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Appraiser's Perspective: Sharpening your tools for the recovery
TransUnion delivers solution mitigating authorized user abuse: Solution targets abuse, identifies legitimate useMortgagePress.comCredit reporting,authorized users
TransUnion, working with six of the top 10 mortgage lending
institutions, has developed a customized approach that enables
lenders to identify consumers who may have added authorized user
accounts to artificially inflate their credit report and standing.
This tailored, analytic approach was applied to nearly 2 million
approved mortgage applicants in which TransUnion examined the
extent authorized user accounts were being used to potentially
boost credit scores. Taking a look at mortgage approvals during a
three-month period (July-September 2006), TransUnion recognized
that approximately 50 percent of this loan pool was potentially
impacted by this practice.
Based upon this analysis, TransUnion developed a set of highly
predictive credit characteristics. Through a combination of these
credit characteristics, TransUnion can help lenders identify
consumers who may have significantly improved their credit profile
by adding authorized user accounts to their credit file.
TransUnion's solution can immediately assist lenders in improving
their assessment of credit applicants and collection practices on
recently approved loans.
By strategically deploying a combination of authorized user and
non-authorized user credit characteristics, TransUnion offers a
tailored solution that will notify financial institutions of
potential artificial score inflation. The solution is customized
according to a lender's specific credit criteria and risk
threshold, and is available online or in batch delivery.
Once these questionable authorized user trade lines have been
identified by the customer, TransUnion's real estate division can
initiate modifications to the TransUnion credit file that allows
customers to obtain a re-scored TransUnion credit report absent the
authorized user trades. Add to that TransUnion's ability to monitor
and trend market activity as it relates to this abusive practice,
and the benefits of the solution to price mortgage loans based on
real risk versus an inflated value becomes even more appealing.
"The practice of artificially boosting one's credit score is not
just limited to the mortgage industry, and the practice is not
going to go away for quite some time," said Dina Anderson, senior
director, Analytic and Decisioning Services. "The key is to help
the industry and our customers determine the difference between a
legitimate use of an authorized user trade line and provide a
meaningful risk assessment when the practice is being abused."
TransUnion's analysis concluded that the vast majority of the newly
approved mortgages were legitimate users of authorized trade
lines.
However, by using a newly created set of credit characteristics
focused on this industry-wide issue with an advanced analytic
platform, TransUnion was able to identify small, manageable pockets
of consumers that were up to 70 times more likely to exhibit
suspicious authorized user account patterns. These high-risk
consumers demonstrated a significant, recent change in their credit
profile and subsequent credit score by adding authorized user
accounts to their respective credit history.
In addition to its tailored approach, all of the TransUnion
developed risk models, including VantageScore, the newest industry
scoring model, do not take into account authorized user trade lines
when calculating a risk score.
"As the market adapts over the next several years in terms of
the way it manages the risk of the authorized user practice,
VantageScore and TransUnion's custom authorized user solution
provides lenders with an immediately available solution to more
accurately assess the credit risk of a consumer with authorized
user accounts," said Anderson.
For more information, visit www.transunion.com.
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