For as long as I’ve been in the mortgage and credit industry – nearly 30 years – lenders have relied on the tri-merge credit report to help evaluate home loan applicants. This static report provides a snapshot in time regarding the borrower’s repayment behavior and, specifically, if he or she pays on time and whether any delinquencies are on file. Conspicuously absent from this report, however, is any meaningful data about how an individual consumer pays. That is, until now.
Given the current lending environment, I believe that trended data represents the next big thing in lending. For example, trended data helps lenders differentiate between a consumer with a large credit card balance that pays in full every month (a “transactor”) versus a consumer with a large credit card balance that pays on time each month, but only the minimum payment (a “revolver”). In providing this level of detail, lenders are in a position to go beyond the credit score in their decisioning. Lenders on both the primary and secondary market are going to be able to see trends in consumer behavior in a way that they have never seen it before. They’ll be able to view 24-month balances and payments on credit cards, auto loans and other traditional tradelines, to gain insights on both payment history and type over time, to identify who is truly paying down their debt on a monthly basis. For lenders, the access to this information in their automated underwriting systems may mean a greater potential for market expansion. The degree of expansion will likely depend on how the lenders adjust to the data, but the bottom line is that this data may help lenders close more loans.
From an industry standpoint, the wheels are already in motion. Credit bureaus and resellers will be able to view the data as of February 23, 2016 and will be required to begin accessing the reports as of April 1, 2016. Underneath the traditional snapshot tradelines will be the trended data, which will look different visually, but will be more data rich. I encourage lenders to familiarize themselves with the reports now and use this time to consider asking questions. The good news is that there will be plenty of resources available to help lenders read the documents and interpret the information, in addition to a host of FAQs. This should help prepare the market for the release of Desktop Underwriter® 10.0, which is slated for late June 2016. In addition to providing lenders with plenty of time to get up to speed with the use of trended data, the good news is that this timing ensures that reports can be reissued without having to re-pull credit. This will help with a smooth transition and prevent lenders from having to conduct multiple credit pulls due to two different versions of reports.
I applaud the industry’s proactive approach to integrating this trended data and giving lenders the opportunity to get comfortable with it prior to its use in decisioning (instead of just waiting to execute when DU 10.0 is released). No doubt, the migration over the next few months will be a very busy time and it’s been exciting to watch the evolution of credit reports, which haven’t experienced this level of change in almost three decades. Encouragingly for many in the industry, this is potentially the first of many steps in the adoption of unique data sets to streamline and strengthen automated underwriting for originations. Considering the emergence of alternative, geographic and other ancillary data sets that have yet to be standardized
About The Author
Wendy Hannah is the Vice President of Sales Support for Equifax Inc., a global leader in consumer, commercial, and workforce information solutions that provide businesses of all sizes and consumers with insight and information.