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TransUnion Sees Untapped Growth Opportunity For The Mortgage Industry

Navi Persaud
Oct 19, 2021
Photo of a sign that says opportunity ahead. Credit:

A study conducted by TransUnion, which explores the creditworthiness of low-to-moderate income consumers, revealed that the segment represents a $300 billion growth opportunity for the mortgage industry.

The mortgage industry is constantly trying to uncover ways to grow market share and revenue. The latest possible growth opportunity presents itself as the industry closes in on a shift in the purchase market. According to TransUnion, roughly 120 million consumers – equivalent to approximately 50% of the credit-active US population – are considered to be LMI consumers and as many as 95% of these consumers are credit eligible for a mortgage. These consumers are typically defined as having a credit score over 500 and exist across income levels; as many as 65% have an income greater than $50,000.

Additionally, LMI consumers may qualify for loans through the Federal Housing Administration (e.g., 3.5% down payment) or through Government Sponsored Enterprises (GSEs) such as Fannie Mae or Freddie Mac.

TransUnion believes that originating more of these types of loans can help close the wealth and homeownership gap. It should also be able to help banks and credit unions earn Community Reinvestment Act (CRA) lending and service credits and become another source of revenue for mortgage lenders, according to experts at TransUnion.

“Many financial institutions are interested in expanding financial inclusion efforts to better serve low-to-moderate income consumers and communities. However, they may not have the right tools at their disposal to find and reach specific LMI consumers who are in the market for a home purchase or may benefit from refinancing,” said Joe Mellman, senior vice president and mortgage business leader at TransUnion. “This can be a real win-win for lenders and consumers – lenders can grow their business by increasing awareness to consumers that can benefit and consumers are able to realize their dream of homeownership or save money with a refinance.”

In Q3 2019 and Q3 2020, TransUnion discovered a number of large disparities between LMI and non-LMI borrowers. For instance, LMI consumers are 38% less likely to secure a refinance and 34% less likely to secure a purchase mortgage than non-LMI, according to the report. 

The company suggests that if lenders reshift their focus, it could result in an estimated one million refinance and purchase loans, representing a whopping $300 billion in untapped growth. So where should lenders start? According to the study, it begins with educating LMI borrowers.

“Several factors are used to determine whether an LMI consumer is credit eligible. By helping them understand where they stand on their path to mortgage readiness prior to their application, will provide a better overall experience and aid more LMI consumers in refinancing their home or making the transition to becoming homeowners,” said Henry Cason, CEO of FinLocker.

It's also suggested that lenders start exploring factors such as estimated income, census tract and homeownership vs. renter status, alongside credit scores. 

“Mortgage lenders are hungry to grow their market share among LMI consumers but to effectively do so, it is important to be able to identify which consumers are already eligible versus those that are on the cusp of becoming eligible. Lenders will then be able to employ appropriate strategies to help consumers with the greatest likelihood of approval, but also provide resources and tools to the consumers who would greatly benefit and may become homeowners down the road. Combining this with consumer-specific information, like how much a specific consumer could save each month, can be a real call-to-action with LMI consumers.” said Mellman.

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