April, 2012

TheMReport — News and strategies for the evolving mortgage marketplace.

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FEATURE ORIGINATION better judgments on good versus bad loans within their existing portfolios. One of the chief advantages of enhanced analytics is the huge role it can play in helping banks open up new lending opportunities that might not be revealed by a basic credit scoring model. The three primary ways institutions are using this information are related to competitive situations, new consumers, and credit-damaged consumers. When dealing with a competitive loan process in which a creditworthy consumer is seeking multiple credit offers a lender is able to give its potential client the best price possible, based on the consumer's finite specifics. Alternative data means banks are able to tailor their lending strategies on a per- borrower basis, making it easier to compete in the marketplace. When it comes to truly new consumers—those who fall outside of traditional credit evaluation due to a lack of history—lenders have previously been unable to reach them based on their policies, but additional information made available with alternative data gives those potential clients a chance for consideration. This creates a critical gap because among the new consumer segment— which includes mainly younger borrowers, immigrants, and those who use primarily cash— around two-thirds are likely to be considered low risk and good candidates for loans when alternative data is applied. Lastly, we're seeing many lenders use alternative data to better evaluate credit-damaged individuals. In-depth analytics can separate out borrowers who may now qualify as a good risk again from those who remain unworthy candidates. Basically, alternative data has provided the intelligence that proves that consumers with damaged credit 44 | THE M REPORT "It's pretty simple Stay focused on upcoming opportunities, because there's always a future opportunity." — Mark Luber, LexisNexis modules with embedded attributes that internal modeling teams for the big banks can plug into their own products, giving them access to detailed borrower information and usable, discreet values, so they have a full range of data to make credit decisions. Our specific product at LexisNexis is RiskView, which incorporates flagship scores and attributes combined with custom scores per consumers, and it can be fully integrated with a company's in-house analytics. Another landmark trend is the transparency that borrowers now expect, which includes knowing what types of data a lender is using to make credit decisions. It's a positive change overall, but it's created the needs for banks to carefully consider the partners they're going to work with because they may have to disclose that at the end of the day. M // Which strategies have you found most effective in leading your team in a tumultuous marketplace? LUBER // It's pretty simple: Stay focused on upcoming oppor- tunities because there's always a future opportunity. I try to continuously think: How can we grow from where we are today? A good parallel to draw when don't have to be eliminated from loan eligibility in all cases. M // What industry analytics trends are emerging now? LUBER // At our company and across the industry, we're target- ing the collection and consolida- tion of multiple data sources. The original credit and risk eval- uation models, which were based on scoring, are obsolete at this point. Institutions are demanding more and more information. However, even among larger banks that have in-house analytics groups with their own custom models, it's still incredibly important to have resources like LexisNexis and others that accumulate all the alternative data in one space. To that end, we've developed dividing the industry's history from its future is the trend of separating a borrower's credit risk from his or her credit his- tory. With that mindset, banks can utilize tools and data to work through new regulations and consumer protection laws to find open avenues of credit and make credit more fair. One of the ways they're trying to achieve that is by making better decisions via the informa- tion provided by alternative data. For individuals without credit histories, alternative data opens up a huge segment. SECONDARY MARKET ANALYTICS SERVICING ORIGINATION

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