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Interest-only loans

National Mortgage Professional
Jun 26, 2008

Scores, scores! Everywhere there are scoresTerry W. Clemanscredit scores, mortgage lending, healthcare credit score The familiar credit scores are everywhere; however, different types of credit scores are also everywhere. While the mortgage industry has some "recommended" types of scores, various lenders are still open to choose from a large selection of models that have been created since scores started being used in mortgage lending in the early 1990s. Other lending industries have their own specialty credit scores to predict the potential for repayment or default. Bankruptcy prediction scores, auto loan scores, insurance risk scores and even healthcare credit scores can create some very confused consumers. The latest trend in scoring that has been getting some attention is the healthcare credit score. While healthcare credit scores have been around for some time, they will be getting even more popular in the future with the recent founding of Healthcare Analytics Inc. (HAI) by some senior healthcare executives. HAI is funded with $10 million each from Fair Isaac Corporation, Tenet Healthcare Corporation and North Bridge Venture Partners to develop a new scoring model initially being called MediFICO. HAI has been created to address the unique challenges of self-pay revenue for healthcare providers. By collaborating with leading health systems and accessing Fair Isaac Corporation's proven world-class technology and expertise in predictive analytics, HAI plans to deliver a Web-based solution that will help hospitals manage the increasing number of uninsured patients and patients with balances after insurance liability. In 2006, these uncollected funds cost hospitals in the U.S. more than $31.2 billion in "uncompensated care," which is mostly either charity care or unpaid patient bills, according to the American Hospital Association. The use of credit information or scores in healthcare is not new, Equifax and TransUnion both have a division that provides credit reporting related solutions to the healthcare industry. Additionally, founded in 1994, Search America in Maple Grove, Minn. has helped more than 900 hospitals integrate credit reporting and scoring systems into their accounts receivables and collections departments. They have nine out of every 10 hospitals in America as clients. All of this attention to the credit reporting industry by healthcare providers is troublesome to many consumer protection groups. Concerns about the ability to obtain healthcare for those without insurance or only partial insurance has been the topic of many discussions and Capitol Hill hearings. The addition of another product like credit scores, also hotly debated among consumer protection circles, creates a threat that will have many people watching as HAI brings its new product to market later this year. Why all this about a healthcare score in a mortgage industry paper? It is to remind loan officers and lenders of all the specific scores out there that consumers come into contact with, and to make sure that when dealing with your customers, they understand that there are many different scores. If a consumer wants to talk about his score, be specific and remind him that this is only being used for the mortgage loan process. This is not likely going to be the same score he obtains from an auto loan or an Internet offer. In just the past couple of years, the following scores have all been used in the mortgage industry: Beacon, Beacon 96, Enhanced Beacon, Beacon 5.0, Experian FICO Risk Model, Experian FICO Version 2, Experian FICO Version 2 Advanced, Empirica, Empirica 95, Empirica 98 and Empirica Classic 04. Most of these scores are still in use today. This is because it is up to the lender, for the most part, to pick what version of the score they want, with only the very oldest models not acceptable by Fannie Mae and Freddie Mac. Let us not forget the Next Generation scores created by Fair Isaac Corporation that were never approved for mortgage lending, or the newest versions of FICO scores that are currently tied up in the legal battle over the national credit repository-owned VantageScore. If you're not totally confused yet, let's try one more time. In addition to all of this, there are even more credit scores. There are also the "fako" scores, as some call them, which are private label scores created to simulate the results of a version of the FICO score. The bottom line is, when talking credit scores, be specific and don't compare apples to oranges. Terry W. Clemans is the executive director of the National Credit Reporting Association Inc. (NCRA). He may be reached at (630) 539-1525 or e-mail [email protected].
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