New Credit Report Criteria Questions and Considerations; Telephone Usage in Underwriting?
The Fed reported US household net worth (total asset value minus total liability value) jumped to a record $92.8 trillion in Q4 driven by stock market strength and higher home prices. Some will argue that neither directly help most Millennials. Lenders are very attuned to net worth and income, so this caught my eye: tongues are wagging about how USA Hockey pays women who compete in the Olympics only $1,000 per month during the six months every four years that the women play. What the heck?
Recently announced debt and the credit report changes are generating lots of questions. Rather than change underwriting criteria, starting this summer credit reports will exclude certain negative information. This, of course, will boost credit scores. The changes will improve credit scores for millions of consumers, but may pose risks for lenders and investors of course. Some liken it to lowering food or water cleanliness standards, or car insurance companies not looking at speeding tickets more than a year old.
Per the Consumer Data Industry Association, the three major credit-reporting firms (Equifax Inc., Experian PLC and TransUnion) will stop collecting and reporting many tax liens and civil judgments, thereby omitting negative information from their reports. What the public sees are stories like this one from the Chicago Tribune: New Credit Policy: Good for Consumers, Worrisome for Lenders.
What’s causing it? “The unusual move by the influential firms comes partially in response to regulatory concerns. The firms will remove that information from borrowers if those data don’t include a complete list of at least three data points: a person’s name, address and either a social security number or date of birth. Many liens and most judgments don’t include all three or four. This change will apply to new tax-lien and civil-judgment data that are added to credit reports as well as existing data on the reports. The CFPB earlier this month released a report citing problems it found while examining credit bureaus and changes it is requiring. Issues the agency cited included improving standards for public-records data by using better identity-matching criteria and updating records more frequently. Inaccurate information on credit reports, especially if it is negative information, can derail consumers from being able to gain access to credit and even lead to other setbacks like not being able to rent an apartment or get a job.”
“In 2015, the credit-reporting firms reached a settlement with New York’s attorney general over several practices, including how they handle errors. This was followed by one with another 31 states. One more state, Mississippi, followed last year. The state settlements already had prompted the credit-reporting firms to remove several negative data sets from reports. These included non-loan related items that were sent to collections firms, such as gym memberships, library fines and traffic tickets. The firms also must remove medical-debt collections that have been paid by a patient’s insurance company from credit reports by 2018.”
Good for LOs, sure, and lenders striving for volume, but it increases the risks for lenders who might not be able to accurately assess borrowers’ default risk since they will have less information. “Consumers with liens or judgments are twice as likely to default on loan payments, per LexisNexis Risk Solutions, a unit of RELX Group that supplies public-record information to the big three credit bureaus and lenders. ‘It’s going to make someone who has poor credit look better than they should,’ said John Ulzheimer, a credit specialist and former manager at Experian and credit-score creator FICO. ‘Just because the lien or judgment information has been removed and someone’s score has improved doesn’t mean they’ll magically become a better credit risk.’”
(As a reminder, civil judgments include cases in which collection firms take borrowers to court over an unpaid debt. Nearly all judgments will be removed and about half of tax liens will be removed from credit reports because of the changed approach. In addition, if public court records aren’t checked for updates on lien and judgment information at least every 90 days, they will have to be removed from credit reports. Lenders will still be able to check public records on their own to find this information.)
Sun West has updated its manual underwriting guidelines specifically for the review of a borrower’s credit. The updated guidelines include additional information on how various risk factors associated with a borrower’s credit are analyzed during a manual underwriting review.
Plaza’s Elite Jumbo Fixed and Arm program has been updated to allow DTI to 43% on ARM products along with other updates intended to provide clarification in other areas.
What about telephone usage in underwriting? A study found that those making more phone calls in the weeks leading up to applying for a loan were less likely to default. This could be a result of the potential borrower perhaps scouting business opportunities. Further, the data found that the more calls one makes likely means the person has a larger social network and quite possibly has access to more resources to repay a loan. In the end, the study concluded that the predictive nature of this approach gets close to traditional credit scoring means. Perhaps that is why this sort of data measurement is fast becoming a big business.
The industry noticed when Fair Isaac Corp signed a deal with Lenddo (a company specializing in smartphone data analysis for creditworthiness) and EFL to help process loans in Russia and India. Further, Bloomberg reports startup Juvo has teamed up recently with Liberty Global’s Cable & Wireless Communications to analyze mobile phone data for credit risk in 15 Caribbean markets. Meanwhile, Equifax is doing the same type of data analysis in Latin America. There are literally dozens of fledgling startups now competing in this space.
A deeper analysis of cell phone data analysis also finds other interesting things. The data includes more than just the number of calls and text messages. It also incorporates when calls and texts were sent and received, as well as how that data is relative to when a loan was requested. Cell phones aren’t the only new frontier here however. Companies are also analyzing web browsing and social media activity to see if credit determinations surface.
