Credit Lending

What does the mortgage interest rate, currently at an all time low of 3.55% (for 30 yr. fixed), mean for financial institutions? According to the latest Experian-Oliver Wyman Market Intelligence Report, 75% of the mortgage originations are refinancing vs. purchasing loans. As mortgage rates decrease, financial institutions face losing mortgage loans to other lenders in the refinance climate. Consumers are looking to save money and mortgage payments are generally the largest monthly expense.  Economic indicators, such as decreasing credit card and mortgage delinquency rates, reveal that consumers are more watchful of their spending and more closely managing their debt. Overall consumer debt has come down 11% from the peak in 2008, with a majority coming from the lowest VantageScore® model credit populations. Consumer confidence continues to drop, indicating consumer pessimism due to increasing gas prices and declining job growth. Given the mixed trends in the economic landscape, we can conclude that some consumers are still doubtful on economic recovery and will seek ways to save more and pay down their debt. Consumers with existing mortgages will most likely take advantage of the lower mortgage rates and refinance. So how can financial institutions help prevent attrition? With the current economic situation, managing retention efforts on a daily basis is imperative to retaining consumers. By monitoring their portfolio and receiving information daily, financial institutions are quickly informed if an existing mortgage client is shopping for a new mortgage with another lender, enabling them to act swiftly to retain the business. Information obtained from daily monitoring of accounts helps financial institutions speak with customers more intelligently about their needs. Because of this competitive environment, and often irrelevance of brand loyalty, financial institutions need to build relationships and increase customer loyalty by quickly meeting the financial needs of their most profitable customers. To demonstrate how taking daily actions can help boost loyalty, reduce attrition, and increase profitability, the Technology Credit Union recently revealed how they obtained a 788% ROI. Access the case study here. What efforts has your institution taken to reduce attrition over the past year?   VantageScore is a registered trademark of VantageScore Solutions, LLC.

By: Uzma Aziz They say, “a bird in the hand is better than two in the bush” …and the same can be said about customers in a portfolio. Studies have shown time and again that the cost of acquiring a new financial services customer is many times higher than the cost of keeping an existing one. Retention has always been an integral part of portfolio management, and with the market finally on an upward trajectory, there is all the more need to hold on to profitable customers. Experts at CEB TowerGroup are forecasting a combined annual growth rate of over 12% for new credit cards alone through 2015. Combine that with a growing market with better-informed and savvy customers, and you have a very good reason to be diligent about retaining your best ones. Also, different sized institutions have varying degrees of success. According to a study by J.D. Power & Associates, in 2011 overall, 9.6% of customers indicated they switched their primary bank account during the past year, up from 8.7% a year ago. Smaller banks and credit unions did see drastically lower attrition than they did in prior years: just 0.9% on average, down from 8.8% a year earlier. For large, mid-sized and regional banks unfortunately, it was a different story with attrition rates at 10 to 11.3%. It gets even more complex when you drill down to a specific type of financial product such as a credit card. Experian’s own analysis of credit card customer retention shows that while the majority of customers are loyal, a good percentage attrite actively—that is, close their accounts and open new ones—while a bigger percent are silent attriters, those that do not close accounts but pay down balances and move their spend to others. Obviously, attrition is a continual topic that needs to be addressed, but to minimize it you first need to understand the root cause. Poor service seems to be the leading factor and one study* showed that 31% of consumers who switched banks did so because of poor service, followed by product features and finding a better offer elsewhere. So what are financial institutions doing to retain their profitable customers? There are lots of tools ranging from easy to more complex e.g., fee and interest waiver, line increases, rewards, and call center priority to name a few. But the key to successful customer retention is to look within the portfolio combining both internal and external information. This encompasses both proactive and reactive strategies. Proactive strategies include identifying customer behaviors which lead to balance or account attrition and taking action before a customer does. This includes monitoring changes over time and identifying thresholds for action as well as segmentation and modeling to identify problem. Reactive strategies, as the name suggests, is reacting to when a customer has already taken action which will lead to attrition; these include monitoring portfolios for new inquiries and account openings or response to customer complaints. In some cases, this maybe too little too late, but in others reactive response may be what saves a customer relationship. Whichever strategy or combination of these you choose, the key points to remember to retain customers and keep them happy are: Understand your current customers’ perceptions about credit, as they many have changed—customers are likely to be more educated, and the most profitable ones expect only the best customer service experience Be approachable and personal – meet customer needs—or better yet, anticipate those needs, focusing on loyalty and customer experience You don’t need to “give away the farm” – sometimes a partial fee waiver works * Global Consumer Banking Survey 2011, by Ernst & Young  

