How lenders can accelerate access to credit for marginalized communities
Homeownership is one of the best ways for consumers to build wealth. Having equity increases net worth, allowing people to build long-term wealth that can be passed down through generations. Unfortunately, the path to homeownership isn’t always readily accessible to everyone.
For those in marginalized communities, it can be much more challenging to achieve the American dream of homeownership. That’s why many in the mortgage industry are actively working to level the playing field.
By using lending technologies like The Work Number from Equifax, the industry can help forge a pathway for greater populations to build generational wealth through homeownership. By leveraging technologies providing seamless access to a greater scope of trusted and secure information, lenders can help ensure that the journey to homeownership is a path on which everyone can walk, no matter the circumstances.
Layering Additional Data with the Traditional Credit Score
In the past, establishing someone’s financial wellness was often done solely with their credit score. But in recent years, the mortgage industry has heard from borrowers that they want to be evaluated using a wider scope of information.
While credit reports remain a strong indicator of credit history and past financial reliability, information that is compliant with the Fair Credit Reporting Act (FCRA) but which is not included in traditional credit report data has the potential to help responsibly expand consumer access to credit and support a more inclusive economy.
Access to this additional data, such as an applicant’s current income and employment status, can provide greater insight for a more complete financial picture of the borrower.
“It’s really important to not look at just one data point or try to judge a person’s financial capacity to repay a loan based on very limited information,” said Ashley Wood, Vice President of Mortgage Verification Services at Equifax. “Leveraging multiple data sets, such as credit data layered with income and employment data, is good for borrowers and good for a lender’s business.”
Equifax is at the forefront of this movement with The Work Number, which gives credentialed verifiers with permissible purpose instant access to extensive employment and income data directly from over 2 million employers.
The cloud-based platform may not only seamlessly provide lenders with data related to a borrower’s financial status, but also can help open the door for a larger pool of applicants to achieve homeownership.
A Faster Path to Homeownership
According to the Consumer Financial Protection Bureau, 26 million Americans are what is known as “credit invisible,” meaning they have no established credit history or are living with subprime credit (scores below 668), and another 19 million are so-called “thin file” consumers, with too little data to produce a traditional credit score.
The CFPB also confirms that Black and Hispanic consumers are considerably more likely to be credit invisible, or have unscored credit records, than White or Asian consumers. About 15% of Black and Hispanic consumers are currently classified as credit invisible compared to just 9% of White consumers. Additionally, 13% of Black consumers and 12% of Hispanic consumers have un-scorable records compared to 7% of White consumers.
For these groups, with the disparities they face, the journey to homeownership can sometimes feel like a long one. For mortgage lenders looking to streamline that path, The Work Number can help accelerate the loan origination process. From providing access to instantly-available information to potentially decreasing the time in the closing process, it’s a valuable tool that provides lenders with the data they need to make more informed decisions.
While there’s a push for faster information, there’s an equal push for making less risky decisions on the lender side. This can be challenging for lenders, especially since individuals needing credit may be looking to receive a loan immediately.
With digital and secure third-party data, the possibility of manual error is lessened. Operational efficiencies can be increased, and significant risks can be avoided. In addition to providing excellent customer service, The Work Number helps lenders to create a faster path to revenue.
Serving a Greater Population
Lenders significantly benefit from serving a greater population of consumers. Since they have to report the populations to whom they’re providing loans, The Work Number may help to diversify their portfolio by increasing their work with that population on which they would generally be missing out.
“Adding data from The Work Number into their decisioning process helps lenders see the bigger picture. It’s a concrete action that lenders can take toward financial inclusivity — while aligning with what consumers are looking for.” said Wood. It’s a means of creating inclusion in the mortgage lending process so all people can enjoy the merits of homeownership.
Revolutionizing the Rental Industry
The Work Number can also be a valuable tool within the rental industry. When people are hoping to move into a rental property, they are generally granted rental application approval based on their past rental history and credit score. But for those with little or no credit, this can create a tremendous obstacle.
Landlords and property managers utilizing The Work Number may be able to verify a lease applicant’s income and employment history without asking for old pay stubs or banking credentials, which can cut down on instances of fraud. The Work Number can also be used by lenders for former renters who are looking to move forward and get a mortgage.
Lenders can’t always see potential borrowers by using traditional credit data alone. Luckily, many in the mortgage industry have the insight to take a layered approach for determining credit worthiness.
Largely recognized as the gold standard in the industry, Equifax’s The Work Number can provide lenders with a greater sense of visibility. This access to third-party data serves to empower both the lender and the consumer and can provide a pathway to generational wealth for everyone.
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