanta All Industry Accounts October 2007 (12 months performance) Federal Reserve District 11 - Dallas All Industry Accounts October 2007 (12 months performance) Federal Reserve District 9 - Minneapolis
© 2009 Fair Isaac Corporation. Confidential.12
San Francisco Federal Reserve District (FRD) Experiencing Highest Increases in 90+ Rates
FRD 12 (San Francisco)Existing Accounts - 12 Month Performance
Application: Customer Management
0.1
1
10
100
1000
500
550
600
650
700
750
800
BEACON® 5.0
Fitte
d O
dds
All Industry Accounts October 2005 (12 months performance) Federal Reserve District 12 - San Francisco All Industry Accounts October 2006 (12 months performance) Federal Reserve District 12 - San Francisco All Industry Accounts October 2007 (12 months performance) Federal Reserve District 12 - San Francisco
© 2009 Fair Isaac Corporation. Confidential.13
Existing Auto Loans Odds-to-Score Variance by RegionFRD New York to RichmondExisting Accounts – 12 Month Performance
Application: Customer Management
1
10
100
1000
500
550
600
650
700
750
800
BEACON® 5.0
Fitte
d O
dds
Auto Finance Loans October 2007 (12 months performance) National Auto Finance Loans October 2007 (12 months performance) Federal Reserve District 2 - New York Auto Finance Loans October 2007 (12 months performance) Federal Reserve District 5 - Richmond
© 2009 Fair Isaac Corporation. Confidential.14
Real Estate LoansSharpest Decline in Quality
Real Estate LoansExisting Accounts – 12 Month Performance
Application: Customer Management
1
10
100
1000
10000
520
570
620
670
720
770
BEACON® 5.0
Fitte
d O
dds
Real Estate Loans October 2005 (12 months performance) National Real Estate Loans October 2006 (12 months performance) National Real Estate Loans October 2007 (12 months performance) National
© 2009 Fair Isaac Corporation. Confidential.15
Real Estate LoansSharpest Decline in Quality
Real Estate Loans – Less than 1 Year Vintage (at time of scoring)12 Month Performance
Application: Customer Management
1
10
100
1000
10000
530
580
630
680
730
780
BEACON® 5.0
Fitte
d O
dds
< 1 year Real Estate Loans October 2005 (12 months performance) National< 1 year Real Estate Loans October 2006 (12 months performance) National< 1 year Real Estate Loans October 2007 (12 months performance) National
© 2009 Fair Isaac Corporation. Confidential.16
Real Estate Loans Originated prior to 2005 Holding Steadier than Later Vintages
3 to 5 year Real Estate Loan Vintage Performance holding steady from 2006 to 2008
Application: Customer Management
1
10
100
1000
10000
500
550
600
650
700
750
800
BEACON® 5.0
Fitte
d O
dds
3-<5 years Real Estate Loans October 2005 (12 months performance) National3-<5 years Real Estate Loans October 2006 (12 months performance) National3-<5 years Real Estate Loans October 2007 (12 months performance) National
© 2009 Fair Isaac Corporation. Confidential.17 © 2009 Fair Isaac Corporation. Confidential.17
» Existing Accounts» Score Distributions » Newly Booked Accounts
FICO® Score Trends
© 2009 Fair Isaac Corporation. Confidential.18
Federal Reserve District Risk Differences Evident in Score Distributions
Interval Score Distribution – October 2008Regional Differences
Cumulative Score Distribution
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
300-4
99
510-5
19
530-5
39
550-5
59
570-5
79
590-5
99
610-6
19
630-6
39
650-6
59
670-6
79
690-6
99
710-7
19
730-7
39
750-7
59
770-7
79
790-7
99
Score Range
Perc
enta
ge
All Industry Accounts October 2008 National All Industry Accounts October 2008 Federal Reserve District 6 - Atlanta All Industry Accounts October 2008 Federal Reserve District 9 - Minneapolis All Industry Accounts October 2008 Federal Reserve District 11 - Dallas
© 2009 Fair Isaac Corporation. Confidential.19
Bankcard Score Distributions Vary By State
Scores of 655 and below capture the following volumes:Georgia: 37%; Nation: 30%; Iowa: 22%
Cumulative Score Distribution
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
300-4
99
510-5
19
530-5
39
550-5
59
570-5
79
590-5
99
610-6
19
630-6
39
650-6
59
670-6
79
690-6
99
710-7
19
730-7
39
750-7
59
770-7
79
790-7
99
Score Range
Perc
enta
ge
Bank National Revolving Accounts October 2008 National Bank National Revolving Accounts October 2008 Georgia Bank National Revolving Accounts October 2008 Iowa
© 2009 Fair Isaac Corporation. Confidential.20 © 2009 Fair Isaac Corporation. Confidential.20
» Existing Accounts» Score Distributions» Newly Booked Accounts
Impact on FICO® Score Trends
© 2009 Fair Isaac Corporation. Confidential.21
Broad Industry Based New Account Performance
New Account Performance9-12 Month Performance ’05-’06, ’06-’07 vs. ’07 to ‘08
Application: Acquisitions
1
10
100
1000
500
550
600
650
700
750
800
BEACON® 5.0
Fitte
d O
dds
All Industry Accounts October 2005 (12 months performance) National All Industry Accounts October 2006 (12 months performance) National All Industry Accounts October 2007 (12 months performance) National
A New Account is defined as an account within 3 months following the observation date (e.g., Accounts opened between November 2005 and January 2006; performance measured from account opening through October 2006).
