MBA Diversity & Inclusion Interview: Barrett Burns of VantageScore Solutions LLC
(One in a recurring monthly series featuring efforts of the Mortgage Bankers Association’s Diversity & Inclusion Committee, part of MBA’s commitment to increase racial, gender, sexual orientation and ethnic diversity within the mortgage banking industry.)
Barrett Burns is president and CEO of VantageScore Solutions, Stamford, Conn., a company launched by three major credit reporting companies–Equifax, Experian and TransUnion–in March 2006 to offer VantageScore, a generic credit scoring model.
Burns joined VantageScore with more than three decades of professional experience in risk and credit management. He has held a diverse number of national and international leadership positions at several of the country’s most prestigious financial services companies. Prior to joining VantageScore, he was executive vice president, heading the National Private Banking Group of U.S Trust and a member of both U.S. Trust’s Executive Committee and the Senior Management Team of parent company, The Charles Schwab Corp. Earlier in his career, he served as executive vice president of global risk management at Ford Motor Credit Co. He began his career at Bank One within its $25 billion auto finance company as senior vice president and chief operating officer. Prior, Burns spent more than a decade with Citibank, lastly as group credit officer for an international consumer banking division that included operations throughout the U.S. and Europe. He had previously held a similar position of responsibility for credit quality and portfolio management for a 14-state region in the western U.S. He has also held a senior credit management position at Houston-based Southwest Bancshares, which later became M Corp. He currently serves on the MBA Board of Directors.
MBA NEWSLINK: Conventional wisdom used to suggest that someone with limited credit history, a category which many minority borrowers fall into, is higher risk. Do you agree with that statement?
BARRETT BURNS: This is not necessarily true. There are many reasons an individual may have a limited credit history, such as age, time in country and other factors that are not, in and of themselves, indicators of high-risk or irresponsible credit behaviors.
Borrowers who cannot obtain credit due to a limited credit history often turn to predatory options such as payday lending, which come with sky-high interest rates. Others may have to delay major transactions, like buying a car or purchasing a house. In turn, this can spiral into financial ruin.
For these reasons, industry participants must be more inclusive and actively seek out ways to score the previously “unscoreable.” Otherwise, we may be overlooking a large proportion of creditworthy borrowers including many potential first-time home buyers.
NEWSLINK: From an underwriting perspective, how can the mortgage industry expand its lending to a more diverse group of borrowers?
BURNS: First, we need to diversify ourselves. To truly serve a diverse population we need to be a diverse industry. Hiring a more diverse workforce across the mortgage landscape, including underwriting, servicing, compliance, etc., and putting these individuals in leadership roles is critical. I am quite proud of the fact that 50 percent of our team at VantageScore is drawn from diverse populations. Secondly, and more in the area of our expertise at VantageScore, the recession and its aftermath brought the mortgage industry more than its share of disruption, including extensive regulatory changes that required companies to devote significant resources to technology upgrades. These upgrades should include using newer, more inclusive credit scoring models.
Both the demographic shifts toward greater ethnic and racial diversity, and the current economic climate–in which skyrocketing student loan and medical debt are a common reality–necessitate the use of a credit scoring model designed for the current and future lending environment.
Lenders need to use a model that is inclusive, realistic and precise in assessing credit risk. The VantageScore 3.0 model, for example, assesses data on utility, cell phone and rent payments and takes into account many of the conditions and behaviors of potential borrows. Under this model, 30-35 million more consumers are considered scoreable, as compared with conventional scoring models. The newly scoreable population includes 7.6 million consumers with scores above 620. These creditworthy borrowers represent a significant opportunity within the mortgage industry, which many lenders are currently leaving on the table.
NEWSLINK: What might the impact be if newer more inclusive credit scoring models were used by lenders?
BURNS: If lenders adopt newer, more inclusive credit scoring models, we can expect to see an expansion of U.S. home ownership to thousands of creditworthy Americans annually and a diversification of what the “typical” U.S. homeowner looks like. Importantly, this is without lowering credit standards.
A study conducted by VantageScore found, based on conservative assumptions, that adoption of advanced credit scoring models such as VantageScore 3.0 would extend purchase-mortgage lending to 16 percent more Hispanic and African-American households, relative to 2013 levels. This increase in loan volume would mean the government-sponsored enterprises in turn would generate $272 million in new net revenues annually, which would easily offset implementation costs and provide a substantial return to taxpayers.
Quite frankly, this conservative assumption frames the bottom of the range. We could actually see some 144,570 additional households served every year, $544 million in net revenues for the GSEs, and a 32 percent increase in minority purchase lending.
NEWSLINK: How can mortgage professionals support your efforts, and vice-versa?
BURNS: Mortgage professionals can support long overdue competition among credit scoring models in the mortgage origination market by advocating for it with the GSEs and FHFA. Further, we encourage a collaborative effort. In lending segments outside of the mortgage market, testing and implementing new credit-scoring models is routine.
VantageScore and its owners–Equifax, Experian and TransUnion–stand at the ready to help lenders and other market participants through this process and to share best practices from other sectors of consumer lending where upgrading to newer models is commonplace.
NEWSLINK: Does credit education need to be part of the effort to increase a more diverse population of homeowners?
BURNS: Absolutely. Education is essential. We believe strongly that if we can educate Americans across all demographic groups about the economic power of responsible home ownership, while making it clear to them that we are working to remove the barriers that have traditionally limited their ability to obtain mortgages, we can make the goal more tangible, more achievable and empower a wide range of potential homeowners to pursue becoming a homeowner.
One of the most basic but powerful elements of credit education is making individuals understand what their credit scores measure, and what they do not; what they are used for; and most importantly what they do not take into account. There are many misconceptions about credit scores, including notions that they are mysterious and judgmental, and those impressions can drive away potential borrowers.
We actually partner with Consumer Federation of America, one of the largest and most influential consumer advocates in the country, on an education initiative whereby we co-manage a website: www.creditscorequiz.org, which is also available in a Spanish translation at www.creditscorequiz.org/espanol.
We work hard to encourage as many consumers to take the quiz and arm themselves with key information to help them understand their credit scores, what they mean and why they are important.
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The MBA Diversity and Inclusion Committee was formed in 2013 to provide leadership and guidance to help the real estate finance industry gain a competitive advantage by increasing diversity in leadership, workforce and suppliers.
To support this goal, MBA hosts an annual Strategic Markets and Diversity Summit. Programming focuses on business growth, with the primary goal of educating members on how to increase their business, attract new customers and stay relevant in the current marketplace by advancing diversity and inclusive practices in their companies. The next Summit will take place November 16-17 in Washington D.C.
MBA encourages its members to support these efforts and to recognize the competitive advantages of embracing a diverse and inclusive workforce and marketplace. For more information about the MBA Diversity and Inclusion Initiative, click https://www.mba.org/who-we-are/mbas-diversity-and-inclusion-initiative/about-mbas-diversity-and-inclusion-initiative.