In this episode of Optimal Insights, Jim Glennon and James Cahill discuss recent market volatility, mortgage rates, inflation data, equity market activity, consumer pressure, and the broader economic landscape. The conversation covers movements in the OBMMI, Treasury yields, equity market pullbacks, inflation readings, energy prices, and expectations around Fed policy.

Jim is then joined by special guest Rikard Bandebo, Chief Strategy Officer and Chief Economist at VantageScore, for a discussion on credit scoring innovation, VantageScore 4.0, mortgage industry adoption, rental data, trended credit data, score consistency across bureaus, and how lenders can think about implementation.

Key Points

• Mortgage rates and Treasury yields moved alongside broader market volatility, including equity market pullbacks and shifts in investor sentiment.
• Inflation data, energy prices, and consumer pressure remained central to the discussion around Fed policy expectations.
• Rikard Bandebo joined the episode to discuss VantageScore 4.0, credit scoring innovation, mortgage market adoption, rental data, trended data, and score consistency.

Chapters

• 00:00 – Welcome to Optimal Insights
• 00:34 – Market Update and OBMMI Movement
• 02:29 – Equity Market Pullbacks and Investor Behavior
• 06:07 – Inflation Data and Rate Expectations
• 10:08 – Consumer Pressure and the K-Shaped Economy
• 14:51 – Fed Commentary and Policy Outlook
• 17:49 – Transition to Special Guest Interview
• 17:59 – Introduction to Rikard Bandebo
• 19:04 – What Is VantageScore?
• 25:18 – Mortgage Industry Adoption of VantageScore 4.0
• 29:52 – Trended Data, Rental Data, and Expanded Credit Visibility
• 43:31 – Score Consistency Across Credit Bureaus
• 46:11 – Next Steps for Lenders
• 48:19 – Closing Remarks

Optimal Insights Team

• Jim Glennon, SVP, Hedging & Trading Operations
• James Cahill, MSF/MSR Account Manager

Special Guest

• Rikard Bandebo, Chief Strategy Officer and Chief Economist at VantageScore

Production Team

• Executive Producer: Sara Holtz
• Producer: Matt Gilhooly & Alex Kreuter

Commentary included in the podcast shall not be construed as, nor is Optimal Blue providing, any legal, trading, hedging, or financial advice. References to specific credit scoring models are included as part of the episode discussion and do not constitute an endorsement, recommendation, or promotion of any model, vendor, or scoring approach.

Welcome to Optimal Insights. I'm your host, Jim Glennon, Senior Vice President of Hedging and Trading Operations at Optimal Blue. Our clients and industry partners have long relied on Optimal Blue for trusted insights and commentary. And these podcasts are an evolution of our commitment to keeping the industry informed. Let's dive into today's episode.

Good morning, everybody. Thank you for being here. We've got a great show, as always, for you today. as always, we are here making sure that you know what to watch out for, whether you're an originator, a capital markets person, or just someone interested in the mortgage industry, and some great market commentary. So stay tuned. We're gonna talk market update here in just a minute. And after that, we have a great interview to share with you. I had the pleasure of talking with Ricard Bandebo. He is from Vantage Score.

so if you're the least bit curious about vantage score or just the credit scoring business in general or the innovations that are happening in that realm, definitely stay tuned for that. before we get to anything, let's talk data. OBMMI pretty volatile last week, as were rates, as were equities. Just kind of the story of last week, I feel like. 6.54 on the OBMMI. So average conventional 30 year rate that's being locked in right now is 6.54.

The ten years just bouncing around four point six, if you're if you're keeping an eye on that. we had a nice dip last week if you noticed, especially in Treasuries. It was one of those kind of old school

phenomenon that you used to see or old kind of the the way the markets used to work is equities down, bonds rally, and vice versa. But we hadn't been seeing that for years. It's kind of like when the when the market sells off, the whole market would sell off bonds, stocks, commodities. But when we had these big moves, it feels like now where where you had the like the chip makers and the AI companies sell off pretty hard. Like if you follow the Nasdaq one hundred, for instance, sold off pretty hard midweek and that brought rates down like

A tenth of a point, which is pretty significant right now with the upward pressure that we're we've been seeing. So we'll talk a little bit here in a sec about why some of that is. And let's let's just get started on that. Hey, James. Thanks for being here.

Good morning, Jim.

Good morning. So in addition to some of the the stuff, you know, some of the activity with equities, which was mainly driven by, you know, some folks would say that those stocks have gotten a little bit too hot. There's a little bit too much gambling or speculation going on with those. Some have real concerns about some of the borrowing that those companies are trying to do to invest in things like infrastructure and energy and and data centers.

I don't know. What's your what's your take on that? Do you have a feel for like why we're seeing these are we have we hit the top for now of some of these NVIDIA type stocks, even the whole Mag Seven?

