TheMReport — News and strategies for the evolving mortgage marketplace.
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44 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T ORIGINATION THE LATEST Alternative, Trended Data a Must Today's lenders have to harness a "holistic approach" to scoop up historically untapped homebuyers, report suggests. T he economic and lending environments are changing. There are new segments of the population emerging that include millennials, minorities, immigrants, and rural dwell - ers, and the typical FICO score evaluation just won't cut it for lenders, and other data avenues must be considered to accom - modate these new borrowers. These populations require a more "holistic approach to risk assessment" when considering eligibility for a mortgage loan. According to a report from TransUnion, alternative and trended data is the only way lenders will be able to reach these borrowers. "A more holistic approach provides the accuracy and precision necessary to gain a complete picture of consumer risk, significantly improve business decisions, and build healthier portfolios," TransUnion said. "With additional and different types of data, you can explore opportunities with more potential customers across all credit risk tiers, offer the right pricing, minimize institutional risk, and capture greater wallet share." These underserved consumers could greatly benefit from access to quality financial services from lenders, the report stated. "When a lender is able to offer consumers with limited credit history a line of credit, there is an opportunity to build life - time loyalty," the report noted. "Institution[s] can offer the first credit account in a consumer's wallet and begin to build a long- term relationship, but doing this requires reinforcement data to show management of various past financial commitments." TransUnion's 2016 Strategic Initiatives for Lenders: • Improve acquisitions without increasing risk • Score more people with greater precision • Identify leading risk indicators A survey of 317 lenders from TransUnion showed that there is still a significant amount of unrealized opportunity for lenders to use alternative data. The survey found that 75 percent of lenders said it is increasingly difficult to find and gain new customers, while nearly the same amount indi - cated that the challenges from the low interest rate environment is encouraging more competition for a pool of consumers who receive multiple credit offers. Of those surveyed, 87 percent noted that they decline at least some credit applicants because they cannot be scored and do not meet risk guidelines when assessed with strictly tradi - tional credit bureau information. However, 83 percent of lenders that use alternative data to score credit applicants report seeing tan - gible benefits and 64 percent have already seen positive results in the first year of using the method. Mortgage Debt Up, but HELOC Debt Down New debt racked up by first-time buyers and by existing owners upgrading to bigger digs is growing at a quick clip. Home equity loan balances, however, are tapering off. N ew debt created by first-time homebuy- ers transitioning into homeownership and existing homeowners who are upgrading to larger homes is markedly increasing; meanwhile, home equity loan balances have cooled off thanks to borrowers paying off debts. Equifax's National Consumer Credit Trends Report for February found that the total balance of outstanding first mortgages in January rose 2.1 percent year-over- year to more than $8.3 trillion. "Home purchase activity ac - celerated in 2016 as economic conditions boosted consumer con- fidence," said Amy Crews Cutts, Chief Economist at Equifax. "When first-time homebuyers move into homeownership or existing homeowners upgrade to a larger, more expensive home, new debt is created. This trend is finally dominating the acceler - ated amortization from borrowers paying a little extra each month or paying their mortgages in full, and foreclosure activity is also greatly diminished." On the other hand, home equity lines of credit (HELOC) debt seemed to decrease from last January. The report showed "When first-time homebuyers move into homeownership or existing homeowners upgrade to a larger, more expensive home, new debt is created. This trend is finally dominating the accelerated amortization from borrowers paying a little extra each month or paying their mortgages in full, and foreclosure activity is also greatly diminished." —Amy Crews Cutts, Equifax