Sponsored Content from CreditXpert: Three Ways Credit Potential Can Grow Revenue

(Mike Darne is Vice President of Marketing with CreditXpert, Baltimore, Md.)

Mike Darne

Prior to the introduction of readily available credit score data through companies like Credit Karma, consumers often entered the mortgage application process with only a vague idea of where they stood. Fast-forward 14 years and nearly all mortgage borrowers are entering the application process with at least an understanding of their score. A recent study by CreditXpert revealed that 95% of purchase borrowers and 97% of refi borrowers already had an idea of their score at the start of the application process. Most of these borrowers obtained their scores through free credit monitoring services and their primary bank. 

Highlighting credit potential, the anecdote to challenging conversations

As these publicly available scores are frequently different than the FICO scores used by mortgage lenders, LOs are often faced with both a challenge and an opportunity. The challenge comes as they are forced to explain to an applicant that their score is lower than what they thought. The anecdote for these challenging conversations comes through predictive analytic technology that identifies an applicant’s credit potential.

Lenders that use CreditXpert’s platform have the opportunity to bring CarFax-like transparency to a challenging conversation. Much like what CarFax does to shed light on the history of a vehicle, CreditXpert highlights the improvement potential in a borrower’s credit score and gives them a precise and actionable plan to make the necessary adjustments.

For applicants who initially failed to qualify for a mortgage, identifying their potential and doing what it takes to improve their score can be lifechanging. Simply put, becoming a homeowner launches them on the path to building generational wealth. 

For qualified applicants, understanding and acting upon their potential could mean that they end up saving tens of thousands of dollars over the life of their loan. 

In either case, lenders that start by identifying potential and then give applicants the opportunity to improve their score can change the game. Many of today’s top lenders have figured this out and, as a result, have built a competitive advantage that differentiates them from those that largely ignore credit potential. 

Through interviews with top lenders, we often hear that credit potential conversations help build trust with both applicants and lead sources. In the coming purchase money market, lenders that build trust with applicants and lead sources like real estate agents will help differentiate themselves through what is referred to as a “credit-first” strategy. 

Closing more loans, the only path to growing revenue

For LOs, closing loans is the name of the game. It is, after all, the only path to revenue growth. Employing a credit-first strategy opens the opportunity for a lender to optimize its pipeline and grow production profit.

To get a sense of how a full-funnel credit-first strategy could impact a lender’s production profit, we dug into 2018 – 20 HMDA reporting, bureau data and our internal metrics to understand where fallout was happening. Through this analysis, we identified three primary areas where lenders can grow revenue and production profit by increasing pull through.

As we learned from our recent survey, consumers are considering multiple lenders as they start the process of purchasing a new home or refinancing an existing mortgage. In fact, 54% of those shopping for new mortgages and 49% of those refinancing considered between two and four lenders. Another 21% and 14%, respectively, considered a whopping five to seven lenders. This shopping around is a likely contributor to the +65% annual growth rate of mortgage inquiries since 2018.

Convert more inquiries into applications

While it’s difficult to tell exactly how many consumers fall out at the inquiry stage due to credit, we conservatively assumed that credit contributed to fall out in 30% of all inquiries. Furthermore, our internal data shows that 34% of those who had credit scores below 640 could quickly score above that threshold.

If you were to take a lender that converted nearly 70,000 inquiries into 46,000 loan applications, roughly 7,000 of those inquiries fell out because of credit. If 34% of those could achieve a +640 score, an additional 2,400 inquiries could turn into closed loans. Using MBA survey data to estimate pre-tax net income of $2,013 per closed loan, this lender would add an additional $4.8 million in production profit.

Qualify more applicants

To understand the production profit opportunity for applicants who fell out due to credit, we turned to HMDA data. For the same lender processing 46,000 applications, we know that about 3,500 will fall out due to credit being the ONLY reason for denial. Again, if 34% of those who were initially denied could score above 640, this lender could close another 1,200 loans and add an additional $2.4 million in production profit.

Get more applicants to the closing table

Consumers aren’t just considering more than one lender. We know from our survey that 39% of those applying for new mortgages and 30% of those refinancing end up applying with two lenders. An additional 17% and 9%, respectively, apply with three lenders. This means that smart consumers are shopping around and looking for the best deal.

Going back to the lender that processes 46,000 applications, HMDA data shows us that nearly 2,300 of those applications were approved by the lender but NOT accepted by the consumer. While we don’t know for sure, it’s probably a safe bet that many took their business to another lender. How much of that fallout could have been saved if the lender could have assured the consumer that they were getting them the best rate and terms based upon their credit potential?

If we were to assume that 25% of that fallout could be saved, the lender could add another $1.1 million in production profit.

With a tightening market, lenders will be looking for smart strategies to help retain leads and close more loans. The above example demonstrates how a lender can squeeze an additional $8.3 million in production profit from their existing 70,000 inquiries.

Imagine if that same lender marketed its credit-first approach to consumers shopping for mortgages or looking to refinance? Lenders that take this approach will be meeting those consumers with something they value. While we don’t have the data to back it up, we think it’s a safe bet that the lender would be able to grow that pipeline of 70,000 inquiries, pull through even more loans and meaningfully grow production profit.

Want to learn more? Download the Credit First Approach to Mortgage Lending at www.creditxpert.com/CreditFirst

(Sponsored content includes material submitted independently of the Mortgage Bankers Association and MBA NewsLink and does not connote an MBA endorsement of a specific company, product or service. For more information about sponsored content opportunities, contact Bill Farmakis at bill@jlfarmakis.com or 203/834-8832.)