Yeah.

no, I would not say we've hit the top. I think just the the amount of noise that it's made over the past, you know, three hundred and sixty-five days, the amount that we've talked about, it's been driving the market up and up and up kind of continuously. And so now we're seeing that pullback, that cool off. Everyone has been saying there's a bubble, everyone is saying that it's going to steep back. But there is just this enormous retail investor. Everyone's, you know, four one K is everyone's on

Mm-hmm.

Robinhood or Acorns or you know, however you've got it now that you're investing, you see these are the biggest companies in the world and they've had a four, five, six percent pullback. Seems like a great time to get in. If you're not r like, even if you think, they might come down more, it if you're not too patient, getting in now makes sense whenever it dips. So I think that it'll kind of level back out and might even push back up again.

As we put more money into this endless market.

Yeah. Okay. Yeah, it does feel like there's just this endless yeah, the the buy the dip type folks jumping in if you drop one or two percent. There doesn't seem to be any sort of will for this equities market to take any more than a pause, right? These feel like small pauses versus any sort of major correction. And as you said, i it whether you're at a four one K or whatever, like all these stocks are also in the S and P, they're in the NASDAQ one hundred, like they're they're in

Mm-hmm.

They're everywhere where people's money goes every two weeks when they get paid, right? So it's not just this it feels different than maybe the speculative bubbles we've seen in the past where s where a lot of this money is coming directly from large to mid sized investors and going right into single stocks. Right. Where there can th or there almost can't be as many winners as there's gonna end up being losers. But at this point it's it's just a lot more broad, like we've talked about on the on this pod quite a bit. There seems to be this natural floor that that has formed.

under equity prices 'cause money has very little else to get where there's nowhere else for it to go. Right. And the money supply has grown so much and wages have gone up so much in the last five to six years that it's yeah, we're probably not at the top. But it's there's more cash that's still sitting on the sidelines.

Yeah, the amount of, you know, I I really think of it as retail investors. The amount of retail investors out there who are looking at bonds right now, right, is just so much slimmer. Like educated retail investors, if if you have a, you know, a a money manager or someone that you're working with, but if you are just an American who now is getting into the stock market and there's more and more than ever, you're getting into the stock market. You're not necessarily getting into the bond market. You're looking at those returns, you're looking at inflation, you're going, well, that is no brainer. I want to be over here.

And so it's I really do think it's created a bit of a floor. I think that that floor eventually can fall out, but I don't think I don't think we're there yet.

Right. Yeah, it's true. I mean, bonds are not super exciting. I mean, we love them. We love to talk about bonds and how they affect interest rates, but it it does seem like unless there's a major correction or these small corrections we see in stocks, folks are not focused on bonds. But it's sooner or later there will be a correction and and retail investors will say, Where should I focus now? Maybe I should look at MBS. Maybe I should look at treasuries and maybe some of these corporate bonds that are funding all of this AI spend throughout the the industry.

All right. So speaking of what is affecting rates, we had a couple of numbers come out last week, James. Tell us a little bit about the inflation numbers and what we what we think of that, what the kind of how the market reacted.

Yeah, so inflation came out last week. I would say we get both numbers were better than expected. CPI came out, it was down point four percent. That puts the core at flat for the month, sitting at two point six. Now two point six higher than you want it, but the Fed regime is saying, Hey, we don't really we only look at the handle, so that's two. That's right where we want to be, right? That's right on target.

So the market reacted pretty quickly. It took a look at the expectation of rate hikes that we've been looking at. It says, okay, well, if inflation is actually coming down, it's coming down more than expected, then rate hike is less likely. So it reacted pretty quick to try and price in the fact that, yeah, our we're not gonna see a rate hike in July, most likely, maybe still see it in September, but the odds have changed there.

Yeah.

Right. There's just all this this I don't know, the talk around and the some of the worry around the new Fed, very hawkish language recently. We're gonna tamp down inflation. That's our main concern. It's a choice. We're gonna we're gonna ensure price stability. And then you have some of these numbers that come out now, and despite what's going on in the Middle East, where we have the second the second order fear of the these price shocks that we were expecting, which we saw a little bit of with with things like gas.

And gasoline and other you know, non renewable energy sources. And it was short lived and it wasn't nearly as big as people thought. Kind of like with the tariffs, right? Tariffs were supposed to create rampant inflation. That's kind of taking a backseat. I'm honestly not sure what exactly is going on with tariffs right now, but I with you know, fuel being the main driver right now and the the conflict in the Middle East, we're we're seeing already price decreases month over month, which is just kind of insane.

Yeah. last you know, the tariffs are currently on the out at the moment for most of them outside of national security ones. And the administration has been refunding

They've been refunding more large Walmart style style buyers. So it's been certain flow. But with the war and inflation, you know, this inflation number is directly correspondent to energy prices coming down as we had that two-week ceasefire there. Got a little bit of a discussion. We were getting ships through the Strait of Hormuz. It is still significantly less than it was before the war started. But that promise of oil flowing again.

Mm-hmm.