By: Ken Pruett The great thing about being in front of customers is that you learn something from every meeting.  Over the years I have figured out that there is typically no “right” or “wrong” way to do something.  Even in the world of fraud and compliance I find that each client's approach varies greatly.  It typically comes down to what the business need is in combination with meeting some sort of compliance obligation like the Red Flag Rules or the Patriot Act.  For example, the trend we see in the prepaid space is that basic verification of common identity elements is really the only need.   The one exception might be the use of a few key fraud indicators like a deceased SSN.  The thought process here is that the fraud risk is relatively low vs. someone opening up a credit card account.  So in this space, pass rates drive the business objective of getting customers through the application process as quickly and easily as possible….while meeting basic compliance obligations. In the world of credit, fraud prevention is front and center and plays a key role in the application process.  Our most conservative customers often use the traditional bureau alerts to drive fraud prevention.  This typically creates high manual review rates but they feel that they want to be very customer focused. Therefore, they are willing to take on the costs of these reviews to maintain that focus.  The feedback we often get is that these alerts often lead to a high number of false positives. Examples of messages they may key off of are things like the SSN not being issued or the On-File Inquiry address not matching.  The trend is this space is typically focused on fraud scoring. Review rates are what drive score cut-offs leading to review rates that are typically 5% or less.  Compliance issues are often resolved by using some combination of the score and data matching. For example, if there is a name and address mismatch that does not necessarily mean the application will kick out for review.  If the Name, SSN, and DOB match…and the score shows very little chance of fraud, the application can be passed through in an automated fashion.  This risk based approach is typically what we feel is a best practice.  This moves them away from looking at the binary results from individual messages like the SSN alerts mentioned above. The bottom line is that everyone seems to do things differently, but the key is that each company takes compliance and fraud prevention seriously.  That is why meeting with our customers is such an enjoyable part of my job.

Join us Sept 12-13 in New York City for the Finovate conference to check out the best new innovations in financial and banking technology from a mixture of leading established companies and startups. As part of Finovate's signature demo-only format for this event, Steve Wagner, President, Consumer Information Services and Michele Pearson, Vice President of Marketing, Consumer Information Services, from Experian will demonstrate how providers and lead generators can access a powerful new marketing tool to: Drive new traffic Lower online customer acquisition costs Generate high-quality, credit-qualified leads Proactively utilize individual consumer credit data online in real time Networking sessions will follow company demos each day, giving attendees the chance to speak directly with the Experian innovators they saw on stage. Finovate 2011 had more than 1,000 financial institution executives, venture capitalists, members of the press and entrepreneurs in attendance, and they expecting an even larger audience at the 2012 event. We look forward to seeing you at Finovate! 

