Fitch Study Discounts Value of Credit Scoring as Mortgage Analysis Tool

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Credit scoring as it applies to mortgage analysis is still in its early stages, and its importance should be carefully weighed, according to a research report from Fitch Investors Services. The report, due out next week, is designed to address the interests of investors in mortgage-backed securities.

"Investors are concerned and curious about credit scoring" as it applies to mortgages, explained Kevin P. Duignan, director of Fitch's residential mortgage group. "It's a very important tool that has a lot of potential for the mortgage marketplace, but it's still fairly early in terms of the sophistication of models." Statistical information on mortgage credit scoring is not mature enough to allow loans to be automatically approved based only on their scores, the report says. Underwriters must still be involved in the approval process for Fitch to purchase a loan.

Scoring systems used to evaluate conventional mortgage performance must be analyzed carefully to determine their reliability, the report states.

Origination scores, or credit scores that take into account many factors, are better predictors of mortgage performance than straight credit scores (credit bureau reports), the Fitch study says.

Several mortgage issuers, including GE Capital Mortgage Services, Residential Funding Corp. …