Lenders Must Adapt to New Attitudes on Mortgage Debt: Study

Today’s consumers are less likely to place paying off their mortgages high on the list of financial priorities, a new study finds. Lenders, then, can use alternative methods of underwriting to ensure they are adapting to the changing nature of Americans’ attitudes toward debts. 

Taking data conducted in a joint analysis by CoreLogic and FICO, CEB TowerGroup revealed that alternative data such as unsecured credit, payday lending and property history in consumer credit report analyses is relevant to boosting mortgage lending as consumer debt payment behavior has changed. 

CEB TowerGroup’s analysis of the report, titled, “Enhanced Credit Data and Scoring: Deeper Insight into Mortgage Applicants,” reports that because of the recent financial crisis, consumers no longer prioritize paying mortgage debts. Rather, consumers turn their attention to other debts, such as credit card bills and car payments as a means to maintain financial liquidity.

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The declining of home prices, the recession and lost jobs have contributed to the change in traditional consumer behavior. Also declining are demands for new mortgage and home equity loans as missed mortgage and other loan payments have made it difficult for consumers to qualify for credit. 

“Lenders cannot revert back to their prior mortgage underwriting policies. Too much damage has already been done to the market, consumers, shareholders and investors,” said CEB TowerGroup’s senior research director, Craig Focardi. 

According to Focardi, complete loan applicant, property and related information will bring greater resolve, yielding increased efficiency and liquidity to mortgage lending markets.

“This CEB TowerGroup report shows that enhancing the process of determining risk with new alternative data and analytics would allow lenders to approve loan applications that might otherwise be denied, or deny problem loans that might otherwise be approved,” said Tim Grace, senior vice president of Product Management at CoreLogic.

“Both outcomes would help consumers and the market itself,” Grace added.

Written by Jason Oliva

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