  In this three-part series, Everything you wanted to know about credit risk scores, but were afraid to ask, I will provide a high level overview of: What a credit risk score predicts; Common myths about credit risk scores and how to educate consumers; and finally, Scoring traditionally unscoreable consumers Part I: So what exactly does a credit risk score predict? A credit risk score predicts the probability that a consumer will become 90 days past due or greater on any given account over the next 24 months. A three digit risk score relates to probability; or in some circles, probability of default. An example of the probability of default: For a consumer who has a VantageScore® credit score of 900, there is a 0.21% chance they will have a 90 day or greater past due occurrence in the next 24 months or odds of 2 out of 1,000 consumers A consumer with a VantageScore® credit score of 560 will have a 35% chance they will have a 90 day or greater past due occurrence in the next 24 months or odds of 350 out of 1,000 consumers This concept comes to life in light of changes being made on the regulatory front from the FDIC in the new proposed large bank pricing rule, which will change the way large lenders define and calculate risk for their FDIC Deposit Insurance Assessment. One of the key changes is that the traditional three-digit credit score used to set its risk threshold will be replaced with “probability of default” (PD) metric.  Based on the proposed rule, the new definition for a higher risk loan is one that has a 20% or higher probability of defaulting in two years. The new rule has a number of wide-ranging implications. It will impact a lender’s FDIC assessment and will allow them to uniformly and easily assess risk regardless of their use of proprietary or generic credit risk scoring modes. In part 2, I will dispel some common consumer myths about credit scores and how lenders can provide credit education to their customers.

By: Mike Horrocks In 1950 Alice Stewart, a British medical professor, embarked on a study to identify what was causing so many cases of cancer in children.  Her broad study covered many aspects of the lives of both child and mother, and the final result was that a large spike in the number of children struck with cancer came from mothers that were x-rayed during pregnancy.   The data was clear and statistically beyond reproach and yet for nearly 25 more years, the practice of using x-rays during pregnancy continued. Why didn't doctors stop using x-rays?  They clearly thought the benefits outweighed the risk and they also had a hard time accepting Dr. Stewart’s study.  So how, did Dr. Stewart gain more acceptance of the study – she had a colleague, George Kneale, whose sole job was to disprove her study.  Only by challenging her theories, could she gain the confidence to prove them right.  I believe that theory of challenging the outcome carries over to the practice of risk management as well, as we look to avoid or exploit the next risk around the corner. So how can we as risk managers find the next trends in risk management?  I don’t pretend to have all the answers, but here are some great ideas. Analyze your analysis.  Are you drawing conclusions off of what would be obvious data sources or a rather simplified hypothesis?  If you are, you can bet your competitors are too.  Look for data, tools and trends that can enrich your analysis.  In a recent discussion with a lending institution that has a relationship with a logistics firm, they said that the insights they get from the logistical experts has been spot-on in terms of regional business indicators and lending risks.   Stop thinking about the next 90 days and start thinking about the next 9 quarters. Don’t get me wrong, the next 90 days are vital, but what is coming in the next 2+ years is critical.   Expand the discussion around risk with a holistic risk team. Seek out people with different backgrounds, different ways of thinking and different experiences as a part of your risk management team.  The broader the coverage of disciplines the more likely opportunities will be uncovered. Taking these steps may introduce some interesting discussions, even to the point of conflict in some meetings.  However, when we look back at Dr. Stewart and Mr. Kneale, their conflicts brought great results and allowed for some of the best thinking at the time.   So go ahead, open yourself and your organization to a little conflict and let’s discover the best thinking in risk management.

By: Teri Tassara The intense focus and competition among lenders for the super prime and prime prospect population has become saturated, requiring lenders to look outside of their safety net for profitable growth.  This leads to the question “Where are the growth opportunities in a post-recession world?” Interestingly, the most active and positive movement in consumer credit is in what we are terming “emerging prime” consumers, represented by a VantageScore® of 701-800, or letter grade “C”. We’ve seen that of those consumers classified as VantageScore C in 3Q 2006, 32% had migrated to a VantageScore B and another 4% to an A grade over a 5-year window of time.  And as more of the emerging prime consumers rebuild credit and recover from the economic downturn, demand for credit is increasing once again.  Case in point, the auto lending industry to the “subprime” population is expected to increase the most, fueled by consumer demand.  Lenders striving for market advantage are looking to find the next sweet spot, and ahead of the competition. Fortunately, lenders can apply sophisticated and advanced analytical methods to confidently segment the emerging prime consumers into the appropriate risk classification and predict their responsiveness for a variety of consumer loans.  Here are some recommended steps to identifying consumers most likely to add significant value to a lender’s portfolio: Identify emerging prime consumers Understand how prospects are using credit Apply the most predictive credit attributes and scores for risk assessment Understand responsiveness level The stops and starts that have shaped this recovery have contributed to years of slow growth and increased competition for the same “super prime” consumers.  However, these post-recession market conditions are gradually paving the way to opportunistic profitable growth.  With advanced science, lenders can pair caution with a profitable growth strategy, applying greater rigor and discipline in their decision-making.

