February 2008
With fallout from the 2007 mortgage market problems lingering into 2008, lenders and regulators are continuing to review and consider better ways to assess credit risk. A pair of authors from SAS, the leader in business intelligence, has developed an approach that can help deal with the current crisis and could – if embraced by lenders – lessen the extent of, or possibly even prevent, the next one.
Fair Lending Compliance: Intelligence and Implications for Credit Risk Management , the latest book in the Wiley and SAS Business Series, was written by Clark Abrahams, a 30-year banking veteran, and Mingyuan Zhang, one of SAS’ top solution consultants. It introduces new ways of thinking about managing credit risk and credit access that are supported by sound and powerful analytical methods, the hallmark of all SAS® solutions.
“The bad news: Lenders have tightened their standards in response to a rising tide of subprime mortgage problems that have been widely felt in the financial markets around the world. The ultimate fallout is still unclear,” said Abrahams, Chief Financial Architect at SAS. “In times like these, we have an unprecedented opportunity to rethink the way we lend money. Modifying the lending process may pay huge dividends for lenders, consumers, regulators and our overall economy.”
Fair Lending Compliance outlines how to create an effective regulatory compliance program and related risk measurement systems. The book also is the basis for SAS’ soon-to-be patented Comprehensive Credit Assessment Framework (CCAF), which marries common business sense and state-of-the-art predictive analytics to better evaluate credit risk.
CCAF could lead to greater access to loans for qualified borrowers by qualifying people with no, or minimal, credit histories by analyzing data from routine transactions, such as rent and phone bills. Improved risk evaluation may provide consumers with lower interest rates and better match consumers with appropriate products.
CCAF could benefit lenders by decreasing risk and exposure to credit loss, while providing greater transparency and expanded access to atypical markets. CCAF allows lenders to better know their customers’ borrowing strengths and weaknesses. It also affords customers the ability to understand more fully how they are qualified for a loan.
In addition, CCAF could allow regulators to conduct a more efficient, effective examination process with greater transparency. A decrease in the number of complaints will ease regulators’ workloads and allow them to focus on more fact-based information in the credit assessment process.
“With the Comprehensive Credit Assessment Framework, lenders can develop a plan, a strategy and more options for improving their lending practices,” Abrahams said.
“If CCAF gains traction with lenders and regulators, we believe it will help deliver greater access to financing for creditworthy borrowers.”
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