MReport September 2022

TheMReport — News and strategies for the evolving mortgage marketplace.

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28 | M R EP O RT QUICK TAKE Using Alternative Data to Better Serve Marginalized Communities In an effort to increase inclusion in the mortgage lending process, the industry is working together to introduce nontraditional data to empower underserved populations. By Jennifer Henry R esearch has consistently shown that communi- ties with a high rate of homeownership realize substantial social benefits and tend to flourish and become more economically resilient, with families more likely to thrive and build generational wealth. However, for underserved popu- lations—including credit invisi- bles and minorities—the road to homeownership is often met with struggle. Minority communities continue to face challenges with securing a mortgage. In fact, according to the Urban Institute, approximately 14% of all mortgage applications in 2020 were denied. Examining those applicants who were denied, Black borrowers had the highest denial rate at 27.1% and Hispanic borrowers were a close second at 21.9%. The entire mortgage industry, including the GSEs (Fannie Mae and Freddie Mac), mortgage col- laboratives, lenders, and mortgage technology providers, are placing an increased emphasis on remov- ing barriers to homeownership for these marginalized groups. In ef- forts to increase inclusion within the mortgage lending process, the industry is working together to introduce nontraditional data, such as rental payments and telephone and utility data, to the application process, thus empow- ering underserved populations. Alternative Data Brings Greater Inclusion T he industry can expand the use of data to capture poten- tially more accurate indicators of financial strength. Access to alter- native data, such as rent payment history, utility payment infor- mation, and cable bill data, may provide a more complete financial picture of the borrower's ability to repay debt. Incorporating data from cell phone bills and pay- ments is surprisingly important as most Americans (97%), according to Pew Research, currently own a cellphone. Rent payments are often one of the largest and most consistent bills that millions of consumers pay each month and are surpris- ingly not always factored into lenders' decisioning. As reported by, more than 44 million house- holds are currently renting in the United States and including rental payment data could go a long way toward helping marginal- ized communities and thin-file consumers. Rental payment, cellular phone, and utility data represents information at a national level from industries that touch virtually all U.S. adult residents. Including such data may offer a better representation of how thin or no-hit consumers, marginalized and minority communities, as well as young and unbanked consumers, will treat their monthly financial obligations. Greater insight into the true financial health of individuals will help lenders approve a prospective home buyer safely and more accurately. Many underserved communities still display the ability to pay on time. Incorporating alternative data sets into lending can help alleviate lender uncertainty and help reduce barriers to accessing financial services. As the mortgage industry evolves, ensuring that minority and marginalized communities can participate in financial equity to fulfill the dream of home- ownership must continue to be a top priority. Leveraging access to alternative data insights will help enable the mortgage lending industry to feel more confident about extending mortgage oppor- tunities to even more Americans, improving the economy and establishing a successful financial future for all. JENNIFER HENRY is Managing Director, Government Credit, Housing Strategy & Capital Markets for Equifax Mortgage & Housing Services. She brings a wealth of experience and innovative ideas designed to help customers reduce costs and improve processes. She is passionate about providing greater access to equitable housing for minority and underserved borrowers and is focused on innovations to allow for expanded access to alternative data to better serve these communities.

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