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With a wave of HELOCs reaching the end-of-draw period, lenders are anxious to see how this will impact their portfolio. A new Experian study reveals likely consumer behaviors.

Time heals countless things, including credit scores. Many of the seven million people who saw their VantageScore® credit scores drop to sub-prime levels after suffering a foreclosure or short sale during the Great Recession have recovered and are back in the housing market. These Boomerang Buyers — people who foreclosed or short sold between 2007 and 2014 and have opened a new mortgage — will be an important segment of the real estate market in the coming years. According to Experian data, through June 2016 roughly 800,000 people had boomeranged, with Los Angeles, Phoenix, and Sacramento housing the most buyers. Some analysts believe more than three million Americans will become eligible for a home over the next three years. Are potential Boomerang Buyers a great opportunity to boost market share or a high risk for a portfolio? Early trends are positive. The majority of Boomerang Buyers who opened mortgages between 2011 and June 2016 are current on their debts. An Experian study revealed more than 29 percent of those who short sold have boomeranged, and just 1.5 percent are delinquent on their mortgage —falling below the national average of 2.8 percent. This group is also ahead of or even with the national average for delinquency on auto loans (1.2 percent vs. the national average of 2.2 percent), bankcards (3 percent vs. 4.3 percent) and retail (even at 2.7 percent). For those Boomerang Buyers who had foreclosed, the numbers are also strong. More than 12 percent have boomeranged, with just 3 percent delinquent on their mortgage. They also match or are below national average delinquency rates on auto loans (1.9 percent) and bankcards (4.1 percent), and have a slightly higher delinquency rate for retail (3.5 percent). Due to their positive credit behaviors, Boomerang Buyers also have higher VantageScore® credit scores than before. On average, the overall non-boomerang group’s credit score sunk during a foreclosure but went up 10 percent higher than before the foreclosure, and Boomerang Buyers rose by nearly 14 percent. For people who previously had a prime credit score, their number dropped by nearly 5 percent, while those who boomeranged returned to the score they had prior to the foreclosure. By comparison, the overall non-boomerang and boomerang group saw their credit score drop during a short sale and increase more than 11 percent from before the short sale. For people who previously had prime credit, they dropped 2 percent while those who boomeranged were almost flat to where they were before the short sale. Another part of the equation is the stabilized housing market and relatively low loan-to-value (LTV) limits that lenders have maintained. In the past, borrowers most often strategically defaulted on their mortgages when their LTV ratios were well over 100 percent. So as long as lenders maintain relatively low LTV limits and the housing market remains strong, strategic default is unlikely to re-emerge as a risk.

Experian estimates card-to-card consumer balance transfer activity to be between $35 and $40 billion a year, representing a sizeable opportunity for proactive lenders seeking to grow their revolving product line. This opportunity, however, is a threat for reactive lenders that only measure portfolio attrition instead of working to retain current customers. While billions of dollars are transferred every year, this activity represents only a small percentage of the total card population. And given the expense of direct marketing, lenders seeking to capitalize on and protect their portfolio from balance transfer activity must leverage data insights to make more informed decisions. Predicting a consumer’s future propensity to engage in card-to-card balance transfers starts with trended data. A credit score is a snapshot in time, but doesn’t reveal deep insights about a consumer’s past balance transfer activity. Lenders that rely only on current utilization will group large populations of balance revolvers into one bucket – and many of these individuals will have no intention of transferring to another product in the near future. Still, balance transfer activity can be identified and predicted by utilizing trended data. By analyzing the spend and payment data over time to see when one (or multiple) trade’s payment approximately matches another trade’s spend, we have the logic that suggests there has been a card-to-card transfer. What most people don’t realize is that trended data is difficult to work with. With 24 months of history on five fields, a single trade includes 120 data points. That’s 720 data points for a consumer with six trades on file and 72,000,000 for a file with 100,000 records, not to mention the other data fields in the file. It’s easy to see why even the most sophisticated organizations become paralyzed working with trended data. While teams of analysts get buried in the data, projects drag, costs swell, and eventually the world changes as rates climb and fall. By the time the analysis is complete, it must be recalibrated. But there is a solution. Experian has developed powerful predictions tools that combine past balance transfer history, historical transfer amounts, current trades carried and utilized, payments, and spend. Combined, these data fields can help identify consumers who are most likely to transfer a balance in the future. With Experian’s Balance Transfer Index the highest scoring 10 percent of consumers capture nearly 70 percent of total balance transfer dollars. Imagine the impact on ROI of reducing 90 percent of the marketing cost of your next balance transfer campaign and still reaching 70 percent of the balance transfer activity. Balance transfer activity represents a meaningful dollar opportunity for growth, but is concentrated in a small percentage of the population making predictive analytics key to success. Trended data is essential for identifying those opportunities, but financial institutions must assess their capabilities when it comes to managing the massive data attached. The good news is that regardless of financial institution size, solutions now exist to capture the analytics and provide meaningful and actionable insights to lenders of all sizes.

