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The Mortgage Crisis: How Are Credit-Risk Managers Responding?

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The number of defaults, loan workouts and loan modifications are now among the most tracked and politically charged mortgage metrics. Although the potential benefits of loan modifications are well known, the ultimate loan performance results will not be known for some time. This article presents selected results from the FICO/TowerGroup Mortgage Credit Risk Management 2009 Survey, commissioned by FICO and completed in September 2009 by TowerGroup. The survey results show two broad categories of response by financial services institutions to mortgage credit-risk issues: allocation of human resources and allocation of resources for technology. Interestingly, 45% of respondents classed among the top 25 servicers have made significant IT budget increases, but only 7% of other servicers have done so. Early identification of borrowers at risk has become a best practice to manage the higher default levels driven by rising unemployment, declining home prices and the large number of adjustable-rate mortgages resetting at much higher monthly payment levels.

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