© 2009 Fair Isaac Corporation. Confidential.22
Newly Opened Bankcard AccountsLower Odds-to-Score Over 2005-2006-2007
New Account Performance – Bankcard9-12 Month Performance ’05-’06, ’06-’07 vs. ’07 to ‘08
Application: Acquisitions
1
10
100
1000
520
570
620
670
720
770
BEACON® 5.0
Fitte
d O
dds
Bank National Revolving Accounts October 2005 (12 months performance) National Bank National Revolving Accounts October 2006 (12 months performance) National Bank National Revolving Accounts October 2007 (12 months performance) National
A New Account is defined as a new bankcard account within 3 months following the observation date (e.g., Accounts opened between November 2005 and January 2006; performance measured from account opening through October 2006).
© 2009 Fair Isaac Corporation. Confidential.23
New Auto AccountsLower Odds-to-Score Over 2005-2006-2007
New Account Performance – Auto9-12 Month Performance ’05-’06, ’06-’07 vs. ’07 to ’08
Application: Acquisitions
1
10
100
1000
500
550
600
650
700
750
800
BEACON® 5.0
Fitte
d O
dds
Auto Finance Loans October 2005 (12 months performance) National Auto Finance Loans October 2006 (12 months performance) National Auto Finance Loans October 2007 (12 months performance) National
A New Account is defined as a new auto finance account within 3 months following the observation date (e.g., Accounts opened between November 2005 and January 2006; performance measured from account opening through October 2006).
© 2009 Fair Isaac Corporation. Confidential.24
Real Estate Loans
New Account Performance – Real EstatePerformance holding steady from loans opened late 2006 vs. late 2007
Application: Acquisitions
1
10
100
1000
540
590
640
690
740
790
BEACON® 5.0
Fitte
d O
dds
Real Estate Loans October 2005 (12 months performance) National Real Estate Loans October 2006 (12 months performance) National Real Estate Loans October 2007 (12 months performance) National
A New Account is defined as a new real estate account within 3 months following the observation date (e.g., Accounts opened between November 2005 and January 2006; performance measured from account opening through October 2006).
© 2009 Fair Isaac Corporation. Confidential.25 © 2009 Fair Isaac Corporation. Confidential.25
Analysis to Action Plan
© 2009 Fair Isaac Corporation. Confidential.26
Analysis to Action Plan
» Increased population risk across all industries» Most pronounced increased risk in Real Estate, but also observed in
bankcard and auto» Industry and geographic trend insights aid in portfolio review and
benchmarking activity » Monitor your portfolio performance regularly» Re-evaluate traditional assumptions about credit risk, credit product
features and default, and pricing» Re-evaluate traditional tools
» Credit scores» Automated underwriting systems» Data sources
» Assess the impact of short-term policy changes and re-calibrate customer relationships along with decisioning
» Adjust strategies based on new information
© 2009 Fair Isaac Corporation. Confidential.27 © 2009 Fair Isaac Corporation. Confidential.27
Introducing FICO® Score Trends
© 2009 Fair Isaac Corporation. Confidential.28
FICO® Score Trends
Service DescriptionFICO and Equifax have teamed to deliver a trend reporting subscription service comprising FICO® score distributions, performance and underlying market shifts in credit behaviors over time. Data is updated every six months.
Value PropositionFor the first time lenders can analyze their portfolio leveraging industry trends for FICO® Scores at a more detailed and frequent level. Based on Equifax data, these new views can drive changes in policies and strategies that lower portfolio risk and maximize business opportunities.
© 2009 Fair Isaac Corporation. Confidential.29
Solution Overview
» Help benchmark and gain insight into customer credit usage patterns and trendsCharacteristic Trends
» Provides direct benchmark comparison against internal scores and portfolio trendsData Export Capability
» Benchmark credit risk of customer population to broader market population
» Refine acquisition strategies to align risk management and expansion opportunities
Score Distributions
» Provides insight into how consumers across the score range are shifting over timeScore Movement Table
» Provide insight into odds-to-score trends by segments or by time-periodAlignment Plots
» Help benchmark portfolio performance to general industry performance
» Provide general performance expectations at given score ranges
Validation (odds) Charts
Benefit/ImpactCharts Provided
Note: Over 15,000 unique report combinations are available.
© 2009 Fair Isaac Corporation. Confidential.30 © 2009 Fair Isaac Corporation. Confidential.30
FICO® Score Trends – Product Demo
© 2009 Fair Isaac Corporation. Confidential.31 © 2009 Fair Isaac Corporation. Confidential.31
FICO® Score Trends – Uses and Benefits
© 2009 Fair Isaac Corporation. Confidential.32
FICO® Score TrendsUses and Benefits
» Identify risk trends on broad national population» Action: Modify score cutoffs in strategies » Benefit: Prevent an influx of lower credit quality customers that will
lead to higher charge off rates
» Incorporate geography into strategies & forecasting » Action: Modify marketing efforts or forecasting models by geography» Benefit: Better reflect the expected losses of your portfolio» Benefit: Better allocate resources to less risky areas
» Learn from other industries» Action: Modify score cut-offs » Benefit: Avoid increased risk fall-out from other industries
» Evaluate FICO score cutoffs for specific segments» Action: Modify score cut-off based on changes observed in risk
patterns » Benefit: Reduce exposure to riskier segments of the population
© 2009 Fair Isaac Corporation. Confidential.33
Let’s Continue the Discussion – FICO Community
» URL: decisions.fico.com
» To obtain the presentation slides
Confidential. The material in this presentation is the property of Fair Isaac Corporation, is provided for the recipient only, and shall not be used, reproduced, or disclosed without Fair Isaac Corporation's express consent.© 2009 Fair Isaac Corporation. 34
THANK YOU
For more information on FICO® Score Trends,Please email [email protected] URL:http://www.fico.com/en/Products/Scoring/Page
s/FICO-Score-Trends.aspx
Let’s continue the discussion:FICO® Scoring Communityhttp:// decisions.fico.com
May 6, 2009