3 Areas for Credit Union Mortgage Lenders to Consider in 2023
Lenders must stay competitive while meeting member needs, market demands and market shifts, all while managing risk.
The mortgage environment is continuously evolving at a rapid pace. To best keep up with the latest trends, credit union mortgage lenders need to ensure they are staying competitive while meeting member needs, market demands and market shifts, all while managing risk. While there is no crystal ball, there are areas credit union mortgage professionals should be thinking about to better prepare and compete in the evolving and competitive market.
Differentiated Data Insights
While traditional credit reports remain a strong indicator of credit history and past financial reliability, thin file, young and “unscorable” consumers may not have strong enough credit files to obtain a traditional mortgage. That can potentially change by expanding the use of various insights to capture more accurate indicators of financial strength. These insights can help open the door for U.S. consumers who may benefit from additional attributes added to their financial profile. For example, delivering telco, pay TV and utilities attributes alongside traditional credit reports can help provide additional insights on 191 million U.S consumers.
The majority of U.S. adults have at least one utility bill or cell phone in their name, making utility data a widespread and powerful indicator of past financial reliability. A recent study by Andrew Davidson & Co., a leading provider of risk analytics and consulting for residential loans, Agency Mortgage-Backed Securities and credit-sensitive securitizations, analyzed U.S. mortgages from January 2019 for consumers with non-traditional credit histories (young, thin or no-hit). The study found a strong correlation between positive consumer utility payment history and future positive mortgage payment performance. The firm’s research also confirmed this correlation across a wide range of credit scores for these borrowers, most notably among borrowers from the high-end of subprime (credit scores of 580-619) through lower prime (credit scores of 660-719) score bands who may have been more likely to face challenges in obtaining a mortgage or who may have been offered higher rates based on their credit files alone.
With differentiated data attributes, the industry has broader visibility into consumer creditworthiness, thus potentially streamlining the mortgage underwriting process and providing greater access to credit to more borrowers, which may further support financially inclusive lending.
HELOCs
Rising home values, flat wage growth, record levels of consumer debt, continued inflation and interest rate uncertainty have driven home equity line of credit loan origination to record highs. Many lenders are seeing an increase in requests for HELOCs from homeowners looking to take advantage of their tappable equity. According to recent Equifax research, in 2022 around 1.36 million HELOCs were originated, which is a 38.5% increase from 2021. As of December 2022, the total credit limit on HELOCs originated was $179.3 billion, a 45.4% increase from the previous year.
Historically, lenders looked at home equity from a risk perspective using a very traditional credit scoring approach to evaluate the borrower’s ability to repay and minimize risk for the lender. While still relevant today, lender perspectives are changing. Technology and data insights are now playing a larger role in the process, creating a greater focus on the borrower’s overall financial health.
In order for credit union mortgage lenders to meet the demands of the HELOC market, they should take advantage of automation and instant access to data. HELOC lenders can utilize a digital process to identify marketing opportunities, mitigate portfolio risk and maintain regulatory capital requirements. A combination of predictive analytics and event-based insights help lenders better capitalize on fast-moving market opportunities, and digital processes help increase operational efficiencies. Those lenders that maximize the use of the improved data analytics and insights will be better positioned to meet these demands and maintain a profitable business model.
Managing Risk in an Uncertain Environment
Mortgage professionals who have better insight into their portfolios are better prepared to combat issues ranging from mitigating delinquency risk, defaults and foreclosures, as well as increasing efficiencies with non-performing loans – all helping to improve overall profitability and predictability over time.
This includes the ability to effectively leverage third-party data that helps provide instant access to member information within a secure environment, to help lenders make quicker, often same-day, decisions. It’s far more efficient to confirm the necessary information through third-party data integrations. Having this information centralized and available electronically in one location not only helps reduce the amount of paperwork required but also can help reduce processing costs. It can drive workflow automation, help to boost efficiency and free up internal resources to focus on closing more complex deals.
Evaluating more data in a compressed time frame demands greater levels of automation and data integrations. In today’s market, the most successful credit union lenders are those that are able to best meet member expectations of speed and convenience, and deliver on that in a way that does not put themselves at undue risk. Integrating the insights of third-party data can be a key step toward success.
While the mortgage industry is constantly evolving, technology continues to progress to best meet the market demands and ensure consumers live their financial best. The credit union mortgage professionals that implement and utilize technology resources will not only be more successful but will strengthen member experiences and loyalty.
Craig Crabtree SVP & General Manager, Mortgage & Housing Equifax Atlanta