CoreLogic has announced the results of a report by CEB TowerGroup analysts that indicates using alternative data, such as unsecured credit, payday lending and property history in consumer credit report analysis, can help safely increase mortgage lending. The report finds that this new data is relevant as consumers have changed their debt payment behavior. As a result, lenders can adjust their credit risk evaluation policies to better assess each applicant.
The report, titled "Enhanced Credit Data and Scoring: Deeper Insight into Mortgage Applicants," notes that consumers used to pay mortgage debts first, but because of the recent financial crisis some consumers now treat paying other debts, such as credit card bills and car payments, as a higher priority to maintain personal financial liquidity.
"Traditional credit data and analytics continue to be relevant, but are not sufficient to satisfy the consumer credit reformation of today," said Craig Focardi, CEB TowerGroup's senior research director. "As a result of the changes in consumer behavior, lenders cannot revert back to their prior mortgage underwriting policies. Too much damage has already been done to the market, consumers, shareholders and investors."
CEB TowerGroup evaluated data from a joint analysis conducted by CoreLogic and FICO that compares the FICO Score used by most lenders today with the FICO Mortgage Score Powered by CoreLogic, a new score launched in July. The FICO Mortgage Score Powered by CoreLogic evaluates the traditional credit data from national credit data repositories and the unique alternative credit data contained in the recently launched CoreScore credit report.
"This CEB TowerGroup report shows that enhancing the process of determining risk with new alternative data and analytics would allow lenders to approve loan applications that might otherwise be denied, or deny problem loans that might otherwise be approved. Both outcomes would help consumers and the market itself," said Tim Grace, senior vice president of product management at CoreLogic. "In our own analysis, approximately 70 percent of a sample population saw their credit score improve with the FICO Mortgage Score Powered by CoreLogic. A separate analysis of 300,000 mortgage applications found that 3,100 more applicants would receive a qualifying credit score of 700."
Key findings in the report include:
►Alternative credit information can support loan applicants with newly established credit files with good credit, those with minimal information in their traditional credit files but with good alternative credit payment histories, and long-time renters with no serious payment issues.
►More complete loan applicant, property and related information will bring greater transparency and efficiency to the mortgage lending markets and help reduce risk.
►The FICO Mortgage Score Powered by CoreLogic is more accurate than the prior FICO Score in identifying the riskiest loans improving lenders ability to discern consumer credit risk at origination. For applicants identified as the riskiest 10 percent of the lending population (those most likely to become past due on their mortgage loan), it identified 10 percent more seriously delinquent mortgage loans—loans 90 days or more past due.
