Equifax Workforce Solutions’ Jarod Jones–Topics, Trends and Challenges Impacting the Lending Landscape in 2024

Jarod Jones is Sales Director – Mortgage Verification Services with Equifax Workforce Solutions

2023 was a year of adversity for the mortgage industry. As 2024 gets into full swing, it’s critical that lenders are aware of trends impacting–or that have the potential to impact–the current mortgage lending landscape.

Rising loan delinquency rates, fake pay stubs, loan buybacks, affordability of loans, and ensuring appropriate consumer data usage are some trends that lenders should have on their radars heading further into the year.

Rising Mortgage Repayment Delinquency

According to the Mortgage Bankers Association, the labor market is on a rebound with the unemployment rate decreasing from 3.9% to 3.7% at the end of 2023. However, loan delinquencies are still a growing issue. The unemployment rate falling late last year can be attributed to the 200,000 jobs added in December. However, these jobs were limited to specific parts of the economy, mostly in healthcare and government.

Despite the unemployment rates beginning to dip, higher interest rates and inflation are placing significant financial strain on American consumers and as a result, delinquencies are seeing an uptick among all loan types as Americans struggle to make payments. This repayment struggle includes mortgage loans. Last year mortgage delinquency rates  fell to a record low in the second quarter of 2023,but experienced a rise in Q3 and Q4.

Continued Risk of Fake Pay Stubs

Despite the industry transitioning to digital, fraudulent mortgage schemes such as fake pay stubs remain an issue. For years, it has been standard practice for lenders to verify an applicant’s income and employment through pay stubs and W-2s. This manual employment and income verification process can create friction for the customer and lender as well as errors as the data is manually re-keyed. Fraudsters can easily forge employment documentation, with reports estimating that nearly one in five loan applications contain exaggerated income information.

This can be burdensome for consumers as they attempt to find and submit documents, adding additional risks and vulnerabilities for misrepresented or falsified documents. There are many websites where false pay stubs can be created in minutes. To combat the risk of inaccurate information, savvy lenders should consider using instant verifications of income and employment, which provide data directly from employers and payroll providers.

Loan Buybacks Cause a Stir Among Lenders.

There has been much conversation in the mortgage industry regarding buybacks. Organizations are seemingly becoming more stringent on identifying loans with potential defects that violate their representation and warranty policies.

This increase in buybacks has been a point of contention for lenders who are already struggling due to low origination, high inflation and interest rates. The increased volume of loan repurchase requests is becoming a challenge for lenders of all sizes.

Undisclosed debt and issues with income verification are among the most common reasons for buybacks. It will be beneficial for lenders to utilize tools like third-party verification of income and assets to effectively reduce risk and avoid the potential of defective loans.

Giving Consumers More Control Over Their Data

The Consumer Financial Protection Bureau’s proposed Personal Financial Data Rights rule could impact mortgage loan applicants. Lenders in the U.S. often share consumer account data with data aggregators and fintechs. However, this is only sometimes done willingly, and consumers might not know where their data goes.

The Consumer Financial Protection Act aims to protect consumers from unfair and predatory practices and places the responsibility of lender data collection on the shoulders of the CFPB. Currently, consumers’ access to their financial data varies from institution to institution, and each consumer credentialed data company has different standards and rules around data. This lack of standardization can cause challenges for consumers. The new data-sharing rule would give consumers more control over their data, limiting how long it can be accessed while mitigating unchecked surveillance or misuse. If this rule is accepted, consumers would have more protection over where their data ends up.

In the race to access consumer credentialed data, companies must be diligent in their reviews and understanding of the processes behind these technologies as they are not all created with the same security standards and practices. Credit reporting agencies, for example, are held to high security and control standards regarding protection and usage of data. These standards include providing the consumer with a full view of which companies have accessed their data, what data has been accumulated on them, and provides a process for the consumer to dispute the data or block it completely for future use. Some of the consumer credentialed data providers that are not credit reporting agencies maintain access to the data sources and pull data until the consumer actively goes to the source, such as the bank or work platform, to terminate the connection.

Employers are becoming more cautious with their human capital management, payroll and banking system platforms due to concerns of third parties having access to employees’ credentials. These vigilant employers are concerned about potential other activities or harm that third-party access into these systems may cause. Although the data itself is about an employee or potential borrower, the platforms, access, infrastructure and more are assets managed and paid for by the employer who is also responsible for the security of their employees’ data. Lenders should initiate their own due diligence and thoroughly research third parties to ensure the technology partner of choice has permission to access the platforms and data they are retrieving and is doing so in a secure manner.

The New Year Brings New Opportunities

But it’s not all bad news. There are also some positive trends that should benefit both lenders and consumers. The Fed recently voted to hold rates steady, and many analysts expect rate cuts in 2024. That could push mortgage lenders to follow, with the possibility for mortgage rate cuts.

In 2024, these trends will play a role in shaping the mortgage landscape for lenders and consumers. To maintain a competitive edge, institutions must adapt and ensure their lending practices keep up with the ever-changing nature of the mortgage industry. Consumers should also know how these trends impact their finances and potential loan applications.

(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)