Fintech Takes Fintech Takes x SOLO Presents Source of Truth Episode 2: Context is King
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Aug 29, 2025 In this discussion, Martin Kleinbard, Founder of Granular Fintech and author of a pivotal research report, delves into the evolution of credit scoring since FICO's rise in 1995. He critiques the overreliance on credit scores, emphasizing how this can replace nuanced judgment in lending. Kleinbard highlights the importance of cash flow and product risk, revealing insights into today's lending landscape. He also addresses second-order risks and the impact of innovative finance models, reiterating that understanding context is essential for responsible lending.
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FICO Became The Market's De Facto Law
- Fannie Mae and Freddie Mac mandating FICO in 1995 transformed credit scoring from a niche tool into the market standard almost overnight.
- Lenders replaced many traditional underwriting checks with reliance on the single FICO number, increasing origination speed and volume.
Same Score, Very Different Risk
- Similar median FICO scores hid drastically different loan product risks between 2003 and 2007 Alt-A cohorts.
- Overreliance on a single score blinded lenders to product features like negative amortization and interest-only terms that raised default risk.
The Three Pillars Of Credit
- Good underwriting requires three lenses: willingness to pay, ability to pay, and product (second‑order) risk.
- FICO measures willingness only, so cashflow and product design must complement it to avoid blind spots.