Last week, a group of us came together for a formal internal forum where we had the opportunity to compare notes with colleagues, hear updates on the challenges clients are facing and brainstorm solutions to client business problems across the discipline areas of analytics, fraud and software.   As usual, fraud prevention and fraud analytics were key areas of discussion but what was also notable was how big a role compliance is playing as a business driver.  First party fraud and identity theft detection are important components, sure, but as the Consumer Financial Protection Bureau (CFPB) gains momentum and more teeth, the demand for compliance accommodation and consistency grows critical as well.  The role of good fraud management is to help accomplish regulatory compliance by providing more than just fraud risk scores, it can help to: Know Your Customer (KYC) or Customer Information Program (CIP) details such as the match results and level of matching across name, address, SSN, date of birth, phone, and Driver’s License. Understand the results of checks for high risk identity conditions such as deceased SSN, SSN more frequently used by another, address mismatches, and more. Perform a check against the Office of Foreign Asset Control’s SDN list and the details of any matches. And while some fraud solutions out there make use of these types of comparisons when generating a score or decision, they may not pass these along to their customers.  And just think how valuable these details can be for both consistent compliance decisions and creating an audit trail for any possible audits.  

The Fed’s Comprehensive Capital Analysis and Review (CCAR) and Capital Plan Review (CapPR) stress scenarios depict a severe recession that, although unlikely, the largest U.S. banks must now account for in their capital planning process.  The bank holding companies’ ability to maintain adequate capital reserves, while managing the risk levels of growing portfolios are key to staying within the stress test parameters and meeting liquidity requirements. While each banks’ portfolios will perform differently, as a whole, the delinquency performance of major products such as Auto, Bankcard and Mortgage continues to perform well.   Here is a comparison between the latest quarter results and two years ago from the Experian – Oliver Wyman Market Intelligence Reports.   Although not a clear indication of how well a bank will perform against the hypothetical scenario of the stress tests, measures such as Probability of Default, Loss Given Default and Exposure at Default to indicate a bank’s risk may be dramatically improved from just a few years ago given recent delinquency trends in core portfolios. Recently we released a white paper that provides an introduction to Basel III regulation and discusses some of its impact on banks and the banking system.  We also present a real business case showing how organizations turn these regulatory challenges into buisness opportunities by optimizing their credit strategies.   Download the paper - Creating value in challenging times: An innovative approach to Basel III compliance.  

The CFPB, the FTC and other regulatory authorities have been building up their presence in debt collections. Are you in the line of fire, or are you already prepared to effectively manage your riskiest accounts?  This year’s collections headlines show an increased need to manage account risk. Consumers have been filing suits for improper collections under the Fair Debt Collection Practices Act (FDCPA), the Servicemembers Civil Relief Act (SCRA), and the Telephone Consumer Protection Act (TCPA), to name a few. Agencies have already paid millions in fines due to increased agency scrutiny.   One collections mistake could cost thousands or even millions to your business—a cost any collector would hate to face. So, what can you do about better managing your regulatory risk?  1.       First of all, it is always important to understand and follow the collection regulations associated with your accounts. 2.       Secondly, follow the headlines and pay close attention to your regulatory authorities.  3.       Lastly, leverage data filtering tools to identify accounts in a protected status. The best solution to help you is a streamlined tool that includes filters to identify multiple types of regulatory risk in one place. At minimum, you should be able to identify the following types of risk associated with your accounts: Bankruptcy status and details Deceased indicator and dates Military indicator Cell phone type indicator Fraud indicators Litigious consumers Why wait? Start identifying and mitigating your risk as early in your collections efforts as possible. 