Futures were able to come down, that price came down, and overall the actual price at the pump came down. We got as low as like 380. Although now with the renewed hostilities, but I'm seeing today it's maybe renewed peace talks again. we did get up to four dollars a gallon nationally again. So we'll see if this decrease in inflation holds through this month. I would think it's gonna flatten out and you might even see a a bit of a dead cat bounce going back the other way.

Mm-hmm.

if

we don't get to another ceasefire pretty quick here. But it is effectively an entirely gasoline oil driven number this time around.

Right. Which is, you know, as we've noted, it affects other countries a lot more than it affects us, at least right now. I mean, I've been reading about the breakneck pace that American oil producers are running at right now, and that doesn't necessarily seem sustainable. I'm not an oil and gas expert by any means, but we've definitely been pumping at capacity since this war started, and that's a big reason why we are we are immune to some of what's going on in places like Europe and Africa.

Okay, so we had CPI was lower than expected, PPI was. We're at the two handle. So, like you said, that that starts to lower the expectations for any sort of hike. We're likely not in cut territory, although the pressures that were driving inflation down a bit before the war, I think have to still be there, right? Some of it is just the tapped out consumer savings is back to kind of all time lows.

The, you know, inflation has taken its toll on the average American family. So there was already these pressures that were kind of holding inflation a little bit in check besides interest rates. So wouldn't you say we're even if this these ceasefires continue, we've kind of remain around four percent on or sorry, four dollars on gasoline, it still feels like we're in a different environment than we were a couple of years ago. Like it doesn't doesn't feel like we're

justified to cut rates just yet, but does feel like the con American consumer is still under a tremendous amount of pressure, other than they're generally gainfully employed. But from there it's still very difficult to make ends meet for I think more than half of the US right now.

Yeah, I mean inflation is of course driven by consumer spending. So if if everyone stops buying, the number is gonna stop going up pretty quick. So as we slow down. But that K-shaped economy, I think, does still kind of show this. There are those who are still out there spending, they're driving this, you know.

Still go to the grocery store, still getting whatever they need and going on vacations. There are pieces of the economy, service mostly, that do continue to get more expensive. And that makes it harder and harder for the bottom half. So while some people are starting to draw back, there are others on the the top part of this K that are continuing to spend. I would say, you know, looking at the CME, looking at their projection, July we are not going to get a a rate hike.

Mm-hmm.

even before this news. But September it was expected that we would. It still is about a 60% chance that we will, but that is significantly down from two weeks ago, where it was maybe 80, even 90%. It really was consensus that we would see the hike by then. This throws into question do we see one by November, December? If not, if we don't see one through the course of this year, then we might be right where we want to be and then ride it out.

Then it's lower. I think it the past two and a half years, you know, it's higher for longer. Let's call it middle for longer.

I see. Yeah. Feels like, you know, maybe now is the time to pump the brakes just a little bit because we're getting there. Maybe two point six becomes one point nine. You get into an area where you you kind of you can coast a little bit versus just this every forty five days worried what the Fed's gonna do because inflation is still higher than anybody wants it to be. And yeah, good point on the K shaped economy. And it you know, full circle back to the beginning of this podcast.

As long as the stock market keeps making new highs every month, the you know, the relatively wealthy, the folks that are in the stock market in a big way are just gonna continue to feel rich, right? And continue to spend on that higher end, whether it's services or automobiles or boats or you know, they're gonna continue the they're gonna keep the c consumer spending numbers high and kind of drown out where, you know, the not wealthy are are having more difficulty, but it's not it's it's kind of muted because of the

Exuberant spending and and stock market gains on the other side.

it makes the data kind of an interesting thing to look at because you can have, you know, one half the economy thinks everything is going really well, the other half not so much. How do you, you know, weight the correct answer? How do you weight what you should do? Maybe rates should come down, but they should come down for, you know, those with less wealth already. Maybe rates should stay right where they are, or even, you know, potentially you could

Mm-hmm.

get a hike in to try and slow some of the inflation, but on almost an entirely different part of the economy. It's not really logistically possible.

Okay. Well speaking to the Fed, James, we had some Kevin Walsh speak last week. He was I mean just talking inflation for the most part, right? There's really no no major concerns in terms of labor. So you gotta look at the other half of the mandate. What was his general tone, do you feel like in in press conferences and testimony last week?

He was pretty stern, strict. He's looking back, you know, since twenty twenty, really saying, hey, the way that the Fed handled this was use the word a mistake. So I don't think anyone is sitting here saying we we nailed it over the past five, six years here, but coming out saying we should have done this very differently, it paints a picture of he's viewing everything that's been done up to this moment as needing a different lens.

Mm-hmm.

Sure.

He's viewing how he's going to take this forward differently than how it has been previously. So it's tough to see through as he continues. Warsh doesn't really want to communicate very much to us in front of Congress. He had to do a little bit more explaining of his idea, but his idea there is just inflation is not as bad as we see it. He's probably looking at the top half the K. Inflation is not as as problematic as we see it.

