Jarod Jones: How technology can empower mortgage lenders in a recessionary market

PERSON OF THE WEEK: For mortgage lenders to thrive in the current recessionary environment, they must be willing to expand their product line to include adding alternative lending products and using alternative data in underwriting.

But in doing so, they must be extremely vigilant in their use of alternative data, in order to maintain compliance and ensure the borrower’s ability to repay. They also need to be careful not to become too narrow in terms of the data they use for underwriting. For most lenders, verifying a borrower’s income and employment will continue to be standard in the underwriting process, regardless of the amount of alternative products that use other data sources such as the rent and utility bills.

Meanwhile, the job market is changing again, which means that many potential borrowers may soon become gig workers or become self-employed, driving the growth of alternative lending products.

Additionally, the mortgage industry is expected to experience significant layoffs as a result of the massive decline in lending volume, which means automation of key processes – including employment and revenue versification – will become more important.

To learn more about how these factors impact mortgages — and specifically why verifying income and employment will continue to be essential — MortgageOrb recently interviewed Jarod Jones, Sales Manager, Mortgage Verification Services, Equifax Workforce Solutions.

Q: There is a lot of movement in the labor market. Can you talk about the impact of job changes on lenders and borrowers?

Jones: Current market volatility, changes in the workforce and talk of a recession have made a risky landscape even more challenging for the mortgage industry. Consumers are increasingly changing where and how they work, and many are avoiding staying with one employer for long periods of time. We talk about a recession, and analysts say it’s not a question of whether we’re going to go into a recession, it’s more a question of when we’re going to go into a recession.

Many variables can affect a consumer’s ability to pay off debt or take out new credit, such as job changes, accommodation costs, inflation, and other economic impacts. Financial and economic gains made during the pandemic can be easily lost. The loss of economic strength means that borrowers’ credit ratings could begin to decline, monthly disposable income could decline, and consumers’ prospects for long-term financial health and wealth creation could be reduced.

In this climate, income and employment data are one of the strongest indicators of consumers’ financial capacity to take out additional loans and credit. Relying on data provided by consumers, such as W-2 forms, estimated incomes, and pay stubs, can lead to risks such as altered or incomplete information provided by the applicant. Additionally, while credit scores serve as a solid foundation for assessing a consumer’s readiness to pay their financial obligations, the use of income and employment checks help provide a more holistic view of applicants that can allow lenders to say “yes” to more consumers.

Q: We are seeing an increase in layoffs in the mortgage industry. How can technology help ensure business continuity and security in this sector?

Jones: The entire industry is feeling the effects of the layoffs and recognizes the need to adjust its operational strategies to compete in today’s marketplace. Mortgage professionals can better streamline tasks by using technology and automation. By implementing tools to help streamline tedious tasks that are traditionally paper-based, mortgage professionals can create a win-win situation for themselves and for consumers.

Automating tasks such as verifying income and employment can increase efficiency and provide a smoother and safer application process for new and existing consumers.

Automated technologies mean employees spend less time on traditionally manual tasks. By reducing the time spent on tedious tasks, reducing the risk of human error, and speeding up time to close, lenders may be able to operate more efficiently, reduce costs, and increase conversions simply through the ‘automating.

Q: How can income and employment data be used to help lenders compete in today’s HELOC market?

Jones: Although housing costs have exceeded pre-pandemic prices, the property value of many homes has also increased, leading some homeowners to dip into their home equity. Modern consumers expect instant results and tend to prefer highly tactile digital channels and mobile app experiences over traditional home equity loan models that lack personalization.

Additionally, the Federal Reserve has already hiked rates several times in 2022, making homeowners more likely than ever to choose to leverage their capital to remodel or upgrade their existing home rather than buying a new one.

Alternative data can provide real-time checks on a borrower’s employment and income status. With this data, loan decision time can be reduced from days to minutes, potentially bringing more loans into the pipeline efficiently and significantly reducing processing costs.

Accurate and reliable consumer data is paramount in today’s environment of stringent regulatory requirements and consumer intolerance of service or access disruptions. Lenders need to be able to make more informed decisions, mitigate risk, and meet underwriting requirements using current, reliable, cutting-edge income and employment data.

Q: Information about technology and data plays an important role in measuring the overall financial health of borrowers. So how can it also attract more borrowers into the lending landscape?

Jones: Alternative data is the bridge to home ownership for many borrowers with “light” credit histories and subprime scores. The problem with lenders using a narrow scope of information to assess financial well-being is the potential for it to negatively impact consumers or lead to additional risks for lenders.

When lenders have a limited view of a consumer’s financial situation, they may limit their ability to extend credit to valid applicants.

Greater visibility through technology and alternative data sets can revolutionize how lenders assess borrower credit and risk, leading to more inclusive lending systems.

Without a more holistic view of each applicant’s ability to repay a loan, a lender might say “no” to someone who is potentially a good customer.

Knowing that a borrower has a consistent employment and income history can put lenders at ease when assessing a borrower’s ability to repay debt.

About Jermaine Chase

Check Also

Using the cloud for income and employment verification

In a recent Equifax survey, nearly 40% of dealerships said they were still not investing …