What Happens Next?: Understanding the Impact of Data and Technology on the Evolution of the Mortgage Industry

Highlights: 

• The mortgage industry is leveraging data innovation, such as modern credit scoring models that incorporate alternative data (e.g., rent and utility payments), to increase homeownership opportunities and expand credit access for a broader, credit-worthy consumer base.

• Process efficiency and profitability can be significantly improved by aligning data collection with the loan's stage, delaying expensive verifications until commitment, and utilizing AI-powered automation to streamline loan manufacturing workflows.

The mortgage industry is undergoing a significant transformation, driven by competition. This dynamic shift is creating an opportunity for lenders to streamline operations, reduce costs, and ultimately expand the path to homeownership for more consumers. But as the industry evolves, one question remains: What happens next? 

In a special edition of the Equifax Market Pulse podcast, recorded at the Mortgage Bankers Association Annual Convention in Las Vegas, Clayton Collins, CEO of HousingWire sat down with Joel Rickman, GM and SVP of U.S. Mortgage and Verification Services at Equifax, and Justin Demola, President of Lenders One Cooperative, to discuss the competition in credit scoring, data, and technology.

Here are four key takeaways from their discussion:

1. Competition Brings Innovation

The recent conversation around new pricing models caused understandable concern about rising costs across the mortgage ecosystem. However, a competitive market naturally forces innovation.

Rickman noted that in response to this, the three national credit reporting agencies have introduced offerings designed to mitigate costs and enhance service. 

2. Unlock Homeownership with Modern Scoring

A central theme of the discussion was the need for a more modern, inclusive credit scoring model. As Demola stated, the ultimate goal for the industry is to increase homeownership and make it more affordable.

This is where innovative scores like VantageScore come in. They are seen as a modern solution that can look at a broader data set, including utility and rental payments. This ability to accurately score more consumers, especially first-time homebuyers, those who are new to credit or have little traditional credit history, or those new to credit, can unlock homeownership opportunities and expand credit access for those who are credit-worthy but may have been previously excluded.

3.  Access More Data for Easier Decisioning

In today's market, with lower conversion rates, the upfront cost of pulling credit and verification data has become a pain point. Instead of pulling a full tri-merge, hard-pull, and full verification immediately upon application, lenders can use initial, less-expensive reports (like a single file with a VantageScore or a non-trended credit file) for early-stage shopping behavior. Full verification of employment and income can be automated to wait until the loan is committed, reducing costs associated with early fallout.

The new best practice is to align the data you pull with the prospect’s current stage in the process. Rickman says that lenders must buy what they need when they need it. This means leveraging technology and a streamlined workflow to delay expensive processes, such as a full Verification of Employment and Income (VOIE), until the loan is firmly committed, driving significant cost savings.

4. Leverage Artificial Intelligence (AI) to Cut Review Time

The final and perhaps most actionable insight focuses on efficiency in loan manufacturing. The best path to finding margin is through process automation.

Lenders One, for instance, is leveraging AI to break down the loan manufacturing checklist into small, manageable modules. This level of automation has resulted in massive efficiency gains, such as reducing the time it takes to review an appraisal checklist from nearly two hours to less than 10 minutes. Equifax is also using its investment in cloud-native technology and explainable AI to quickly build and validate custom models, providing richer insights faster than ever before.

The future of lending is already here, and it is being driven by the confluence of robust data, greater competition, and a relentless focus on process efficiency. By adopting a modern approach to scoring and leveraging new innovations, lenders can solve for profitability while expanding access to homeownership.

For more insights, tune in to the full episode of the Market Pulse podcast to learn What Happens Next.