Mm-hmm.

Uh-huh.

And it's you know, we're not in a moment where we need to r hike rates. We're in a moment where we can really sit a bit more, is how he was painting this.

Yeah. I mean, I like the confidence. I think he acknowledges generally that there's a bit of Monday morning quarterbacking in what he's saying. But of course, you know, if we don't understand history, we're doomed to repeat it. So yes, we we we would very much like the last five years to be a lesson learned. Six years really, a and we'd like to handle it differently going forward. And hopefully this is not another one of those mistakes when we look back on it in two years and we say, We had the brakes on too long, or the there was

you know, corners of the the labor market that we weren't paying enough attention to or the the labor or the inflation issue really was bigger than we thought in certain areas, depending on how you measure it, right? because there like you said, there is a bit of a K shaped bias that one might have there if they say inflation isn't an issue. If I'm at the bottom end of the K, I'm saying, what do you what number what scoreboard are looking at? 'Cause maybe there's a a problem there that

is being drowned out by all the things that we just talked about that you that you noted.

Alright, James, I think did we cover everything?

Yeah, there there's not too much. It's kind of a quiet week for economic releases on our end. It's really gonna be everyone watching what's happening in the Middle East. Otherwise that's that is about it.

All right. We will move over to our interview now. Thank you so much, James. Great conversation and wisdom as always.

Thank you for having me Joe.

Okay, as promised, we have a very special guest here today. His name is Rikard Bandebo. Rikard is chief strategy officer and chief economist at Vantage Score. In those roles at Vantage Score, Rikard helps shape the company's strategic direction while serving as one of the leading voices on consumer credit trends and credit scoring innovation. He's also a driving force behind the expansion of Vantage Score throughout the wide range of industries, including the mortgage industry, our industry.

So aside from from occupying a majority of the executive level advantage score, Rikard somehow finds time to regularly share his expertise with us, us lenders, investors, policymakers, and industry audiences. You could you can catch him online. He's done a ton of great interviews. There's one that there's a couple on Bloomberg. we'll have this one out here in the next day or so. So glad to have you here. I'm sure I missed a few things, but

safe to say, Rikard, you're a multi industry guru and and we're happy to have you here today. Welcome, Rikard.

I'm delighted to be here. Thank you for inviting me, Jim.

So let's get right into it. perhaps we start with an easy one for listeners who may not be as familiar. Tell us about Vantage Score and how Vantage Score 4.0 in particular is different than other credit scoring models that we may all be familiar with.

Certainly, you Vantage Score is the most used credit score in the United States. we were created 20 years ago. it was an interesting time. at the time there was one predominant scoring company, and lenders were getting quite frustrated with that situation and had been raising it for a long time. And ultimately, that led to the three credit bureaus in the United States.

realizing that they needed to do something about it. And so they took a quite unusual step of coming together. Even though they're competing with each other, obviously, but to address this situation, this challenge in the marketplace, they came together to create a joint venture which became Vantage Score. And that again was 20 years ago. So it's our anniversary this year, and we're pretty proud of that fact. And so you know the driving force behind that was that

You know, the the lenders were frustrated with the lack of competition at the time in credit scoring them out of choice. And also just as a result of that, just the lack of innovation. Right? I think they wanted to be able to offer their products to more people and more safely. And that had kind of hit a wall. And so they felt there was a need for you know more options in the marketplace to help approve those types of things. that's kind of how we started.

a lot of things have evolved. We've we've now iterated and created several models since then. we now have the largest market share in lending across lots of different products. We have by far the the largest market share in lending for credit cards, also in personal loans and fintechs. Many people are aware of us because we're also the most prominent in the use score and consumer display. So when they're going to their bank page or they're going to one of the, you know, kind of consumer

One of the consumer websites that provides credit scores. they're more likely to see Vonage scores. So it's obviously a score that consumers have become much more familiar with as a result of that. In fact, it was the catalyst of this industry because the first real innovators in that space were able to take advantage of Vonage Score 3 at the time to be able to put forward those innovations. So a lot of things have been happening. We've also been making tremendous advances in in auto space as well.

and and and the interpretation I should say after that point that there was only one score that can be used for mortgage. You know, thankfully, in 20 and 18, under the first administration of of Trump, you know, bipartisan legislation passed you know to allow cred credit scoring competition, which was fantastic. and then since then obviously the FHFA through you know both different

administrations has pushed this initiative forward. And most recently, obviously, Director Poulti and the current FHFA administration, as well as the HUD, have have pushed forward with implementing obviously what was put in place in law. So that means now finally we are coming into mortgage. and it's great. I mean we'll we can talk more about it in a minute, but the growth has just been phenomenal from the early numbers that we're seeing. So

delighted that we're finally able to reach that one part of the market that we hadn't been able to before because of these hurdles. you know and obviously it's it's the most one of the most important parts of the market because if you think about you know all of the lending in the United States you know the mortgage market by you know volume of of dollar volume is by far greater than than all other products even combined. So

You know, so that's kind of the yeah, that's kind of w where we are, how we came from, how where we've been able to achieve in the twenty years so far. And obviously we've been able to do that because we're very different from how the other models were.