The pendulum has swung again. The great recession brought a glacial freeze to access to capital. The thaw brought rapid, frictionless underwriting with an almost obsessive focus on growth and customer experience. Enter Marketplace Lenders and their more “flexible” approach to credit risk assessment. While much good has come from this evolution in financing, new challenges have surfaced – especially as it pertains to fraud prevention and credit risk management. Stacking has emerged as a particularly knotty problem in the small business lending space. Applicants have the opportunity to apply for and be approved for multiple loans in a matter of days or even hours.   Technology allows for underwriting that is at least somewhat automated and depositing often occurs within hours of approval. The speed of fulfillment is a boon for small businesses. However, it also makes it possible to be approved and draw down funds on multiple loans in quick succession. Core underwriting metrics, such as debt-to-income ratios and cashflow, are unreliable in the face of ratcheting debt from concurrent online business loans. This situation occurs because the window between the approval of the loan and delivery of the funds is much shorter than the timeframe to report the loan to credit reporting agencies and other third-party data suppliers. Not all lenders report small business loans, further compounding the problem.  Lenders’ risk and pricing strategies are hamstrung in the face of stacking, whether intentional on the part of the small business or not. If a struggling small business applies for credit and receives multiple loan offers, should we rely on their ability to resist the temptation to accept them all and use the funds wisely? No. The burden rests squarely on the credit provider to proactively address the problem. Technology-enabled frictionless underwriting underpins the online consumer loan space and facilitates a similar, yet subtly different stacking problem.  There are a large number of loan providers, with a spectrum of risk appetites and pricing strategies. This all but ensures that a consumer has access to additional loans at an ever-increasing interest rate. The underlying assumption, among the more mainstream, lower-rate providers, is that the consumer is disclosing all of their obligations – including any recent loans.  Although reporting in the consumer space is more robust and timely, it is still possible for an applicant to quickly access and draw funds on several loans within a very short timeframe, making it difficult for loan providers to get a full and complete picture of their capacity to repay the loan. The situation is further complicated by lenders at the higher risk, higher rate end of the market whose business models are structured to allow for, and perhaps even encourage, stacking by the consumer. Fortunately, there are a number of steps lenders can take to improve the situation: Contribute credit data to the credit reporting agencies. Know your customer, their industry, their market and underwrite appropriately. Develop a tailored underwriting approach that achieves a balance between frictionless customer experience and prudent credit and risk assessment. All applicants are not equal, and some require additional scrutiny and more time to underwrite. Understand the drivers and indicators of stacking. The latter point is worth emphasizing. The time to address stacking is prior to funding. This requires the lender to anticipate, identify and pre-empt stackers. There is no 100 percent foolproof remedy.  However, lenders can stack (pun-intended) the odds in their favor. For example, if an existing loan has a high balance and is delinquent, might that be an indicator of a propensity to stack? What if the business owner has applied for multiple loans, resulting in multiple inquiries, over a 45-day period? A proactive, data-driven anti-stacking strategy can yield positive results, reducing delinquency and losses. In combination with consistent comprehensive reporting to the bureaus, it can go a long way toward reducing the risk posed by this largely invisible threat.

Congress recently took several actions signaling a growing interest in regulatory issues surrounding the Fintech sector. This growing attention follows a number of recent inquiries by federal and state regulators into the business practices in the industry. Subcommittee takes a deep dive into Fintech and OML regulatory landscape In July, the House Subcommittee on Financial Institutions and Consumer Credit held a hearing entitled Examining the Opportunities and Challenges with Financial Technology (“Fintech”). Witnesses and lawmakers voiced optimism that online marketplace lending can help to expand access to capital for consumers and small businesses, but the hearing also focused on a growing schism as to whether new regulations or changes to the underlying framework is necessary to ensure consumers are protected. Some lawmakers and the witness from the American Banking Association expressed concerns that the Fintech and marketplace lenders may benefit from being outside of the supervisory scope of prudential regulators and the Consumer Financial Protection Bureau (CFPB). Witnesses from the marketplace lending industry argued that they are obligated to meet all of the same regulatory compliance requirements as traditional lenders. Rep. McHenry introduces package of Fintech bills aimed at spurring innovation In addition, Congressman Patrick McHenry (R-NC), a member of the House Republican Leadership team and the Vice Chairman of the House Financial Services Committee, introduced two bills this month aimed at spurring innovation in the Fintech industry. H.R. 5724, the Protecting Consumers’ Access to Credit Act of 2016, would clarify that federal law preempts a loan’s interest rate as valid when made. The bill is in response to the Supreme Court’s recent decision not to hear Madden v Midland, a case in which the Second Circuit court ruled that the National Bank Act does not have a preemptive effect after the national bank has sold or otherwise assigned the loan to another party.  The reading of this law has created uncertainty for Fintech companies and the banks that partner with them. H.R. 5725, the IRS Data Verification Modernization Act of 2016, requires the IRS to automate the Income Verification Express Service process by creating an Application Programming Interface (API). The legislation is aimed at speeding up and improving the automation of the loan application process. In particular, it is aimed at streamlining the process by which lenders gain access to tax transcript data. Currently, lenders may require applicants to fill out IRS form “4506-T,” which gives the lender the right to access a summarized version of their tax transcript as part of the process to confirm certain data points on their application. According to industry reports, this manual process at the IRS takes two to eight days, creating unnecessary delays for Fintech companies and banks that rely on leveraging data and technology to make faster, informed decision for consumer and small business lending Both bills have been referred to the House Financial Services Committee for review.

