JT Edelen of Equifax: Trends in Employment and Credit Access: Navigating Mortgage Lending Amid Economic Uncertainty 

JT Edelen serves as Senior Director of Mortgage Verifications Services at Equifax Workforce Solutions. Edelen is responsible for solution sales, client management, project management, strategic planning, market analysis and negotiations.

Trends in employment and inflation are important indicators of the health of the economy, and talks of a potential recession are echoing.  Recently, Equifax reported in its Market Pulse webinar that the labor market is softening, and the number of job openings has slowed over the course of 2022. Plus, it is becoming apparent that consumers are beginning to feel the pain of inflation. Credit card debt is increasing, and the personal savings rate is at a 17-year low, the latest Equifax Market Pulse webinar reported.

Faced with today’s changing income and employment trends, leveraging expanded datasets can help financial institutions continue to provide fast, confident mortgage lending decisions, expand access to credit and grow their portfolios. 

The Way Americans Work Has Changed 

The Covid-19 pandemic shifted where and how the average American works; by the looks of it, that will not change anytime soon. Some Americans have gone into business for themselves by dabbling in entrepreneurship or starting side hustles. With uncertain economic times ahead, some may experience layoffs.

Mortgage lenders must ensure that they have the proper tools to keep up with employment trends and properly evaluate borrowers’ financial health. Leveraging traditional data sources alone to gauge creditworthiness may unintentionally exclude otherwise qualified candidates and limit their opportunities to be extended credit or be presented with a lower interest rate. 

Leveraging More Data to Unlock More Opportunities  

From fluctuating hiring trends to the growing appeal among younger generations of jumping from job to job, consumer income and employment changes are driving a need for lenders to utilize a more holistic view of candidates’ finances in order to make more confident lending decisions. Understanding a more complete financial picture across populations starts with data, and expanded inclusion starts with expanded visibility.

Thanks to technology, the mortgage lending industry has discovered additional ways to identify qualified consumers. Supplementing traditional credit data with third-party information, such as income and employment data, can open up a world of lending opportunities – providing previously underserved consumers access to the credit for which they qualify while helping lenders have a more complete financial view of their borrowers.

In the world of credit, visibility is everything! More than 77 million consumers have thin credit files or are credit invisible* – yet many of these consumers may have the income and employment status that otherwise make them qualified loan applicants. Possessing little or no credit history can prevent consumers from being approved for their next car, home, or credit card. Expanding visibility can provide more opportunities for qualified home buyers while helping better manage risk for lenders.

The Importance of Enabling a More Holistic View of the Borrower

In today’s volatile market, leveraging differentiated data sets has become increasingly crucial as lenders seek better insights into a borrower’s real-time financial condition. Yet many mortgage lenders still aren’t taking advantage of the opportunity to help expand access to credit and potentially drive immense portfolio growth. 

Traditionally, credit data is what mortgage lenders lean on to make decisions. So-called ”alternative data,” such as income and employment information, looks at other aspects of a consumer’s everyday life to allow a lender to make a more informed decision and have an understanding of the borrower beyond the scope of traditional data alone. This alternative data permits lenders to think outside the box and potentially be more inclusive when evaluating members of underserved communities. 

Financial data has a clear correlation to consumer behavior. Still, current benchmarks used to gauge a borrower’s propensity to repay a loan may be too limited to benefit borrowers with “thin” or no credit files. With the shift in the way Americans work, mortgage lenders need to expand how they evaluate their borrower’s ability to repay loans.

Using alternative data sets, mortgage lenders can uncover new customer bases they may have overlooked. By understanding consumer trends and looking at more than traditional credit alone, lenders can start paving the way toward greater access to credit, despite economic uncertainty, and work toward enabling homeownership opportunities for more consumers. Mortgage lenders who want to remain competitive while giving their customers the best opportunities for financial growth in our fluctuating economy should harness the power of alternative data to minimize risk during the decisioning process and also open opportunities to new consumers. Utilizing alternative data may permit lenders to grant access to credit for members of underserved communities and non-traditional workers who have pursued unorthodox means for income and employment. This data can also enable lenders to strengthen the accuracy and efficiency with which they evaluate a borrower’s ability to repay a loan, further protecting the organization from a default.

(Views expressed in this article do not necessarily reflect policy 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 Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)