Sunday, April 29, 2007

Opinions differ on effectiveness of FICO score, Posted by Robert Paisola

Opinions differ on effectiveness of FICO score

Fair Isaac says its FICO score works just fine. But rising defaults have prompted some to question whether the system has flaws.

By Thomas Lee, Star Tribune

Don't blame the messenger.

That might not be anyone's idea of a great corporate slogan, but executives at Fair Isaac Corp. are finding themselves playing defense this year about the company's most vaunted product.
As subprime mortgage defaults continue to rise, some lenders are questioning the value of Fair Isaac's FICO score, which measures a consumer's ability to pay back a loan.

"FICO scores were one of the best predictors of early defaults," said Glenn Costello, an analyst with Fitch Ratings, a credit-rating agency based in New York. "Today, that is not true."

In December, a top executive with HSBC Finance, a major subprime lender, told investors that FICO scores were "less effective or ineffective" in predicting behavior during a period of aggressive lending and low interest rates.

Defenders of the FICO score say the product works just fine. They say overaggressive lenders, hungry for profits, are more to blame for the increasing number of defaults among homeowners, because they loosened underwriting standards to take in more marginal borrowers and also sold riskier products such as adjustable-rate mortgages.

"We're confident that FICO does what it is supposed to do," said Ron Totaro, vice president of global scoring solutions for Minneapolis-based Fair Isaac. "Lenders develop their lending strategies, and they use as little or as much information as they want."

Totaro said there is "no evidence" that FICO scores are not effective when applied to borrowers who fit in the riskier subprime portion of the market.

Any perception that FICO is faulty could have serious consequences for Fair Isaac. FICO is both the company's best-known product and the most popular credit-scoring system in the United States. Last year, FICO scores generated $177.1 million in sales, about 21 percent of Fair Isaac's total revenue.

What's worse, the company has already been struggling to boost its sales. Last week Fair Isaac said second-quarter revenue fell 3.4 percent to $201 million.

FICO also faces a challenge from VantageScore, a new credit-scoring system developed and marketed by Experian, TransUnion and Equifax, the country's three top credit-reporting agencies. Fair Isaac is suing the agencies, claiming VantageScore violates antitrust laws. By jointly offering VantageScore, the agencies are in the position to shut out FICO and other competitors from the credit-scoring market, according to papers filed in U.S. District Court in Minneapolis.

VantageScore executives see the subprime fallout as an excellent chance to promote their product.

"Absolutely, it helps us," said Barrett Burns, VantageScore's chief executive. "It offers us a great opportunity for lenders to look at VantageScore. Since our score is more accurate and predictive, there would have been improvement" in mortgage defaults had the industry used VantageScore instead of FICO, he said.

A recent Fitch Ratings report seems to lend some support to Fair Isaac in the debate. Some of the industry's riskiest subprime products -- high loan-to-value mortgages, piggyback loans and others that required little or no documentation of income -- made the FICO score "less significant relative to other attributes as an early default indicator," Fitch said.

In 2003, loans that defaulted within 12 months of issuance had FICO scores that were 30 points less than loans that did not default. Last year that difference shrank to 10 points, according to Fitch.

Others say the troubles among subprime loans simply show the limitations of credit scores. Loan officers can't look to FICO scores when trying to weigh how changes in interest rates, the type of loan or sudden events could affect a borrower's ability to pay, said John Ulzheimer, president of Educational Services, a San Francisco-based financial services company.
"The score is the score," said Ulzheimer, a former Fair Isaac manager who helped build credit-scoring models. "It doesn't take into account external factors."
For instance, Hurricane Katrina's devastation could have turned healthy FICO scores of 750 among Gulf Coast residents into 450s in a relatively short period of time, in which case "the credit scores looked like they had failed," Ulzheimer said.

Still, credit-scoring companies must do a better job in establishing consistent scores for borrowers with patchy credit, said Craig Focardi, an analyst with TowerGroup, a research and consulting firm in Needham, Mass. Credit scores below 640 fluctuate more often than scores of 700 or better, he said. Companies such as Fair Isaac also should develop credit scores that take into account additional categories of risk instead of "lumping customers into similar brackets," he said.

Fair Isaac sells a product called NextGen FICO that Focardi says better measures the credit risks posed by subprime borrowers, but mortgage lenders have been reluctant to adopt it because it costs more than a standard score. VantageScore could inject some needed competition into the business, Focardi said.

