Magazine article American Banker

Scoring, Underwriting Software Being Linked to Spur Securitization

Magazine article American Banker

Scoring, Underwriting Software Being Linked to Spur Securitization

Article excerpt

Credit-scoring pioneer Fair, Isaac & Co. is lending a hand to Lori Mae, a company that plans to securitize small business loans.

Fair, Isaac is linking its credit scoring system to loan underwriting software developed by Portland, Ore.-based CFI Proservices, co-owner of Lori Mae.

The Fair, Isaac credit scoring system gives investors a way to gauge the risk in a pool of loans, and CFI's underwriting software ensures that the loans are made in a uniform way.

"The more homogeneous you can make a pool of loans, the more attractive it is to the market," said Latimer Asch, vice president of commercial products for Fair, Isaac. "This is a giant leap."

Lori Mae-formally the Loan Origination Management and Exchange Corp.-is one of several companies trying to expand the nascent market for securities backed by small-business loans.

The Portland, Ore.-based company, also owned by TIS Financial Services, a San Francisco company that securitizes mortgages and other loans, is targeting loans made by community banks.

Thomas A. Sidley, chief operating officer for Lori Mae, said the company is working with 15 banks to develop standardized pools of loans. By the end of 1998, the company plans to securitize a $75 million pool of credit lines and a $75 million pool of term loans.

The agreement with Fair, Isaac will let bankers use the credit-scoring system simultaneously with the underwriting software. Right now bankers have to enter a borrower's financial information twice to use both programs.

Participating banks could buy both packages at the same time. About 250 banks now use Fair, Isaac's credit scoring system, though only 20 use the latest version of CFI's underwriting software, introduced in August.

Fair, Isaac is not limiting its securitization efforts to Lori Mae. Mr. Asch said the company wants to join other projects to expand the market and ensure that its credit scoring system is used to gauge the risk in loan pools. …

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