That's great. Yeah. I mean, competition obviously is good. And I think it's probably a surprise for folks in our industry in the mortgage industry to hear that vantage score is the most widely used credit scoring mechanism. I have to admit, I until it star started really getting loud within the mortgage industry, I didn't notice, but now I do every time. I go to my credit card website to pay my bill and it says what my credit score is. Every it pulls it like every five days and it says, you know.

provided by Bainascore four point And I thought that was just interesting. It in twenty years I hadn't I didn't notice that. But now our industry's like as usual, the mortgage industry tends to be a laggard in a lot of areas, whether it's adopting technology or adopting new models. So this is this is exciting. And I I I do feel like it's it's going to increase competition. I think it has to. It's it's s probably safe to say that if you have Yeah. It's it has everybody's attention right now for sure. And and

I it already has.

You know, let's talk a little bit about that. You know, you you you touched on expansion a little bit and we've read I read an article very recently that was published last week, in fact, that noted the vanished score four point what its penetration has been in terms of securitizations. So that's really making its way all the way to the most accepted, most common way to s to to fund mortgages. As you said, other than the federal government, nobody there there's not more debt

out there are more money that's borrowed that other than federal debt and then mortgages. It's it's it's in I believe it's thirty some trillion dollars that's out there in mortgage debt. And there's, you know, another two or three trillion that gets borrowed every year. And that's all that all needs to be scored and that all depends a lot on credit. So what's the most recent on that? And what's the growth rate that you're seeing and that you're expecting just in the expansion of the adoption of a vantage score?

Yeah, so you know, I think first of all to clarify, right, I think many of your listeners will know this, but I think it's important to understand. So what the FHFA have done is rather than just switch everything on and open up all the systems in one go, they want it to make sure that this is, you know, there's like an on-ramp so that everything will work smoothly, right? I don't think anyone wants a situation where you know there is a is a break somewhere and it can cause

challenges, you know, for the broader industry, right? So they're being very thoughtful. and they created a program that allowed lenders to sign up and then they are ramping them on successively. That was announced by Bill Poulty a couple of months ago now I can't remember the exact date. I shouldn't know, but it's escaping me at this very moment in time. And what we're seeing then is first of all, the cue to get on that program is phenomenal. Like you know they've

Yes. Mm-hmm.

They've got no limits. They're just allowing anyone, both Freddie and Fanny are allowing anybody who who's interested to get in queue. And then obviously though they're just, you know, phasing them on in a way to make sure that everything is going to work as it's as it's happening, right? Because it's a big change. And it's not just the technology, obviously at Fannie May and Freddie Mac that's changed, but also there are all these systems in between that have been updating themselves and getting ready to to allow for these things. So as a you know, as a result of that, it's it's a it's a phased approach.

And you know, it's been delighted to see you know the the vast majority of of all the large mortgage originators are on board. we're seeing you know URES was the first that did an early pilot, but then we saw you know Unite Wholesale and Rocket leaning in. We're seeing Amerisave now getting on board. and you know there was some there's some data available that you can download from the GSEs that gives you a sense of the ownership of this, and there have been some reports.

published earlier this week and we were delighted honestly we were surprised at you know we we knew things were going well but we don't appreciated how fast and how rapidly these programs are expanding. So just you know for out of context right now the in the last week that they have the data for in terms of actual securitization so that's not applications that's securizations right that's the end of the process they're seeing 20% of rockets

mortgages now on vinerscore four. And this is very early on in this phase period. So this has far exceeded our our expectations. And the same is obviously true wholesales also ramping up quickly and we're seeing American others coming in. So that it's just, I think, hats off to the GSEs to enable this kind of level of quick adoption and acceleration by these. And we're just looking forward to the

you know, to seeing now all these other lenders that have been queued up to start coming online and being able to issue too. So it's it's as I said, we were delightfully surprised. these numbers are quite extraordinary.

Yes. No, that is quite amazing. I was surprised myself and you've made two very good points there. I mean, one reason that the adoption has been accelerated is a handful of the very top lenders have put the the gas pedal down on adopting bandits score, which is which is important to note, but also it's I mean, you kind of have to follow the w the successful lenders and what they're doing. So there's obviously something there that they see that they feel is going to be

useful to them. They're not doing it just to be nice to vantage score, right? They they see that there's something that's new to the mortgage industry. And and you also Yes. Yes. And they, you know, you made the other good point of the on-ramp, right? I think part of the reason it's taken so long is there's so many things, as you said, it's not just technology and guidelines. It it cut it's pricing. It's the financial models that are looking at mortgages that have been on the books for 10, 20, 30 years.