All customers are not created equal - at least when it comes to ability to pay. So what are the natural moments for a lender to assess?

Financial health open doors for people, creating opportunities for credit, cars, homes and stability. So how can you get "healthy?"

While organizations increasingly rely on data to make decisions, when it comes to data accuracy, too many wait to correct errors rather than implement proactive solutions.

As net interest margins tighten and commercial real estate concentrations begin to slowly creep back to 2008 levels, financial institutions should consider looking to their branch networks to drive earnings. Why wouldn’t you, right? The good news is branch networks can embrace that challenge by simply using some of the tools they already have access to – most notably the credit report. Credit reports are generally seen as a tool to assist financial institutions in assessing credit risk. However, if used properly, credit reports can provide a wealth of insight on selling opportunities as well. Typically when a customer’s credit report is pulled, the personal banker or customer service representative is primarily focused on whether or not a loan application is approved based on the institution’s approval parameters. Instead, what if a lender elected to view this customer interaction as an opportunity to deepen the relationship? So, here are three ways to utilize credit reports to generate earnings through retail loan growth: 1. Opportunities to Consolidate Debt  Looking for debt consolidation opportunities is probably the simplest way to mine for opportunities. For example: Personal Banker: “It looks like you also have a card credit with XYZ and ABC Bank. Based on your application, we can consolidate both of those balances into one and give you a lower interest rate.” Be specific. Tell the customer exactly how much money per month they would be able to save and the benefits of consolidation. Not to mention, debt consolidation often reduces a lender’s credit risk and enhances customer loyalty, so this is a win for the institution as well. 2. Opportunities to Provide Additional Credit  Another method would be to “soft pull” a segment of your portfolio to identify customers who qualify for larger credit card balances or refinance opportunities. This strategy is best executed at the portfolio management level, as insight is needed on the bank risk appetite and concentration levels. Layering on a basic prescreen helps qualify and segment your prospect list according to your unique credit criteria. You can also expand the universe with an Experian extract list, identifying new consumers who might be open to new offers. 3. Find Hidden Opportunities Credit scoring models are not perfect. There are times when a person’s credit score does not reflect an applicant’s true risk profile. For example, a person who was temporarily out of work may have missed two to three payments during that period. A deeper scan of the credit report during underwriting may reveal an opportunity to lend to a person rebounding from financial difficulties not yet reflected by their credit score. For example, this individual may have missed two credit card payments but hasn’t missed a mortgage or car payment in 20 years. A score is just one dimension to the story, but trended insights can shine a light on who best to lend to in the future. Conclusion: With the proper tools and training, your retail team can get more out of the basic credit report and find additional opportunities to deepen customer relationships while maintaining your desired risk profile. The credit report can be a workhorse for your team, so why not leverage it for more business. Note: The information above outlines several uses for a credit report.  Separate credit reports are required for each use with the intended permissible purpose. Ancin Cooley is principal with Synergy Bank Consulting, a national credit risk management and strategic planning firm. Synergy provides a rangeof risk management services to financial institutions, which include loan reviews, IT audits, internal audits, and regulatory compliance reviews. As principal, Ancin manages a growing portfolio of clients throughout the United States.

As temperatures climb, so do automotive sales, which often reach annual highs during the warmest months of the year. 

With the summer home-buying season underway, borrowers and lenders alike can benefit from tools to speed up the loan and escrow process.

