VantageScore Solutions has stated that 46 investors, who run the gamut, are now using its consumer credit score model in their risk and pricing models.
These buysiders are taking advantage of the recent ability to track loan-level data to gauge risk in RMBS on an ongoing basis.
The scoring company made this announcement at the American Securitization Forum’s ASF 2012 conference being held this week in Las Vegas.
The recent adaptation of VantageScore's scoring model in investors' valuation models was spurred by the ability of companies like Equifax and TransUnion to make loan-level data anonymous so that borrowers underlying RMBS deals can get scored and their performance closely monitored.
"Investors can now understand the underlying collateral and monitor how a security performs over time," said Barrett Burns, CEO of VantageScore. "They can now at loan level and almost in real time examine borrower behavior by closely monitoring these scores. This way there are no surprises similar to the rapid downgrades that happened in the past. "
Burns explained that investors might want to analyze whether they would want to hold on or sell a security by looking at whether the collateral is improving or deteriorating.
For instance, he said that two borrowers might have the same VantageScore of 850 and both might be current on their mortgage. However, one of these homeowners might be slipping in terms of paying other debt. "Investors can now decipher those two loans without tracing those to a specific person," he explained. "There can now be less dependence on rating agencies."
The use of VantageScore in these types of analysis has gained traction through specific adoptions by investors over the past year, Burns said.
The company has also highlighted the migration trend or shift of risk that investors need to understand. "The message is that leveraging VantageScore models within these solutions makes the migration or shift of risk that investors need to understand more nuanced," Burns said.
In a recent study, VantageScore found that although there was scores have migrated, credit quality is starting to improve. For instance, the firm's study showed that over a third of consumers who were super prime in 2007 are currently prime or lower, although the number of consumers declining is slipping off.
But, the credit quality of borrowers, on the other hand, is improving as demonstrated by the fact that the probability of default for consumers with a score of 700 continues to get better.
"There is a bifurcation going on," Burns said. "We are seeing some improvement for those borrowers who can improve their financing. But there are those who are running out of steam because of the prolonged recession."