We're nice people, but I agree with you. I don't think that's their primary motivation.

that don't have a vantage score. So so it's there you don't want anything to break, as you said. You don't want to suddenly manufacture every loan with a vantage score and then find out in in five years that the financial models were off by half a percent and that changes the way ten trillion dollars worth of mortgages have been priced. Right. So we're kinda we're kind of getting into it. We're not just dipping our toe though, it sounds like if if the ma main lenders in the country are are at twenty percent, and that keeps accelerating or even keeps on that pace by

you know, by next year you you y'all could be a majority of some of these these mortgage lenders.

Yeah, d I don't think we'd be surprised given what we're seeing today and the interest. So it it's great. I mean, I I think it would be helpful also just to give a little bit of context to your listeners of kind of what are the kind of differences, right? So what why is it you know these these originators right are are dipping their toe in, or in this case, jumping all in with this adoption. And so

you know, I I'll start with just a a few key points and then obviously we can take this where your interest lies. But look, I think the first thing is is obviously know Bunch Conforts are a much newer model than the legacy model, right? That was developed 80s, 90s, it's it's much older, right?

But even with the other new model that's out there, there are significant differences well. But let me talk about this. So when we look at Varnage 4, right, I think this is not something everybody appreciates, right? It is using credit file data, but it is using much more data from the credit file. So Varnur Scroll 4 uses over 400% more data from the credit file than

Most of the existing scores out there that are not Vonders scores. So that could be your classic score, your eight score. It uses 400 times more data. And that's being driven by two key areas. One is trended data. So if you think about his older scores, right, what they would do is they would just literally look at the snapshot of how you look today.

And and make their calculations based on how you look today. With trended data, we can go back two years and get a really good insight into how this consumer has been performing over those two years. Look at things, for instance, like you know, have they been have their average balances been going down? Have their utilization been going up and down? Has it been, you know, very have has it been very

Consistent? Does it vary a lot? There's a lot of signals in there that not only help you make more accurate determinations of consumers' credit worthiness, but also it allows you to score a lot more people, which I'll touch on in a minute. And then the other area is is for things like rent and utilities. and those have been used by Vonner Score since the beginning. but what we see here is that

You know, I think people would a lot of people actually are surprised to not realize that rent's not being reported. Well, it is in some cases, so it's not being used for credit scores. So what and I'll touch on reporting in second. So with rental data, you there's a few things that are really important to understand, right? Again, a lot of people assume that it is incorporating credit scores today, but it isn't. except when somebody misses their payments and their landlord.

sends it across to collections. So the negative information has been used in credit scores since the beginning, but the positive information has been used by Varnishcore and is used by Varnishcore 4. And yeah, and what shouldn't be that surprising, right, is that rental data is really predictive because it is typically a household's biggest monthly outlay. So and obviously you tend to have a lot of history, right? So with that, if you're if it if a household is a or a consumer is able to perform

No positive history.

on their rent, it is incredibly predictive if they're being able to perform on other products, particularly mortgages. And so incorporating it again just adds a lot of predictive value, but also lets you incorporate a lot more people who aren't scored by the models. And just to give you a sense, right, I think most people have seen their credit score, they may be a 500 and maybe a 600 something, or even you know if they've been, you know, really working on it and responsible may well be in the 800s, So when you add rent,

It can increase a consumer score by over 100 points. and that is because it is just so incredibly impactful on being able to value a person's risk. Now, again, it's not gonna take somebody 800 to 900. That's not how it works, right? But it but somebody who has a thinner file, that's when it can add. But across the spectrum, it definitely adds to to everyone who has a a credit file being able to incorporate rent.

second. So that's really helpful. And it's something that's also we're seeing the volumes increase. And with fact, we're getting more and more companies now, particularly as people are applying for mortgages, that and we're enabling this as well. That when people now want to apply for a mortgage, if the rent isn't already on their credit file, and they're going to be able to do so. So they can get their rent and rental history furnished to the credit bureau. So that can actually be incorporated in their school. And that doesn't just affect whether or not they get the mortgage, but it can also very much affect the

Of the mortgage they get. Yeah. So those are great innovations. They've really helped. now if we if we the other thing that's important, and I'll just touch on this, is just not only is it obviously a great performing model, but also it it scores 33 million more people, right? And so when we look at the the other firms' models, the old and even the latest,

The rate. Mm-hmm.

You know, they do not score 20 just over 20 percent of eligible adults, right? That's one in five. And what we saw was that when you a look at all of this additional data, look at this additional time series of well, history of data, you can actually score a lot more people and not add any more risk, right? And the reason that works is better math, better data, but also let's remember, right?

When somebody who isn't scored today, when we at you know when we score them, you know, they're not all gonna get a score above 620. Let's be honest, right? So the 33 million, about 13 million get a score over 620. And of those, about 5 million would probably fall within relevancy for getting a mortgage. But that's still an increased addressable market of 5 million people or households, eventually, right? That is also opportunity for people today who are not on the housing ladder.