Contributed by: David Daukus As the economy is starting to finally turn around albeit with hiccups and demand for new credit picking up, creditors are loosening their lending criteria to grab market share. However, it is important for lenders to keep lessons from the past to avoid the same mistakes. With multiple government agencies such as the CFPB, OCC, FDIC and NCUA and new regulations, banking compliance is more complex than ever. That said, there are certain foundational elements, which hold true. One such important aspect is keeping a consistent and well-balanced risk management approach.  Another key aspect is around concentration risk. This is where a significant amount of risk is focused in certain portfolios across specific regions, risk tiers, etc. (Think back to 2007/2008 where some financial institutions focused on making stated-income mortgages and other riskier loans.) In 2011, the Federal Reserve Board of Governors released a study outlining the key reasons for bank failures. This review focused mainly on 20 bank failures from June 29, 2009 thru June 30, 2011 where more in-depth reporting and analysis had been completed after each failure. According to the Federal Reserve Board of Governors, here are the four key reasons for the failed banks: (1) Management pursuing robust growth objectives and making strategic choices that proved to be poor decisions; (2) Rapid loan portfolio growth exceeding the bank’s risk management capabilities and/or internal controls; (3) Asset concentrations tied to commercial real estate or construction, land, and land development (CLD) loans; (4) Management failing to have sufficient capital to cushion mounting losses. So, what should be done? Besides adherence to new regulations, which have been sprouting up to save us all from another financial catastrophe, diversification of risk maybe the name of the game. The right mix of the following is needed for a successful risk management approach including the following steps: Analyze portfolios and needs Predict high risk accounts Create comprehensive credit policies Decision for risk and retention Refresh scores/attributes and policies So, now is a great time to renew your focus. Source: Federal Reserve Board of Governors: Summary Analysis of Failed Bank Reviews  (9/2011)

With the constant (and improving!) changes in the consumer credit landscape, understanding the latest trends is vital for institutions to validate current business strategies or make adjustments to shifts in the marketplace.  For example, a recent article in American Banker described how a couple of housing advocates who foretold the housing crisis in 2005 are now promoting a return to subprime lending. Good story lead-in, but does it make sense for “my” business?  How do you profile this segment of the market and its recent performance?  Are there differences by geography?  What other products are attracting this risk segment that could raise concerns for meeting a new mortgage obligation?   There is a proliferation of consumer loan and credit information online from various associations and organizations, but in a static format that still makes it challenging to address these types of questions. Fortunately, new web-based solutions are being made available that allow users to access and interrogate consumer trade information 24x7 and keep abreast of constantly changing market conditions.  The ability to manipulate and tailor data by geography, VantageScore risk segments and institution type are just a mouse click away.  More importantly, these tools allow users to customize the data to meet specific business objectives, so the next subprime lending headline is not just a story, but a real business opportunity based on objective, real-time analysis.

As a scoring manager, this question has always stumped me because there was never a clear answer. It simply meant less than prime – but how much less? What does the term actually mean? How do you quantify something so subjective? Do you assign it a credit score? Which one? There were definitely more questions than answers. But a new proposed ruling from the FDIC could change all that – at least when it comes to large bank pricing assessments. The proposed ruling does a couple of things to bring clarity to the murky waters of the subprime definition. First, it replaces the term “subprime” with “high-risk consumer loans”. Then they go one better: they quantify high-risk as having a 20% probability of default or higher. Finally, something we can calculate! The arbitrary 3-digit credit score that has been used in the past to define the line between prime and subprime has several flaws. First of all, if a subprime loan is defined as having any particular credit score, it has to be for a specific version of a specific model at a specific time. That’s because the default rates associated to any given score is relative to the model used to calculate it. There are hundreds of custom-build and generic scoring models in use by lenders today – does that single score represent the same level of risk to all of them? Absolutely not. And even if all risk models were calibrated exactly the same, just assigning credit risk a number has no real meaning over time. We all know what scores shift, that consumer credit behavior is not the same today as it was just 6 years ago. In 2006, if a score of X represented a 15% likelihood of default, that same score today could represent 20% or more. It is far better to align a definition of risk with its probability of default to begin with! While it only currently applies to the large bank pricing assessments with the FDIC, this proposed ruling is a great step in the right direction. As this new approach catches on, we may see it start to move into other polices and adopted by various organizations as they assess risk throughout the lending cycle.

