By effectively using technology to gather and verify big data, lenders can underwrite with greater precision, improve loan-level decision making and maximize the integrity of their mortgage portfolios.
Establishing an applicant's ability to repay a mortgage relies on more than trusting borrower-provided documentation because the chances that the information is incomplete or has been misrepresented are unfortunately too high.
To address this challenge head-on, lenders must
By gaining access to supplemental data such as owner-occupancy, income, employment tenure, living expenses and other major financial obligations, lenders can make better risk-based decisions to close loans.
Fortunately, advancement in electronic records management and the ease of secure data transfers are empowering the industry like never before. A wealth of data resources are available now that were not previously accessible during the loan application process.
Traditional elements such as payment history and trade lines are no longer enough to obtain a complete, 360-degree view of an applicant since no two borrowers are exactly alike and credit files are not static. Historical data can be predictive — however, collateral and capacity must also be considered in addition to credit.
Reviewing supplemental data provides greater visibility into an applicant's financial health as well as assesses their ability to repay. Gathering, analyzing and using big data is no longer a foreign concept to most lenders and the practice has allowed the larger marketplace to proactively incorporate these various data elements into their workflows.
Mortgage service providers are also embracing big data resources — whether data is structured or unstructured. What is important is the ability to gain insights from the aggregation of various information building blocks to form a complete, consolidated view of the individual borrower.
Lenders are increasing their use of electronic signature and record technologies to gain access to big data while providing transparency to borrowers. These electronic processes keep detailed transaction activity logs for auditable proof of compliance reporting. This allows lenders to safely analyze the data and determine what is most important to them and their loan decision making process.
Big data and the technology to access it is significantly changing underwriting practices, allowing all documentation to be handled electronically and streamlining notoriously lengthy processes while capturing more data points.
Self-reported documents submitted by borrowers can be conveniently uploaded or scanned; in addition to making this simple for borrowers, the ability to review content digitally helps lenders easily see whether they receive the most updated borrower information.
Moving forward, lending practices need to continue to evolve to include more analysis of big data which will help in originating performing loans and ensure that value is created not only for lenders, but for investors and consumers, as well.
Jeff Knott is the 2015 Chairman of the Electronic Signature and Records Association; and an assistant vice president at Equifax.
