Spotlight on Financial Services

"...overall, the second phase indicates that credit scoring significantly improves pricing accuracy when combined with other rating variables in predicting risk."


Michael E. Staten

MARCH 2005

New Prepayment Penalty Studies Are Misleading

Two recent empirical studies from the North Carolina-based Center For Responsible Lending claim to show that subprime mortgage borrowers in minority neighborhoods receive loans with prepayment penalties significantly more often than do borrowers in other neighborhoods, and that borrowers in general, including minorities, receive no compensating benefit for agreeing to a prepayment penalty clause.

2004 Marks Decline in
Non-Business Bankruptcy Filing Rate

According to data just released by the Administrative Office of the U.S. Courts, personal bankruptcy filings for the twelve-month period ending December 31, 2004 numbered 1,563,145. This figure represents a 3.8 percent decline in filings when compared to totals for calendar year 2003.

Subprime Lending Sets New Record in 2004

Subprime mortgage loan originations last year proved immune to the slump imposed on the conventional market by rising interest rates.

New Home Sales Set Fourth Straight
Annual Record in 2004

Statistics from the U.S. Commerce Department confirmed that sales of both new and existing homes set all-time records for the fourth straight year in 2004.

Credit Repair Software

A new product from CreditXpert Inc. (Towson, MD) will assist lenders in resolving certain kinds of inconsistencies and inaccuracies in consumer credit reports that may otherwise prevent customers from getting approvals for loans, or loans at lower interest rates.

Wells Fargo Offers Spending Tracker Software

Wells Fargo is rolling out a new personal financial planning service to its online banking customers. The free service will allow consumers to track their monthly spending by compiling and categorizing purchases made with checks, credit and debit cards or online ecommerce transactions.

New Prepayment Penalty Studies Are Misleading

Two recent empirical studies from the North Carolina-based Center for Responsible Lending claim to show that subprime mortgage borrowers in minority neighborhoods receive loans with prepayment penalties significantly more often than do borrowers in other neighborhoods, and that borrowers in general, including minorities, receive no compensating benefit for agreeing to a prepayment penalty clause.

Consumer Debt in the UK

As outlined in the December 2004 issue of Spotlight, the Consumer Credit Bill 2004 was introduced in the House of Commons last December in order to reform the Consumer Credit Act 1974 "to protect consumers and create a fairer and more competitive credit market."

State of Texas Finds Credit Scoring
Useful in Pricing Insurance

In January, the Texas Department of Insurance (Department) completed the second part of a report on the use of credit scoring in determining rates by Texas insurers. The report was mandated under the Texas Insurance Code.

Federal Reserve Board Studies Measure
Impact of Credit Report Problems

The Federal Trade Commission was tasked by the 2003 Fair and Accurate Credit Transaction Act to develop and conduct a nationally representative study of credit report quality. The agency is developing a plan to do so. Meanwhile, the policy debate continues to swirl over the causes and consequences of ID theft and the fairness of mortgage and insurance pricing based on credit report data.

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