If consumers don’t hold lenders, then who or what?
Think about all the major financial decisions you’ve made since becoming an adult. Maybe your list starts with renting your first apartment or buying your first car. Later, you may have taken out a personal or small business loan. Finally, you bought your first home, maybe you got a home equity line of credit. There is one common denominator in all of these transactions: it’s you.
Chances are, you aren’t working for the same company that employed you when you got your first apartment. Your annual income has likely increased, and your assets and debts have almost certainly changed, for better or for worse. Your credit score has fluctuated. Your name may have changed due to marriage or divorce. In fact, your fingerprints might be pretty much the same thing today as when you started your financial journey.
Making a loan means understanding who a person is and what risk they represent. For too long, we’ve forced potential borrowers to submit forms and documents for review in an outdated process, prone to fraud, bias and human error, and frustrating for everyone involved. We need to empower consumers to carry their financial DNA with them at all times – just like their fingerprints – and the power to share it with others on demand.
Consumers are ready – and they’re waiting for their mortgage to catch up
While mortgages account for the lion’s share of consumer debt – nearly 72%, according to the Fed – they are among the rarest financial transactions in a consumer’s life. The median length of tenure of owners, now 13 years old, has been on the rise for more than a decade according to the National Association of Real Estate Agents. And while there is no legal limit on the number of mortgage refinances, closing costs and interest rate cycles actually limit the number of times a given homeowner will choose this. option. In total, it is estimated that the average American will take out four or five mortgages, including refis, in their lifetime.
There is no doubt that mortgage data is among the most valuable in the world. No one gets a more complete picture of your financial situation than your mortgage lender – not your financial advisor, not your broker, not even the IRS. But once you consider the scarcity of mortgage transactions and the fact that the median age of homebuyers in the United States is now 47, you will begin to recognize the futility of trying to extract meaningful information about the market. consumer behavior and preferences from mortgage data.
Mortgage data is old data. At best, it offers a tracking indicator of what consumers expect from the home buying experience, including their level of comfort with the technology and their expectations for transaction speed and data privacy. .
To truly understand how today’s consumers engage in financial transactions, the mortgage industry needs to look at what they do every day, not once every six years. For example, earlier this month, the digital payments network Zelle exceeded one billion transactions. Many of these transactions required consumers to authenticate their identities using facial recognition or fingerprints.
Zelle is owned by Early Warning Services, a fintech which in turn is owned by seven of the country’s biggest banks, but most consumers don’t know it. Whether they download Zelle as a standalone app or access the service through their online banking, what matters to consumers is that the technology is easy to use and trusted by their financial institutions.
Also consider that the pandemic has given consumers a big boost when it comes to expanding their technological comfort zones. Consumers say they feel more secure doing digital transactions than dealing in person with financial institutions and merchants, and it shows. Banks have reported a triple-digit increase in mobile banking registrations since the start of the year, and, according to Salesforce, 68% of consumers say COVID-19 has raised their expectations of businesses’ digital capabilities.
The massive popularity of services like Zelle challenges the long-held belief of many lenders that consumers are not “ready” for aggressive modernization of their financial transactions. Consumers are ready now, and by the time they apply for their next mortgage, a streamlined experience including features like biometric screening will be a basic expectation.
Direct lenders source data is the key to limiting the risk exposure of lenders and investors
If consumers don’t hold us back, then who or what? The challenge for mortgage lenders and investors is figuring out how to meet borrowers where they are without encroaching on risk or getting bogged down in third-party intermediation. It’s easy enough for a consumer to complete a 1003 loan application on their mobile device, but how do you make sure the information provided is true and correct? Uploading a photo of a bank statement is quick and easy, but how do you know if the bank statement is unchanged and really belongs to the loan applicant?
Having invested heavily in a modern front-end borrower experience, too often lenders still jump behind the scenes to perform traditional verifications. From a cost standpoint, it’s like shooting yourself in both feet. The ideal way to overcome these lingering risks in the digital creation workflow is to rely directly on the source.
We built FormFree’s Passport to retrieve asset, employment, identity, income, credit and public records data directly from the source for the same reason. Lenders need direct-source data, not age data, to assess borrowers’ ability to pay (ATP) and willingness to pay with the highest degree of confidence, the least friction with consumers and the lowest cost. With Passport, a consumer’s ATP score is always up to date, allowing potential borrowers to understand their financial situation even before approaching a lender. Additionally, consumers remain in control of their passports at all times, choosing when and how to share their financial data with lenders and other trusted sources.
The call for change has never been so urgent
Minimizing third-party intermediation on borrower ATP will allow lenders of all stripes, but particularly mortgage lenders, to streamline and strengthen their credit decision making. The sooner lenders move away from traditional credit scoring and turn to ATP scores powered by direct-source data, the sooner we can help the 50 million Americans without a credit score and the tens of millions of people. whose income and employment have been affected by the pandemic. This is because apps like Passport take into account cash flows from both traditional and non-traditional income (i.e. odd-job economics) and use sophisticated algorithms to assess risk of loss. credit, credit resilience and other factors that are not discernible in traditional FICO scores. Armed with this information, lenders can truly understand the risk borrowers pose and confidently make loans they might decline based solely on FICO scores.
We believe that any borrower who carefully manages their cash flow and has a strong ATP should be eligible for a loan of a certain amount, regardless of their FICO score. This financially inclusive vision offers enormous benefits to consumers and lenders.