"The mortgage industry needs to reevaluate whether one score is good for all customer segments," he said.

Totaro of Fair Isaac said the company constantly updates and refines FICO scores. Asked if some subprime lenders are unhappy with the service, Totaro replied: "We have talked to numerous clients. We will work with them to show them how the FICO scores work."

Ulzheimer said lenders never liked FICO scores, especially when a low score disqualified a potential borrower from getting a loan. Most lending operations are set up so that fees are generated by granting loans, not turning people away. But in the recent housing boom, lenders just got too greedy and sold unsuitable products to consumers, he said.

"You do your best to explain how the model is built and what it can do," Ulzheimer said. "But some lenders are going to do whatever they want to do. You never hear from lenders when things are going well. But the minute the FICO score doesn't do what they want it to do, it's amazing how loud they scream."

Thomas Lee • 612-673-7744 •

©2007 Star Tribune. All rights reserved.

Sunday, April 08, 2007

Robert Paisola, CEO of Western Capital, Announces 2007-2008 Price Schedule

Due to the Recent Media Attention, we have been receiving a large number of calls regarding how much it would cost to have Robert Paisola speak at events throughout the world. Here is a simple price sheet. Prices are subject to change based on topics covered, Profit or Non-Profit and General Attitude of the Requestor.

See for an Introduction based on the Hit Movie "THE SECRET"

2007-2008 Fee Schedules

Email : for the next Available Date!




NORTH AMERICA (Includes Canada and Mexico)

Keynotes and Seminars (up to 3 hours) $6.995,000

Full Day Seminars (up to 6 hours) $8,995.00


Keynotes and Full Day Seminars $15,500 USD


We offer a 50% discount for additional programs booked for the same day at the same conference. For example, the first program is contracted at full price and every additional program is contracted at half price. We offer a 25% discount for additional programs booked by the same client/sponsor. For example, the first program is contracted at full price and every additional program is contracted with our 25% multiple booking discount. NOTE: This discount is applicable only if the contracts are issued simultaneously.


In order to create excitement and awareness of Mr. Paisola’s appearance at your event, he is happy to fulfill media requests when his schedule allows. Pre-recorded interviews are preferred over live interviews.


Travel expenses are in addition to the speaking fee. Travel expenses include first-class airfare, up to 2 night’s hotel accommodations (Before and After the event) (king, non-smoking, guaranteed late arrival), meals and ground transportation in host city. A $75 per diem is also charged to cover ground transportation in home town, tips, and meals while traveling. To reduce Mr. Paisola’s out of pocket expenses, we request that hotel room charges be billed directly to the organization’s master account. When Mr. Paisola’s schedule includes more than one program on the same tour, airfare expenses are prorated.


If you have specific dates in mind for your meeting, we're more than happy to hold a date for you. This hold can be placed on our calendar for up to 30 days. If another client requests the dates you are holding, you will be notified by phone and given 48 hours to make your decision either to go to contract or release the dates. To secure the date, a program agreement will be issued. This agreement is to be executed and returned within two weeks and requires a 50% deposit. The remaining 50% balance is due two weeks prior to the appearance.


If you wish to video or audio tape Mr. Paisola’s presentation, you must sign a release. There are two forms; one is if you wish to use the recording for archival purposes only. The other is for those who wish to make the recording available to attendees or later for a period of time (either video or audio.) In either case, the releases must be signed, returned and approved by Robert Paisola

What Clients Are Saying About Robert’s Presentations:

"The best four days I have spent in my life!"
Bill Howell, President, Destination San Antonio

"This was by far the best class that I have ever attended.
You covered so much valuable information; I want to get back to my queue NOW!"
Donna Walker, Associates Capital

“Wow! So well organized! Awesome Personal Touch,
Great information presented in easy to understand language.”
Sandy Anderson, ExTerra Credit Recovery

“Well presented, clear, concise. Excellent pacing and delivery. Powerfully packed with quality information. A fantastic seminar minutes that will make me thousands of dollars in commissions!
Russell Stone, American Premier Holdings

Robert is teacher that knows his stuff and, more importantly, he presents it in a way that makes even my seasoned collectors collect more cash!”
Jennifer Barnett, DSH Financial Services

"Robert Paisola is incredible, My staff increased gross collections 130% after his trainings"
Gary Lee Gammenthaler, CEO, Mountain States Financial


CALL NOW to receive Rob’s topic outlines, fee schedule, availability or to schedule a training.




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*Discounts May Be Available based on Location