A new study suggests that despite rising mortgage rates and home prices, there are still opportunities for mortgage lenders to serve some specific consumer segments.
The study, titled “Where Will Growth In Mortgage Originations Come From?,” was produced by TransUnion and released Monday in conjunction with the Mortgage Bankers Association’s 2022 Annual Convention in Nashville.
The study analyzed the entire credit-active U.S. population between the second quarter of 2017 and the first quarter of 2022, TransUnion said. It flagged consumers who were likely renters or homeowners, and further identified consumers as belonging to low-to-moderate income (LMI), Veterans Administration (VA)-eligible, and self-employed, non-exclusive segments. It then highlighted consumers in these segments who either withdrew their applications or were potentially turned down for a mortgage.
The study found that, despite the current low mortgage-origination environment, there are “a number of sizable consumer segments with purchase-origination potential,” TransUnion said in a news release. “With affordability currently at a 30-year low, the ability to identify these segments allows lenders to tailor messaging around products that these consumer segments may qualify for (such as VA, LMI, and self-employed specific products), as well as down payment assistance programs they may be eligible for.”
It added that the LMI, VA-eligible, and self-employed segments each carry a sizable proportion of mortgage qualifying consumers.
Key findings of the study include:
- Of the 121 million LMI consumers on-file, 95% (116 million) are credit-eligible for a mortgage.
- Of the 10 million identifiable VA-eligible consumers, 86% (8.6 million) have credit scores above 620 and are mortgage eligible.
- Of the 6 million identifiable self-employed consumers, 67% of renters (2 million) and 93% of homeowners (4 million) have a credit score greater than 620, and
- Of the 8 million current renters who were turned down or otherwise withdrew their mortgage applications, 5 million would classify as LMI.
The study also found that the percentage of consumers who are likely renters has grown 4% since the second quarter of 2019, a significant increase considering the segment grew only 1% between the second quarter of 2017 and the second quarter of 2019.
This may present another opportunity for lenders, TransUnion said, as the number of likely renters with a credit risk score above 620 — a score that may help them qualify for a government-sponsored enterprise mortgage — increased from 97 million to 100 million in the second quarter of 2022.
“As each consumer has unique needs, it’s important to use insights tailored to the individual to help educate people on their journey to home ownership — whether that be information around the product and down payment assistance they qualify for or assistance to get mortgage-ready,” said Joe Mellman, senior vice president and mortgage business leader at TransUnion. “For consumers who were either turned down or withdrew their mortgage application, using a targeted solution such as TransUnion’s partner FinLocker, a financial fitness app that supports consumers through a step-by-step journey to become mortgage ready, consumers can improve their credit profile and put themselves in a better position to get into the market. This also means more customers for lenders.”
Tappable Equity
The study showed that, as expected given the rising-rate environment, the overall number of consumers securing a rate-and-term refinance dropped considerably across all consumer segments — from 21 million in the fourth quarter of 2021 to 3 million in the second quarter of 2022. The study, however, also showed that the LMI, VA, and self-employed segments of the consumer population remained “rife with available equity, as a sizable proportion of each consisted of mortgage-carrying consumers,” TransUnion said.
Among LMI consumers, 21 million of the 32 million homeowners have equity available in their homes. Of the identifiable VA-eligible population, 3.8 million have tappable home equity, as do 3 million of those consumers who are reported to be self-employed.
“In this low-origination environment, it is critical for lenders to have the ability to identify how much equity each homeowner can tap into to generate uniquely customized messaging to address each consumer’s need,” Mellman said. “Consumers are currently tapping into HELOCs and home equity loans at a dramatically higher rate than last year. These products are an attractive option over cash-out refis because they allow consumers to use their available home equity while keeping their existing low interest rate mortgage.”
He added that, in order to optimize returns on their marketing dollars, now is the time for lenders to leverage as much data and analytics as possible to focus outreach efforts on consumers that can most benefit from them. He emphasized that consumers are more likely to react to targeted messages that address the value proposition relevant to their unique situation.
