How to you use credit scores from FICO [Fair Isaac Corp]?
In our subprime product we make some use of generic FICO scores for decisioning and pricing. We also use it as a way to move applications up and down in our pricing tiers. .
Do you do your own custom scoring?
We have custom scores based on how we've underwritten in the past.
FICO is really not all that valuable of a score in subprime. It's far better as you move up the credit spectrum. Although we're a subprime specialist, we also have a near-prime product where the FICO score is more predictive than our typical program.
Do you allow your underwriters a lot of discretion?
Most lenders provide their underwriters with some discretion to make some exceptions.
We allow some limited flexibility, but nothing like you would typically see at most lenders. We manage exceptions to a very low percentage.
Even in the good old days -- say, 2005, '06 and '07 -- Santander really managed exceptions to very low limits in comparison to our competition. We monitor our pricing exceptions and exceptions to underwriting guidelines.
Can you put any numbers on that?
Exceptions to our policy guidelines, that's managed to something below 10 percent. Other lenders have a far higher frequency.
What other factors do you use besides credit score?
We don't just blindly use [credit] score. There are certain other things we have found that are predictive. The FICO score is only poking up when it's connected with other variables.
Time in job, time in residence, that isn't picked up in the [credit] bureau. We know joint applicants perform better. Lower payment-to-income ratios have an influence. A FICO won't pick up those things. How the deal is written, the loan-to-value, payment-to-income, the amount of cash -- that's all highly predictive, and that's all part of our score.
Do you automatically refer customers to the next-lower channel if they don't get approved?
No, there is no automatic pass-through. If a dealer wants to improve their approval rate, they need to send us the right type of applicant. The way to spot a near-prime deal is if it's a 600-plus FICO. But dealers sometimes ... shotgun [distribute widely] applications with 500 or even 400 FICOs. We don't automatically pass them down.