Credit Risk Data Drilling Power Yet to Be Explored

Borrower risk evaluation findings from untraditional data drilling and analytics sometimes surprise those who initiated the search indicating the existing data is a “gold mine” yet to be explored.

That recognition is fueling a new trend among mortgage data providers.

There is “huge potential” for creativity when drilling the pools of borrower data the industry overall and individual providers have gathered so far, says Janet Ford, senior vice president of The Work Number, a St. Louis based service of Equifax, specialized in employment and income data tools that offers access to over 200 million records.

Ford argues that unless vendors and data providers constantly look at existing data from dissimilar viewpoints they will not be able to leverage all the data potential.

One example is the fact that the employment data gathered by The Work Number represent about 30% of the working population, which may seem relatively small, but that same pool also represents about 17% of the credit-active individuals.

That revelation prompted a “credit active” study of customers “with active and available payroll employment” that purchased on credit in 2010 to examine credit behavior patterns and how they turn into value for lenders. “It was a new view at our data and its real value,” Ford said, making her wonder, “How much data do we really have?”

New analysis focused on finding out how to maximize the value and provide a better solution if the credit-active borrower was examined based on age, personality traits and other factors.

Earlier this year The Work Number introduced Point in Time, a retro income verification tool. The firm is focused on not just keeping the data current but enhancing tools traditionally used in the origination space along with undisclosed debt monitoring, as a solution for both originators and servicers. This year all banks are giving priority to the management of loan modifications, loss mitigation, foreclosures, and how to avoid repurchase requests and buybacks. Fannie Mae and Freddie Mac alone made over $13 billion in repurchase requests, she said, so lenders and servicers need tools they can use “to quickly defend their loans and prove underwriting due diligence.”

Ford told this publication new analytics shows there is a lot to learn about the so-called emerging borrower.

A narrower view on data about younger borrowers, individuals who do not necessarily believe in credit, or those who “do not make the cut” if standard creditworthiness criteria is applied, unveils the features lenders should look for when marketing to future homebuyers. To establish their credit risk The Work Number evaluates data beyond employment history and salary adding to the mix utility payment history and other data.

A study from TransUnion also revealed how tricky traditional credit risk evaluations can be.
Findings show that despite their credit score range, customers who only defaulted on their mortgage during the economic recession were “far better risks” than customers who were delinquent on their mortgage, credit card and auto loan accounts.

Evaluations focused on borrowers with mortgage-only defaults who had opened new credit accounts. TransUnion vice president of financial services group, Steven Chaouki, told this publication the trend became evident only when this particular pool of owners was isolated from the larger, national database.

Due to “the unique circumstances of the recent recession,” Chaouki said, these borrowers did not apply the widely accepted logic that the mortgage comes first but realigned their priorities and stopped paying their mortgage so they could use their short-term cash flow to repay other debts. Homeowners in foreclosure also performed as well, “if not better, on certain accounts” they opened afterwards.

The study shows only 5.8% of homeowners who were mortgage-only delinquent were 60 days or more delinquent on new auto loans, compared to 13.1% of homeowners with multiple delinquencies.
Similarly, 11.4% of mortgage-only delinquent borrowers, compared to 27.1% of those with multiple delinquencies were over 60 days delinquent on their new credit card accounts.

These findings matter to lenders and servicers, Chaouki says, because they help draw a more accurate picture of borrower default risk as lenders are looking for their future homebuyers and servicers contemplate their loss mitigation efforts and risk reserves.

Chaouki adds however that unrelenting data gathering is key.

Demand for predictive analytics that would help lenders and servicers predict potential “strategic defaulters” was a time-dependent process determined by the cycle of events in the housing market. “Data could not be gathered any sooner,” he says.

Time was of essence in congregating information about the properties that experienced excessive depreciation, the geographic breakdown of fluctuations in housing prices across the country and the changes within local communities—which is why, he said, TransUnion could conduct the research only recently.

The data pool of owners facing negative equity in their homes that was used in the study was about 5 million.

Only 130,000 of these borrowers defaulted on their mortgage and then received a new mortgage loan. Their further performance was split in half as 50% of them defaulted only on their new mortgage. The other 50% defaulted on their new mortgage and on other loans such as auto loans.