Borrower credit score has long been recognized as a leading indicator of future mortgage loan delinquency used for qualification and pricing in both agency and non-agency mortgage lending. While credit scores used during loan origination may incorporate a broad picture of a borrower’s credit profile at a point in time, investor access to credit information after origination is typically limited to subject mortgage payment history. By regularly updating the credit scores in their CRT data releases, the GSEs have leveled the playing field for all investors and have provided market participants the opportunity to better understand the credit profiles of the borrowers beyond subject mortgage paystrings. KBRA expects that the updated credit score information will be helpful in understanding future mortgage behavior as well as CRT performance. Some noteworthy observations are as follows:
- Updated credit scores since issuance have generally shown positive trends coinciding with the high percentage of always current mortgage loans in CRT reference pools. KBRA finds that credit scores updated recently after origination can be used to control for potential negative credit implications to borrowers for securing the subject mortgage.
- Credit scores declined, on average, by 10 points for borrowers who missed a single mortgage payment on the subject mortgage. However, many borrower scores remained the same or improved, which might indicate a level of underreporting of 30-day delinquencies, suggesting that the new information may be better used as a complement to traditional paystrings, among other collateral performance metrics.
- Significant drops in updated credit score tend to precede the occurrence of 60-day delinquencies even among borrowers who were always current on the subject mortgage. Approximately half of 60-day delinquencies which were always current prior to such delinquency experienced a credit score decline of 50 points or more.
- KBRA finds that 60-day delinquency rates are higher for loans where a borrower’s credit score drops to a lower score than for borrowers who have maintained a steady credit score at the same level.
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