Dec. 11 (Bloomberg) -- The next six months will bring more credit-card and mortgage defaults, said Mark Greene, chief executive officer of FICO, maker of the credit-scoring formula most widely used by U.S. lenders.

“I’m a notch less sanguine than some financial observers are,” said Greene, 55, in an interview today at Bloomberg headquarters in New York. “We still have a very considerable period of working out credit issues.”

The unemployment rate was 10 percent in November and depressed home prices won’t help the 30 percent of homeowners who are underwater on their mortgages, according to Greene, who joined Minneapolis-based FICO in February 2007. That means many consumers are still struggling to pay their bills.

Some borrowers are changing the order in which they pay their bills and focusing on paying off credit-card and auto loans, which they rely on for daily living, before mortgages, Greene said.

Scores based on models established by FICO, formerly known as Fair Isaac Corp., are used to gauge a consumer’s financial health. The numbers, which range from 300 to 850, affect the ability to get mortgages, credit cards and insurance products, as well as the rates borrowers pay for them.

Bill Fair, an engineer, and Earl Isaac, a mathematician, founded FICO in 1956 and the FICO score is now used by 90 percent of the 100 largest U.S. banks. Mortgage lenders use the scores, which rank borrowers according to the likelihood of default in the next 24 months, in more than 75 percent of all residential mortgage originations, according to FICO.

Credit-Card Law

Credit-card legislation designed to protect consumers from abrupt changes to card terms, which President Barack Obama signed May 22, presents an opportunity for FICO, Greene said. That’s because banks are facing limits on fees and rates they can charge and will shift to customizing offers for those with the highest credit who present the lowest risk. FICO can offer ways to find the most promising customers, he said.

When the economy improves, so will FICO’s profits because sales of the company’s credit-scoring formula and other consumer products rely on people borrowing money, Greene said.

The company’s fiscal fourth-quarter profit declined 28 percent to $17.1 million on charges related to telecom asset sales and falling revenue generated by the credit formula, FICO said on Nov. 4.

FICO rose 78 cents, or 4.2 percent, to $19.32 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 15 percent this year.

To contact the reporter on this story: Alexis Leondis in New York aleondis@bloomberg.net.

Last Updated: December 11, 2009 16:29 EST

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