3 Ways Alternative Data Offers Mortgage Lenders a Competitive Edge

As new credit populations emerge in the housing market and competition among lenders heats up, other data avenues must be considered to accommodate new borrowers.

A survey of 317 lenders from TransUnion showed that there is still a significant amount of unrealized opportunity for lenders to use alternative data, or any information that is not captured in a traditional credit score, or data points that are incremental to the credit bureau report, including property, tax and deed records, checking/debit account, and payday lending information, among other sources, to reach more creditworthy consumers.

"Evolving consumer behaviors and the post-recession economy have created new markets and a necessity to reach consumers in new ways. Some borrowers are shut out of traditional credit offerings, and others are not scored using all available data," the report stated. "To stay competitive, lenders are increasingly exploring new ways to fill the unmet needs of consumers who do not meet traditional standards of creditworthiness."

TransUnion's survey concluded that by using alternative data, lenders can:

1. Open opportunities in new markets
2. Extend reach to more creditworthy borrowers
3. Improve the competitive position of a variety of lendersrises.

The survey found that 75 percent of lenders said it is increasingly difficult to find and gain new customers, while nearly the same amount indicated that the challenges from the low interest rate environment is encouraging more competition for a pool of consumers who receive multiple credit offers.

Of those surveyed, 87 percent noted that they decline at least some credit applicants because they cannot be scored and do not meet risk guidelines when assessed with strictly traditional credit bureau information. However, 83 percent of lenders that use alternative data to score credit applicants report seeing tangible benefits and 64 percent have already seen positive results in the first year of using the method.

“Competition for new borrowers has not been this fierce in the lending space since prior to the recession. Our survey results and core performance data point to a new lending environment," said Steve Chaouki, EVP and the Head of TransUnion's Financial Services Business Unit. "Millions of previously unscorable consumers—now scorable by way of alternative data, which is not traditionally found on a credit file—could have access to new loans. Importantly, many of these borrowers are expected to be good risks and welcome additions into lender portfolios.”

Click here to view the full report.