For five million households. So that that's very significant. And and as a result of that, if you think about it from more use originators' perspective, you know, we're increasing the addressable market, you know, potentially by a trillion dollars. So you ask me then, like, why is it we're seeing a stampede of originators wanting to use this? It's because they can do this without, you know, they can increase their addressable market without increasing risk. And I and I think that's really, really key, right? And that

Again, it stems from you remember I made that point earlier, like you know, all these lenders were getting frustrated about 20 years ago because there wasn't innovation, right? So that's at the heart of what we do, right? We we're we're obsessed about innovation, we're better obsessed about being able to score more people, and it's it's using better math and and these things we're able to accomplish that. And also the other thing we do, right, is each time we build a model, like water score four or water score three or score five.

Like we literally start from scratch, right? others will iterate a little bit on an existing model, but they may not want to change it too much because if they do, the model risk management process will want to know much more about uh-oh, how does a new model work? And they may not want to reveal the secret ingredients of how it works, right? Whereas what we've gone for is a very different strategy. We're like, let's start from scratch, let's throw the best thing we can in terms of data and methods and everything we can based on.

You know, what's what we know today, and let's build the best model. And as a result of that, know, we also then have to provide a lot more transparency. So we publish so everybody can see how our models work in a lot of detail. Every year we publish papers that give a lot of overview of of how everything works, and then and we also publish so for investors and everybody else, lenders and others, we publish interactive charts so they can see all the time every quarter how different vintages are.

I I think it's pretty clear that these types of innovations and the competition are really like a driving force behind this.

Yes. That that is a lot. And and I guess I if I may paraphrase and then I I I think I have another question to tack onto that. So I get the I think I get the sort of moving average idea, right? If for the mathematicians out there, you're looking at trended data, which is instead of looking at a score in July of two thousand twenty six, I'm looking at a moving average over time so I can get a better idea of that that borrower's credit performance throughout a part of their life rather than just how are they doing this summer?

Right. When they may have cleaned up their credit real quick so they can get a better rate on their loan. That makes total sense. Then the just bringing additional borrowers into the ability to establish credit, I think is huge. Right. I mean, that's something we're trying to address in other areas, like first-time homebuyers. I would imagine are a large group that you're talking about where they they've only rented. They're early in their career, they may not have the best.

credit yet because A, because they haven't had time to establish it. Maybe they're also young and they they've missed a few payments. But if you include the their $2,500 a month rental payment in that picture and they've been clean for the last six years and they they want to turn around and buy a home, that's exactly the type of borrower that I think the FHFA, the lending world, those are the type of people we're trying to find and put them into loans right now where they go to the they they may be going to lenders

previously and that they they haven't established anything other than maybe a credit card they missed a couple payments on and an auto loan and maybe they're at a six ten. And they could be, you know, they could be at least looking at a a conventional loan versus FHA or a high a better rate on FHA if they had a better credit profile. So the I'm sure that's again a big component of why you're seeing more traction there. And hopefully that comes true with the some of the predictions of, you know, the the huge numbers that you're talking about in terms of the addressable market.

And then the third thing you said was around the just recreating the model each time. So that's I had a question on that. Like, do you still take the best parts of the previous models? So I don't know if that's what you meant by not iterating. Like, do you completely wipe the slate clean and forget everything? Or do you say this part of the model worked well? We're gonna bring that over, but then this part of the model we didn't like so much. So we're gonna improve upon that.

Yeah, so a couple of things. First of all, just with the on the on the trended data, just to clarify, it's not so much I get your point about moving averages, a little bit more that, because we look at the full 24 months and we look at patterns as well as not just the average, but we look at at patterns then. Those patterns are are very insightful. It's okay, I get it, and I don't want to nerd out in not all of the audience necessarily has the patience or aptitude to want to listen to me go in depth about the the benefits of of various different time series methods.

Mm-hmm.

Sure. I probably oversimplified it, but yeah.

But what I will say is on your second point,

I I think

you're you're that you know there that is absolutely one of the areas where there's gonna be an advantage, right? But also to clarify a couple of things, right? So just because somebody doesn't have a 800 score, it doesn't mean that there's something necessarily bad that they've done, right? They could have a six hundred or something and they've been doing all the right things. It's just there may not be enough data there to for to assess them to really know with great confidence.

the key thing is like in that case, right, adding that rental data is such an important signal. And so what we're not saying is like, somebody's gone delinquent on their auto loan, their credit card, and all these other loans is suddenly now going to be magically qualifying for for a mortgage. That's that's not that's not as likely to happen at all because you know, because negative effects on the score obviously take you know people down. So

You know, so that's why, and and you know, a lot of people ask us like, hold on a second, how is it that you can score these people without more risk? And what does that really mean? And it's like, obviously, by using more data and better methods, we can evaluate that, right? And then what it really when when it comes to the crunch, right? When these people that are not scored by other models, right, if they get at 640, we've mathematically proven that they have exactly the same risk.

