TheMReport — News and strategies for the evolving mortgage marketplace.

Issue link:

Contents of this Issue


Page 44 of 83

April 2023 » 43 April 2023 F E A T U R E etc.), and this becomes even more evident during periods of a recession. This is because the system we know has always focused on the lenders and their ability to lend more to con- sumers versus solving the pain points of the consumer. Thus, the cycle of consumers being locked out of financial services continues. However, the pandemic sparked an upheaval in consumers making major life decisions, whether that was through profes- sional career changes as part of the last major recession, or factors outside their control that left them laid off. As a result of these shifts and fluctuating income streams, traditional lenders realized that the information they historically had used to assess risk and grant services did not give them the most complete view into consumers' financial profiles. For example, with COVID-19 stimulus payments, consumers experienced a funda- mental shift in payment practices as they were able to leverage these funds to pay off debts. As a result, data that went into calibrating tra- ditional credit scores was impacted by an arti- ficially high set of payments being made. With these conditions, more lenders have opened their arms to supplemental data to make it easier to evaluate creditworthy consumers. Alternative data sources such as cash and bank transaction data present a major oppor- tunity for lenders as they navigate a tumultu- ous landscape and seek growth opportunities without taking on more risk. In the United States, we're seeing data that backs up these conversations around alternative data sourc- es. According to Nova Credit's "The State of Alternative Data in Lending Report," 75% of lenders believe that traditional credit data and scores don't deliver a complete picture of a consumer's creditworthiness. As a result, a significant number of lenders (59%) are turning to various forms of alternative data in their underwriting process to fill the gap. The strength of new data and analytics methods has overwhelmingly proven to be accurate—and now the industry is posi- tioned to effectively embrace and use these new sources and tools to solve the challenges facing credit-excluded consumers. As I like to remind everyone, this isn't our first recession, and it definitely won't be our last. Beyond just improving underwriting, it's time for lenders to listen to consumers' needs and really get on the train so they can evolve with where the markets are going this year. If not, they risk getting left behind. We are definitely in for a wild ride over the next few months, but one that will ulti- mately result in a much safer and inclusive lending environment for all.

Articles in this issue

Links on this page

Archives of this issue

view archives of TheMReport - FULL_MAG_MortgagePoint_April2023