Manage Your Portfolio Proactively with Credit Scores.

Mr. Maddox is vice president of national sales at TransUnion Settlement Solutions, a wholly-owned subsidiary of Chicago-based TransUnion, which provides real estate information, settlement services and process management solutions to the residential lending industry.

Before the introduction of easily available credit scoring tools, mortgage servicers spent a large amount of their time calling every account that was more than 15 days past due. It didn't matter that many of these borrowers typically paid before drifting into serious delinquency. Today, servicers use credit scoring tools to identify the accounts most likely to become 30 days or more past due. They then focus their efforts on this high-risk group, rather than wasting time pursuing mortgagors who historically pay late, but not too late. But credit-scoring tools can help servicers manage potential delinquencies, reduce customer runoff and influence prices for servicing portfolios, too.

The Next Step in Delinquency Management

Credit models actually determine the probability that a customer will go delinquent over a predetermined period. Smart servicers can use these models to establish a strategy for servicing a portfolio of loans that allocates resources more efficiently.

Servicers recognize that early contact with a borrower increases the likelihood of successfully collecting overdue payments, even preventing foreclosure. By applying credit scoring to an entire portfolio, you can organize the accounts according to each borrower's likelihood of default. Then, you can flag high-risk accounts, contacting them early in the delinquency to offer mutually beneficial solutions before initiating more formal curative actions. By using available resources to contact high-risk customers first and low-risk customers last, you can offer solutions to the customers who need them, and avoid offending your other customers.

To create this strategy, you must run the entire portfolio through a credit model to determine risk. You then can group your portfolio into different striations or bands for process management. Once you have set up these striations, you can refresh credit scores periodically to identify migration between bands of credit risk.

Because different credit models predict different things, a retroactive analysis using many different scoring models can help you determine which model works best for the types of loans in each portfolio. To do this, you compare the past scores of loans determined by ...