As a person who has a 640 but can be scored by all models. Okay. So that's the important point that you know that score, and again, not everyone's gonna get 800. In fact, not a lot of these newly scored people will get above 800 simply because there's still not enough information to get them up to some of the highest tiers. But many of them, as I mentioned before, will be able to go up. And so I think that's a really important a point just to clarify.

and I think that's very interesting. And I think also, look, the whole rest of the marketplace though, having models that are more modern, that are more predictive, is going to improve the the risk in all of these securities and everything else, right? So also from that perspective, there is benefit across the whole chain by upgrading to models and even the taxpayer, right? that

are are more predictive as well. So there are obviously a number of different benefits, not just to originators, but throughout the whole chain of the work.

Sure, more data ha has to be better.

so Rikard, these lenders that are running f kind of full speed with this, the rockets and the U UWMs of the world, there has to be some things that they've noticed. Like are there any surprises out there? Anything that they've come back to you and and pointed out that they weren't expecting?

Yeah, we actually had a a really interesting conversation with with one of the early adopters where they reached out to us and they said, Hey, we're seeing something really strange. we're noticing that for so many of these lenders that they're getting the same score at each of the bureaus. And we were like, Yeah, that's how it's supposed to work. and so that I think was we've taken this for granted, but I think it's important perhaps for your

listeners to to understand kind of what's going on here, right? so since the beginning, again, one of the key things that Varnish Score has done is we have built our model so that it's one model that is used across all three bureaus. And what we've done is we've then leveled all the information that's at each of the bureaus. And the result of that means that if a consumer has the same information at each of the bureaus,

Then they will get exactly the same score. Whereas if you look at Classic and you look at the other models, they built different models for each bureau, right? So if you look at Classic, it's great, right? So none of the Classic scores go to 850, right? I think the one at TU goes to 819, the one at Experian goes to like 820 something. You know, so there's just, and they will, and you'll often get different scores, right? Because they chose to do a different path. They chose to build models that were more

In their view, for each of those different bureaus. And so for the lenders, and actually for the whole mortgage industry, the fact that it is really an industry where all the scores are coming from the bureaus, you know, it's I think a great additional value that when they're using Vonage Score 4, that there's so much more consistency in the scores, irrespective of which bureau those scores are coming from.

Interesting. Yes, that it was I mean, anyone who's looked at a credit report before has likely noticed and wondered why, maybe that there can be so much difference between the three scores. And that's why we've had discussions over the years, which score do you use? They use the average, the middle, the top, the bottom. And sometimes it was because the data was inconsistent. There'd be trade lines that existed on Experian but not transunion. Or it sounds like also the models are different. But why why should that be? I suppose perhaps that's an improvement.

that will come from all of this competition now that's been yeah, it's been kicked into high gear in two thousand twenty six.

Thanks for explaining that one. That was that's a good one.

Okay, so we've talked about we've I think we've created a better understanding of what vantage score four point is, what the adoption has looked like. The adoption's been mainly with it seems like at least on the securitization side with some of the largest lenders in the country. So if I'm a lender that's smaller, that's it's not yet adopted, vantage score, like what are my next steps? What should I be doing right now? How should I be thinking about the adoption of a vantage score?

So the there are a number of things, right? In terms of first of all, signing up for the program, Fanny May and Free Mac both have links on their websites and encourage any lender that wants to participate to reach out to them. In terms of trying to also prepare for this, they're obviously the GSCs that have been for two years now, the Viner Score 4 data has been available for people to understand how VinerScore 4 works. but for those who want to do

assessments on their own portfolios. Obviously they can reach out to their to whichever bureaus they work with to do back tests and and understand it even better. So we definitely recommend reaching out to whoever their bureau is. honestly we're here to help. So if there's anyone out there who's trying to navigate this and understand more or just aren't quite sure how to take the next step and by all means do reach out to to Vonerscore. We will we would gladly help.

try to guide you through the process and give you as much insight as we possibly can.

That's great. Yeah, we've we've certainly been getting a lot of questions from our customers at Optimal Blue on the desk. We've been, you know, making preparations to support bandage score as well. So

yeah, this has been super informative for me and I hope our listeners feel the same way. Rikard, thank you so much for being here. It's been wonderful talking with you. Excited to see how this continues to expand and progress. And we'd love to have you on the podcast again soon when we're talking about, you know, maybe we're at fifty percent next year, like we like we're hoping for.

So thanks again, Rikard. Thanks for having this conversation with us.

Thank you again for inviting me. Delighted to be here.

And that's it for today. Join us next week for another episode of Optimal Insights, where we'll continue to provide you with the latest market analysis and insights to help you stay ahead. Check out our full videos on YouTube. You can also find each episode on all major podcast platforms. Thanks again for tuning into Optimal Insights.