BLOG VIEW: The mortgage industry has made progress in recent years to expand access to credit for more U.S. consumers as advancements in technology, new tools, and data sets have helped provide greater visibility to millions of consumers.
Today, mortgage lenders are leveraging traditional credit scores, verification of income and employment data, consumer asset data, and even borrowers’ telecommunications, pay TV, and utility payment data to make more informed lending decisions and guide more Americans toward a responsible path to homeownership.
For millions of Americans, the dream of homeownership is becoming a reality and is serving as that critical foundation for establishing meaningful, long-term, generational wealth. And while most of the attention has been given to the impact of financial inclusion on young or middle-aged first-time homebuyers, it is crucial for our industry to remember that the pathway to homeownership and refinance can happen at different seasons of life for each borrower.
Unfortunately, one consumer sector feels left out of the push toward financial inclusion: America’s seniors.
As hard as it may be to believe, we see instances of senior citizens – particularly those 70 or older – facing difficulty securing mortgages. A recent study titled, “Are Older Mortgage Applicants More Likely To Be Rejected?” by The Center for Retirement Research at Boston College found two leading reasons stated for application rejection tied to age: debt-to-income ratios and insufficient collateral for seniors.
In the case of debt-to-income, this is most often attributable to retirees’ income levels dropping once they are no longer earning a paycheck (or, at least, at the same level as pre-retirement) and may also be impacted by existing medical debt. In the case of insufficient collateral, particularly as it relates to home equity lending, the study states this is often “consistent with older applicants who are forced to carry a mortgage into retirement being more financially distressed, as they may lack the funds to pay for adequate maintenance” on their homes. The lack of maintenance then negatively impacts the amount of home equity they have available to draw against as collateral.
Perhaps most distressing is lenders questioning whether it makes sense on their balance sheets to originate a mortgage loan that may outlive its borrower. Age-related mortality risk may be an additional factor considered for elderly loan applicants. The study summarized that “the probability of rejection of an application increases with age. This result is surprising because credit score and wealth are positively correlated with age.”
So what can be done to help alleviate the situation and help more seniors responsibly gain access to mortgage loans? In addition to new data sets like telecommunications, pay TV, and utility payment data, which can provide greater visibility into some borrowers’ accurate financial picture, access to pension data as part of the verification of income has the potential to positively impact older retirees’ ability to take out a mortgage. While the number has declined over the decades, today, 30 percent of older Americans still receive a pension (or defined benefit income). That income can make a difference when it comes to mortgage applications.
The mortgage process may already be proportionally more difficult for older people. When lenders request that the applicant provide paper or digital pay stubs or verifications of income, the burden may be larger for the elderly who tend to be less comfortable with computers and internet usage. The lift to find the required documentation, whether that is a paper or electronic version, could be difficult or take a significant amount of time. The use of instant and automated verifications of income and employment, including pension data, may make this process smoother and less burdensome for older applicants.
As lenders continue to focus their attention on – and make investments to support – true financial inclusion, it is imperative that we, as an industry, consider that the pathway to homeownership has many routes, and look at ways to help borrowers achieve their financial goals, no matter their season of life.
Ashley Wood is vice president, mortgage verification services, Equifax Workforce Solutions.