By: Mike Horrocks This week, several key financial institutions will be submitting their “living wills” to Washington as part of the Dodd-Frank legislation.  I have some empathy for how those institutions will feel as they submit these living wills.  I don’t think that anyone would say writing a living will is fun.  I remember when my wife and I felt compelled to have one in place as we realized that we did not want to have any questions unanswered for our family. For those not familiar with the concept of the living will, I thought I would first look at the more widely known medical description.   The Mayo Clinic describes living wills as follows, “Living wills and other advance directives describe your preferences regarding treatment if you're faced with a serious accident or illness. These legal documents speak for you when you're not able to speak for yourself — for instance, if you're in a coma.”   Now imagine a bank in a coma. I appreciate the fact that these living wills are taking place, but pulling back my business law books, I seem to recall that one of the benefits of a corporation versus say a sole proprietorship is that the corporation can basically be immortal or even eternal.  In fact the Dictionary.com reference calls out that a corporation has “a continuous existence independent of the existences of its members”.  So now imagine a bank eternally in a coma. Now, I cannot avoid all of those unexpected risks that will come up in my personal life, like an act of God, that may put me into a coma and invoke my living will, but I can do things voluntarily to make sure that I don’t visit the Emergency Room any time soon.  I can exercise, eat right, control my stress and other healthy steps and in fact I meet with a health coach to monitor and track these things. Banks can take those same steps too.  They can stay operationally fit, lend right, and monitor the stress in their portfolios.   They can have their health plans in place and have a personal trainer to help them stay fit (and maybe even push them to levels of fitness they did not think they could reach).  Now imagine a fit, strong bank. So as printers churn, inboxes get filled, and regulators read through thousands of pages of bank living wills, let’s think of the gym coach, or personal trainer that pushed us to improve and think about how we can be healthy and fit and avoid the not so pleasant alternatives of addressing a financial coma.

