PERSON OF THE WEEK: Since the pandemic, the mortgage industry has transitioned from a refinancing boom to a market characterized by elevated interest rates. As a result, many mortgage lenders have shifted their approach. Leveraging advanced data tools and technology, lenders are better understanding their borrowers, improving security measures, and creating a more robust and efficient lending landscape – thus helping them adapt to the new lending environment. To learn more, MortgageOrb interviewed Chris Mock, vice president of mortgage verification services at Equifax Workforce Solutions.
Q: There has been a fundamental shift in the mortgage lending landscape. How have you seen lenders adjust their approach?
Mock: During the period of historically low interest rates following the pandemic, the mortgage industry saw a surge in refinancing activity, as homeowners were eager to reduce their monthly payments or shorten their loan terms. This uptick created a “push” environment, where the demand for refinancing drove high volumes of business to lenders, resulting in a shift in proactive marketing or outreach efforts.
However, this dynamic changed significantly as the Fed raised interest rates and economic conditions became more challenging. As a result, lenders are now finding themselves in a “pull” environment, meaning they must actively seek out and attract new business.
This shift has compelled lenders to take a strategic approach that emphasizes robust partnerships with builders and real estate agents. These professionals often have first contact with potential homebuyers, so these relationships are crucial for introductions and generating a stable flow of purchase loan applications — especially since 55% of buyers rely on advice about home financing from real estate agents.
Effective marketing also plays a critical role in this competitive environment, calling for lenders to invest in targeted marketing campaigns to reach potential homebuyers and differentiate themselves from competitors. This includes digital marketing, social media engagement and personalized outreach efforts to attract new customers.
To better understand and reach their target audience, many lenders have turned to advanced technology and data analytics. Utilizing a data-driven approach to lending not only streamlines the application process, but also provides lenders with valuable insights into borrowers’ financial health, allowing for more tailored and effective marketing strategies.
Q: How are lenders working toward using more data to improve their lending processes?
Mock: This is a journey for many lenders, with varying levels of investment and sophistication in data tools and technology. For some lenders, the primary goal is to enhance operational efficiency and reduce borrower friction. Tools like automated digital verifications of income and employment can use data to streamline the loan approval process, while also helping to alleviate manual errors and accelerate decision-making. Instant verification minimizes the need for borrowers to provide extensive documentation or private bank account credentials, allowing lenders to improve the overall customer experience.
Meanwhile, some lenders are heavily investing in cutting-edge data tools and technologies, including artificial intelligence (AI). Leveraging AI can help lenders analyze vast amounts of data, identify patterns and predict borrower behavior more accurately. By integrating AI-driven insights into the underwriting processes, lenders are positioned to make more informed lending decisions, better assess risk and tailor their offerings to meet the specific needs of their borrowers.
Access to a broader range of data sources equips lenders with a more comprehensive understanding of their borrowers’ financial health. Beyond traditional credit scores, some lenders are increasingly using alternative data such as employment history, income stability, education levels, and even utility payment histories. This holistic view helps lenders evaluate borrowers more accurately and identify those who may not have a perfect credit history yet demonstrate financial responsibility in other areas.
Q: Data security is critically important for both lenders and borrowers. How can lenders help ensure better data security when verifying borrower income and employment?
Mock: To obtain access to a broader range of data sources, many lenders have partnered with various third-party verification providers. However, lenders must carefully evaluate the data security practices of these vendors, as not all verification providers adhere to the same standards.
Using consumer-credentialed data to retrieve financial information directly from a borrower’s bank or payroll accounts poses significant security risks as third-party applications often require consumers to share sensitive login credentials, such as usernames, passwords or bank account numbers. This not only increases the risk of data breaches, but also places a burden on consumers to actively approve and revoke access to their accounts.
To help provide for a more secure and streamlined customer experience, many lenders choose verification providers that offer secure, automated digital solutions. This alleviates the need for consumers to set up separate accounts or manage the verification process themselves. Beyond reducing potential security vulnerabilities, this approach also reduces the time required for lenders to obtain necessary documents, enabling quicker lending decisions compared to paper-based methods while simplifying the verification process for both parties.
Among the numerous verification options in the market today, there are cloud-based providers that incorporate advanced security features to safeguard data, such as enhanced protection through encryption, access controls and continuous monitoring for potential threats. This helps ensure that sensitive information is protected throughout the verification process, while lenders benefit from real-time threat detection and response capabilities, ultimately reducing the risk of unauthorized access or data breaches. Additionally, certain solutions provide robust audit trails, helping lenders maintain compliance with regulatory requirements and providing transparency in data handling practices.
By prioritizing data security and selecting trusted verification providers, lenders can enhance the protection of sensitive borrower information. This approach not only mitigates risk but also ensures a smoother, more secure lending experience for both lenders and borrowers.