Customer data collection has been brought up with the new HMDA requirements, and how banks leverage it to make potential decisions, but it certainly is interesting. Keep your eyes open in the future for these sorts of things to begin to make their way into the world of US banking activities.
It was oddly quiet Thursday in the bond (and stock) markets, post-Fed decision, although we gave back some of the gains from Wednesday. US investors remain intensely focused on the progression of Ryan’s health care bill – if the repeal/replace process stays stalled investors will begin moderating expectations for realization of other pieces of the pro-growth agenda (namely tax reform). Ryan plans to have a full House vote by the end of next week – if his bill fails (or the vote gets postponed indefinitely) that would mark a major setback (even if it gets out of the House passage in the Senate w/o major revisions seems very unlikely).
Perhaps investors are content with rates where they are for the time being. And there is little news of substance today (Industrial Production & Capacity Utilization, and a series of University of Michigan survey stats) and we have the 10-year yielding 2.52% and agency MBS prices better by a few ticks versus last night’s close.
Jobs and Announcements
In retail job news, “Following its record-breaking growth in 2016, which included the opening of new branches, a new operations center and the addition of over 120 employees company-wide, New America Financial Corporation continues to expand its sales force of Loan Originators in Florida, North Carolina, Pennsylvania, New Jersey, Massachusetts, Delaware, West Virginia, Maryland, Virginia and DC. With in-house underwriting and processing, along with our innovative “underwrite to process” platform, Loan Originators can obtain a clear to close in just eight days, giving them a distinctive edge over their competition. As New America Financial continues to expand its footprint along the east coast, the company is seeking energetic and experienced LOs and Branch Managers. For information about exciting career opportunities, contact Debbie Rappaport, Director of Recruitment or visit NAFCareers.
The Correspondent Lending Division of Envoy Mortgage recently announced the hiring of 3 new Regional Account Managers to handle its latest growth. The new Regional Account Managers include Nicolle Nelson (Arizona, New Mexico, Colorado & Utah), Steve Williams (California & Nevada), and Joe Collins (Texas & Oklahoma). The new team of Regional Account Managers will be responsible for establishing and maintaining relationships in their respective territories. Todd Potter, SVP, National Sales Manager, said “Nicolle, Steve and Joe are each uniquely gifted in many ways. We are excited to see each of their talents at work here at Envoy Mortgage.” Envoy Mortgage was named as 2017’s Top Rated Mortgage Employer by National Mortgage Professional Magazine. For more information about Envoy CLD visit www.envoycld.com.
National MI is excited to welcome two new additions to its sales team, “expanding as other MI companies are contracting. Grant Block joins in the newly created position of National Account Director. With 20+ years of experience in the lending industry, he has already begun to make an impact, providing support at several accounts that are both national and regional in their composition. Rob Melton joins the sales team as an Account Manager in the Southeast Region. Rob has varied mortgage insurance experience, and is committed to superior customer service and professionalism. He’ll cover the South Carolina and Western North Carolina markets for National MI.”
SecurityNational Mortgage Company (SNMC) is among the TOP 50 mortgage lenders in the country and is “looking for LIKE-MINDED people to join the team. SNMC is currently looking for producing Branch Managers that want to take the next step as an Area Manager in Wisconsin, Minnesota, Nebraska and Iowa. Security National is on solid ground and has been in the financial business for over 50 years and is backed by a public traded parent company, Security National Financial Corporation, (SNFCA-NASDAQ). The company is approved with FNMA, FHLMC, and offers many non-agency products, superior customer service, in-house processing and underwriting, a full-service marketing and advertising department, full employee benefits, and aggressive compensation packages. The company has won a variety awards including the Best of State, Top Places to Work, Scotsman Guide ‘Top Mortgage Lender’, CEO of the Year, Sales and Marketing Team of the Year (SAMY Award), and more. If you are interested in making a transition to a solid, growing company contact Justin Pater (801-864-2240) – the transition is EASY and POTENTIAL is truly, unlimited.”
There is less than a week remaining to register: 2017 is the year of mortgage tech integration. Is your LO team ready? Join me on Thursday, March 23rd at 1-2pm ET for my webinar “The Future of Mortgage Technology.” Loan officers are placing increasing demands on the technologies they rely on to grow their businesses. At the same time, they are experiencing “tool fatigue” as inboxes fill with pitches for products that promise end-to-end nirvana. But most LOs will tell you they don’t need new tools, they just want the great platforms they already use to talk to each other. Moderated by tech industry veteran and Floify CMO, Holly Hamann, I’ll share insights on how the fusion of mortgage tech will impact LOs, which processes will be affected first, and what new skill sets you’ll need on your teams.