By: Joel Pruis From a score perspective we have established the high level standards/reporting that will be needed to stay on top of the resulting decisions.  But there is a lot of further detail that should be considered and further segmentation that must be developed or maintained. Auto Decisioning A common misperception around auto-decisioning and the use of scorecards is that it is an all or nothing proposition.  More specifically, if you use scorecards, you have to make the decision entirely based upon the score.  That is simply not the case.  I have done consulting after a decisioning strategy based upon this misperception and the results are not pretty.  Overall, the highest percentage for auto-decisioning that I have witnessed has been in the 25 – 30% range.  The emphasis is on the “segment”.  The segments is typically the lower dollar requests, say $50,000 or less, and is not the percentage across the entire application population.  This leads into the discussion around the various segments and the decisioning strategy around each segment. One other comment around auto-decisioning.  The definition related to this blog is the systematic decision without human intervention.  I have heard comments such as “competitors are auto-decisioning up to $1,000,000”.  The reality around such comments is that the institution is granting loan authority to an individual to approve an application should it meet the particular financial ratios and other criteria.  The human intervention comes from verifying that the information has been captured correctly and that the financial ratios make sense related to the final result.  The last statement is the key to the disqualification of “auto-decisioning”.  The individual is given the responsibility to ensure data quality and to ensure nothing else is odd or might disqualify the application from approval or declination.  Once a human eye is looking at an application, judgment comes into the picture and we introduce the potential for inconsistencies and or extension of time to render the decision.  Auto-decisioning is just that “Automatic”.  It is a yes/no decision and is based upon objective factors that if met, allow the decision to be made.  Other factors, if not included in the decision strategy, are not included. So, my fellow credit professionals, should you hear someone say they are auto-decisioning a high percent of their applications or a high dollar amount for an application, challenge, question and dig deeper.  Treat it like the fishing story “I caught a fish THIS BIG”. No financials segment The highest volume of applications and the lowest total dollar production area of any business banking/small business product set.  We had discussed the use of financials in the prior blog around application requirements so I will not repeat that discussion here.  Our focus will be on the  decisioning of these applications.  Using score and application characteristics as the primary data source, this segment is the optimal segment for auto-decisioning.  Speeds the  decision process and provides the greatest amount of consistency in the decisions rendered.  Two key areas for this segment are risk premiums and scorecard validations. The risk premium is important as you are going to accept a higher level of losses for the sake of efficiencies in the underwriting/processing of the application.  The end result is lower operational costs, relatively higher credit losses but the end yield on this segment meets the required, yet practical, thresholds for return. The one thing that I will repeat from a prior blog is that you may request financials after the initial review but the frequency should be low and should also be monitored.  The request of financials should not be the “belt and suspenders” approach.  If you know what the financials are likely to show, then don’t request them.  They are unnecessary.  You are probably right and the collection of the financials will only serve to elongate the response time, frustrate everyone involved in the process and not change the expected results. Financials segment The relatively lower unit volume but the higher dollar volume segment.  Likely this segment will have no auto-decisioning as the review of financials typically will mandate the judgmental review.  From an operational perspective, these are high dollar and thus the manual review does not push this segment into a losing proposition.  From a potential operational lift perspective, the ability to drive a higher volume of applications into auto-decisioning is simply not available as we are talking probably less than 40% (if not fewer) of all applications in this segment. In this segment, the consistency becomes more difficult as the underwriter tends to want to put his/her own approach on the deal.  Standardization of the analysis approach (at least initially) is critical for this segment.  Consistency in the underwriting and the various criteria allows for greater analysis to determine where issues are developing or where we are realizing the greatest success.  My recommended approach is to standardize (via automation in the origination platform) the various calculations in a manner that will generate the most conservative approach.  Bluntly put, my approach was to attempt to make the deal as ugly as possible and if it still passed the various criteria, no additional work was needed nor was there any need for detailed explanation around how I justified the deal/request.  Only if it did not meet the criteria using the most conservative approach would I need to do any work and only if it was truly going to make a difference. Basic characteristics in this segment include – business cash flow, personal debt to income, global cash flow and leverage.  Others may be added but on a case by case basis. What about the score?  If I am doing so much judgmental underwriting, why calculate the score in this segment?  In a nutshell, to act as the risk rating methodology for the portfolio approach. Even with the judgmental approach, we do not want to fall into the trap thinking we are going to be able to adequately monitor this segment in a proactive fashion to justify the risk rating at any point in time after the loan is booked.  We have been focusing on the origination process in this blog series but I need to point out that since we are not going to be doing a significant amount of financial statement monitoring in the small business segment, we need to begin to move away from the 1 – 8 (or 9 or 10 or whatever) risk rating method for the small business segment.  We cannot be granular enough with this rating system nor can we constantly stay on top of what may be changing risk levels related to the individual clients.  But I am going to save the portfolio management area for a future blog. Regardless of the segment, please keep in mind that we need to be able to access the full detail of the information that is being captured during the origination process along with the subsequent payment performance.  As you are capturing the data, keep in mind, the abilities to Access this data for purposes of analysis Connect the data from origination to the payment performance data to effectively validate the scorecard and my underwriting/decisioning strategies Dive into the details to find the root cause of the performance problem or success The topic of decisioning strategies is broad so please let me know if you have any specific topics that you would like addressed or questions that we might be able to post for responses from the industry.