To power through the back half of 2023, focus on what you can control

HousingWire recently spoke with Mike Darne, vice president of marketing at CreditXpert, about industry performance in the first half of 2023 and how lenders can work with borrowers to improve their credit.

HousingWire: 2023 has been rough for mortgage lending with mortgage applications down around 60%, what is CreditXpert seeing from a demand side when it comes to credit inquiries?

Mike Darne: We are also seeing a major dip in mortgage credit inquiries, but it is less pronounced than what the industry is seeing in terms of applications. As reported in our most recent Mortgage Credit Potential Index (MCPI), YoY we are seeing a 27% drop in inquiries overall. This means that there is demand out there, people are testing the market to see what they can afford.

That said, the lack of inventory and stubbornly high interest rates are keeping people on the sidelines, for now. While the bottom end of credit spectrum represents a relatively small portion of the overall market, we have seen significant YoY increases (nearly 40%) in the 480 – 560 bands. This likely tells us that there is strong demand for first-time homebuyers. For lenders this presents an opportunity to work closely with those prospective borrowers to get them to a place where they can make a successful application when the time is right.

HW: There have been a number of changes proposed by the FHFA in and around credit this past year. Things like the updated LLPA tables, moving from a tri-merge to a bi-merge requirements and updated credit models. What is your take on these changes?

MD: When you try to thread the needle on these significant changes, what I am seeing is that the industry understands the importance of credit in the mortgage lending decision making process.

The good news here is that when it comes down to credit, it is one of the only decisioning variables that can be impacted in the short run. Things like collateral and capacity are largely static. Credit, however, is something that can be improved in the short run. In fact, our recent Mortgage Credit Potential Index shows that 77% of inquiries below 760 could be improved by at least 20 points within 30 days.

HW: Knowing that there is still demand out there for mortgages, what can lenders do to make the second half of 2023 a better one?

MD: This market has thrown lenders a few macroeconomic challenges that are outside of their control — interest rates and housing inventory, to name just a couple. The best advice I can give for powering through a market like this is to focus on what you can control.

One thing we know is that a borrower’s credit score is something that can be controlled in the short run. As I mentioned before, of the millions of credit inquiries our analytics platform has analyzed in the past 12 months, 77% of those below 760 could be improved by at least 20 points within 30 days. And this ability to improve a credit score in the short run can significantly impact outcomes for borrowers. We know that 53% of those who had initial credit scores below 580 could improve their score enough to qualify for an FHA loan and 36% could qualify for a conventional loan. And in this challenging interest rate environment, we know that 70% could improve their score enough to qualify for a lower rate.

We’re also hearing from lenders that they are attracting more — and repeat — business by letting their lead sources know that they work with borrowers to help them lower the cost of homeownership. Higher credit scores are the key to lower interest rates, lower monthly payments and lower private mortgage insurance premiums. These more compelling offers are possible as lenders are able to generate better margins by lowering LLPA premiums.

HW: How can lenders work with prospective borrowers to improve their credit?

MD: To begin with, we recommend that lenders work closely with their borrowers from the very beginning. This may mean that they move upstream with their lead sources to get borrowers engaged even before they start their home search.

In just seconds, CreditXpert’s predictive analytics platform can show lenders the near-term improvement potential and the likelihood of the borrower achieving a target credit score. Our platform allows lenders to work with their borrowers to model outcomes based upon how much available cash the borrower has on hand to improve their score. From there, a click of a button generates a detailed improvement plan that is optimized against the borrower’s mid score.

In research we conducted late last year, we learned that 69% of those that were presented with improvement plans completed the steps needed to reach their target score. The latest version of our platform even helps lenders track the progress of their borrowers through two-sided dashboard and automated reminders.

We are fortunate to be working with some of the most innovative and highest producing lenders as we look for new ways to help lenders work seamlessly with more and more of their borrowers. Through these tight partnerships, we are constantly developing and bringing new solutions to market.

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