PERSON OF THE WEEK: Credit reporting is a critical business function for both mortgage lenders and servicers, as it is the main way they determine a borrower’s ability to repay. But in this highly-competitive mortgage market, it has become challenging for lenders and servicers to find ways to carry out credit reporting processes faster and more cost effectively.
To learn more about the challenges lenders and servicers are facing in the credit reporting process, and how they can gain new efficiencies and cut costs in this area, MortgageOrb interviewed Jeff Gentry, chief financial officer at Service 1st, a provider of loan origination, verification and credit reporting solutions to the mortgage industry.
Q: Beyond pricing, what are the biggest challenges mortgage lenders and servicers face in the credit reporting process. How can they address these issues while managing costs, without sacrificing accuracy or compliance?
Gentry: Speed and efficiency are critical for lenders in today’s market. One challenge they face is the need to verify consumers prior to ordering credit. If a lender skips this step and the information the borrower gives them is not accurate, the result can be a no-hit from the credit bureaus—an unnecessary cost the lender must absorb that adds up over time.
Lenders and servicers also need to consider their internal customers: loan officers, processors, and underwriters. These teams tend to get comfortable with credit reporting agencies. Many lenders focus solely on price when reviewing different credit vendors and overlook the quality of services and support they provide.
A vendor’s staffing and ability to answer calls to deliver best-in-class turn times on supplements also needs to be factored in. Delays in verifying or updating credit can be the difference between closing loans on time or missing a deadline and possibly costing lenders deals and damaging customer relationships. The right vendor should enhance operations, not create additional roadblocks.
Q: How can lenders and servicers optimize their credit reporting workflows to reduce expenses, particularly in a high-rate environment?
Gentry: A high-rate environment is a highly competitive environment. Consumers are more educated on the loan process today and generally will go to multiple lenders looking for the best possible deal. The difference between a 7.6% mortgage rate and a 7.3% mortgage rate can be a deal breaker. If it takes a lender longer than a few hours to get a pre-approval for the consumer, they will move on. The best way to engage and retain customers is by verifying the borrower first and using soft inquiry reports. Soft inquiry reports allow lenders to assess creditworthiness without impacting the borrower’s credit score or triggering competitor solicitations. These reports provide key insights into a borrower’s credit history while reducing unnecessary hard pulls, which can save costs and improve borrower retention.
Q: What are the hidden costs of credit reporting that mortgage lenders and servicers might overlook, and how can they mitigate these expenses?
Gentry: One of the most expensive services that the bureaus offer is expedited credit score updating, commonly referred to as rapid rescore. This is completed by a consumer reporting agency working directly with the credit bureau to dispute inaccuracies in a borrower’s credit report. The credit bureaus process these updates within a few days instead of the 30-plus days it would take the consumer to mitigate themselves. While this service is sometimes necessary to close a loan, the costs can really add up. Utilizing verification tools prior to pulling credit reports can save lenders time and money. Of course, if a credit report contains inaccuracies, those errors will still need to be corrected regardless of when the credit report is pulled. But by assessing the borrower’s financial situation early by using soft inquiries and other verifications, lenders can identify potential issues—such as high balances, recent credit activity, or past disputes—before initiating a hard inquiry.
Q: What emerging technologies or innovations are helping lenders streamline their credit reporting process, and how do these tools impact cost, accuracy, and compliance?
Gentry: Verifying a borrower’s identity before ordering a credit report would make the process more efficient. Credit bureaus only need a name, address, and Social Security number to generate a report, which makes the system vulnerable to fraud and misidentification, especially when borrowers have common names or share a name with a parent. CRAs offer tools to verify these identities before pulling a full credit report, which reduces the likelihood of errors and duplicate reports.
Automated service ordering (ASO) and verification cascades are also helping streamline credit reporting workflows. These tools allow lenders to structure their verification process in a way that prioritizes the most cost-effective data sources first. AI is also finding its way into the credit reporting industry as well creating efficiencies through automated reviews. AI-powered systems can flag inconsistencies in borrower information, identify potential fraud risks, and reduce the manual review time required for verifying credit data. Automated workflows and AI-driven decisioning also help lenders maintain compliance by ensuring that credit reporting follows consistent, structured guidelines.
Q: What are some of the best practices for lenders and servicers to follow when reviewing credit reports to avoid unnecessary costs or fees associated with inaccurate or outdated information?
Gentry: One of the most effective ways to reduce costs and avoid unnecessary fees is to use prequalification and preapproval credit reports prior to pulling a hard inquiry tri-merge. This checks off two boxes. First, these types of reports are less expensive than a traditional tri-merge, and second, they do not cause triggers that might be utilized by a lender’s or servicer’s competitors.
Another best practice is ensuring credit reports are ordered through a lender’s point-of-sale (POS) or loan origination system (LOS). These platforms often include built-in tools that help lenders identify the most important aspects of a borrower’s credit profile more efficiently. For example, automated rules within the LOS can flag outdated or inconsistent information, reducing the need for manual review and helping loan officers focus on relevant credit data. By integrating these best practices—along with utilizing technologies like automated service ordering (ASO) and verification cascades—lenders and servicers can reduce credit reporting expenses while maintaining accuracy and compliance.