It’s impossible to capture all of the insights and learnings of 36 breakout sessions and several keynote addresses in one post, but let’s summarize a few of the highlights from the first day of Vision 2016. 1. Who better to speak about the state of our country, specifically some of the threats we are facing than Leon Panetta, former Secretary of Defense and Director of the CIA. While we are at a critical crossroads in the United States, there is room for optimism and his hope that we can be an America in Renaissance. 2. Alex Lintner, Experian President of Consumer Information Services, conveyed how the consumer world has evolved, in large part due to technology: 67 percent of consumers made purchases across multiple channels in the last six months. More than 88M U.S. consumers use their smartphone to do some form of banking. 68 percent of Millennials believe within five years the way we access money will be totally different. 3. Peter Renton of Lend Academy spoke on the future of Online Marketplace Lending, revealing: Banks are recognizing that this industry provides them with a great opportunity and many are partnering with Online Marketplace Lenders to enter the space. Millennials are not the largest consumers in this space today, but they will be in the future. Sustained growth will be key for this industry. The largest platforms have everything they need in place to endure – even through an economic downturn.In other words, Online Marketplace Lenders are here to stay. 4. Tom King, Experian’s Chief Information Security Officer, addressed the crowds on how the world of information security is growing increasingly complex. There are 1.9 million records compromised every day, and sadly that number is expected to rise. What can businesses do?  “We need to make it easier to make the bad guys go somewhere else,” says King. 5. Look at how the housing market has changed from just a few years ago: Inventory continues to be extraordinarily lean. Why? New home building continues to run at recession levels. And, 8.5 percent of homeowners are still underwater on their mortgage, preventing them from placing it on the market. In the world of single-family home originations, 2016 projections show that there will be more purchases, less refinancing and less volume. We may see further growth in HELOC’s. With a dwindling number of mortgages benefiting from refinancing, and with rising interest rates, a HELOC may potentially be the cheapest and easiest way to tap equity. 6. As organizations balance business needs with increasing fraud threats, the important thing to remember is that the customer experience will trump everything else. Top fraud threats in 2015 included: Card Not Present (CNP) First Party Fraud/Synthetic ID Application Fraud Mobile Payment/Deposit Fraud Cross-Channel FraudSo what do the experts believe is essential to fraud prevention in the future? Big Data with smart analytics. 7. The need for Identity Relationship Management can be seen by the dichotomy of “99 percent of companies think having a clear picture of their customers is important for their business; yet only 24 percent actually think they achieve this ideal.” Connecting identities throughout the customer lifecycle is critical to bridging this gap. 8. New technologies continue to bring new challenges to fraud prevention. We’ve seen that post-EMV fraud is moving “upstream” as fraudsters: Apply for new credit cards using stolen ID’s. Provision stolen cards into mobile wallet. Gain access to accounts to make purchases.Then, fraudsters are open to use these new cards everywhere. 9. Several speakers addressed the ever-changing regulatory environment. The Telephone Consumer Protection Act (TCPA) litigation is up 30 percent since the last year. Regulators are increasingly taking notice of Online Marketplace Lenders. It’s critical to consider regulatory requirements when building risk models and implementing business policies. 10. Hispanics and Millennials are a force to be reckoned with, so pay attention: Millennials will be 81 million strong by 2036, and Hispanics are projected to be 133 million strong by 2050. Significant factors for home purchase likelihood for both groups include VantageScore® credit score, age, student debt, credit card debt, auto loans, income, marital status and housing prices. More great insights from Vision coming your way tomorrow!          

It’s one of our favorite times of year. Yes, spring is in the air, and we’re delighted to spend a few days away from the office in picturesque Scottsdale, Arizona. But what really has us excited is the opportunity to connect with a diverse network of industry leaders from across the country at our 35th annual Vision Conference. We have a full agenda, featuring sessions on advanced data analytics, market trends, fraud and identity, regulatory hot topics and more. And our theme for this year is geared toward giving participants the tools and insights they need to take control of their respective businesses to grow new markets, increase existing customer bases, reduce fraud and increase profits. In addition to 70-plus breakout session, guests will be treated to several keynote addresses: Leon Panetta, former U.S. Secretary of defense and former Director of the CIA James W. Paulsen, Chief Investment Strategist, Wells Capital Management Jay Leno, Television Host, Author and Comedian Listen to Experian North America CEO Craig Boundy’s welcome message, and start your Vision three-day event with the goal of meeting and engaging with as many old and new contacts as possible. For individuals not attending this year’s Vision, stay tuned for learnings and insights that will be shared in the coming weeks. Attendees and non-attendees alike can also follow updates on Twitter and via #vision2016.  

Four Experian employees reflect on financial lessons and challenges learned during their time served in the military.

Credit invisibles often want access to credit, but are not easily scored via tradition credit models, and thus fall through the cracks. So how can lenders grow this population?