Generation after generation has believed that homeownership is a core requirement to accumulating wealth, is integral to the fabric of the American way of life, and perhaps even our saving grace. In Thomas Sugruea’s August 14th piece for the Wall Street Journal entitled “
The New American Dream: Renting,” we learn that “for millions of Americans at risk of foreclosure, the home has become something else altogether:
the source of panic and despair.”
I recall the days I worked at Fair Isaac and Co., where I developed scorecards for installment and revolving credit products. Back then, and over the years,
renters always got fewer points than those who owned their residence or were buying. Interesting. I often wondered why it was fair, and unquestioned, that credit scoring penalized credit applicants just because of their
choice of lifestyle.
I grew up in rental housing – my parents always rented homes and apartments. My Dad always said “If something breaks or wears out (like the garbage disposal, furnace, air conditioner, a leak in the roof, etc.), then it is somebody else’s headache,” and he was compulsive about his financial affairs – very insurance-minded and he never paid a bill late in fifty years! According to the credit models, my Dad was higher risk because he rented!
That just doesn’t make sense, but that is not the only characteristic in credit models today that doesn’t make sense! I testified last year about “proxies for common sense” during a Congressional Hearing on what consumers should know about their credit score. I have been told by credit scorecard developers that the characteristic “Own/Rent” is a proxy for wealth and stability. Instead of scoring consumers on proxies for their stability, capital and capacity, why not categorize them based on the facts?
That is what the
Comprehensive Credit Assessment Framework (
CCAF) is about. Please be on the lookout for the next post, where Sunny Zhang will highlight the advantages of CCAF over today’s typical credit scoring-based underwriting systems.
Clark Abrahams is Chief Financial Architect at SAS where he leads business and product development. He has over 30 years of experience in the financial services industry. Along with co-author Mingyuan Zhang, Clark has written two books that re-think credit risk management and granting access to credit: 
