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With half the volume of nearly a year ago, lenders scour for borrowers and prepare for the future.

March 7, 2023 | Curtis Knuth, CEO |

While I was onsite at our Redding, CA branch in late February (before the snow), our Vice President was meeting with our processing team. She was responding to a question about completing verification of residency, “We have to update client FAQs that we cannot call hotels to verify residency. They’re not going to provide us that information.” Wow, I hadn’t heard that in a long time. And yet here we are, partnering clients – going to the mat (wrestling term) for every marginally qualifiable applicant.

Originators have been fighting for every potential borrower over the last 8 months. IMB costs to originate loans exceeded $11K from July – September last year, losing $624 per loan according to the MBA. It really is a difficult time to be a mortgage banker.

In addition to low volume, the mortgage industry is having a gut-check moment. FHFA is indeed

moving to a dual merge, dual score origination credit report. Specific scoring models increased pricing by 400% in 2023, originators are aggressively competing for applicants with trigger leads and the IRS wants consumers to insert themselves in obtaining their transcripts. If you’re not an S1 customer, here’s a sampling of what we’re sharing with our lender/originator shops.

avatars targeting their pipeline

Bite into credit fees with pre-qualification credit reports and Smart Select bureau cascades.

Originating shops know, account executives always want a full tri-merge report. But, during low volume cycles, originators fill pipelines with many credit-challenged applicants. Pulling a hard inquiry, tri-merge credit report on your applicants when fall-out volumes are high is very costly -- and often does not justify the expense. This is especially true when margins per closed loan are so tight.

We’re advising our clients to review tri-bureau, pre-qualification credit reports, or leverage a credit report cascade, such as Smart Select. Pre-qualification or “pre-qual” credit reports are soft inquiry reports that are significantly less costly than a hard inquiry tri-merge. They also don’t result in a trigger lead for your competitors. Pre-quals provide the originator with a full picture of the applicant’s credit history and whether it's justifiable to pull a hard inquiry tri-merge.

Originators should also consider Smart Select. An RPA solution, Smart Select is process automation similar to S1’s VOE cascade. Customers configure the attributes when business logic should pull a second and third bureau. Conversely, End Users also define what negative attributes cause the cascade to stop and alert the End User. There are many complimentary strategies to each approach that we discuss with each S1 client.

Trigger leads – a scourge and a positive.

New account executive training now includes prepping approved borrowers for what comes after their origination credit report is pulled. “You sold my information,” is an exclamation you’ll hear from borrowers not prepared for the near immediate offers from competing originators. As an originator, you need to prep your applicants about forthcoming offers and what they can do to reduce them ( & opt out of pre-screened offers). Conversely, if the economics work for your enterprise, trigger leads may be a solution to bolster your sales efforts. Federally, the FCC currently views trigger leads as a positive product that introduces competition to the marketplace. There are state regulations and FCRA implications your organization would need to address prior to use.

Consumer direct IRS Transcripts?

Yes, the IRS wants consumers to create online accounts to release their tax transcript data to financial institutions or third parties making the request, such as S1. The IRS is pursuing this workflow as they seek more US Taxpayers to create accounts. As more US citizens create online accounts, IRS expenditures for live customer service will decrease as taxpayers use their online accounts for secure messaging with the IRS. Our advocacy efforts are against this workflow. We anticipate consumer fallout to be greatly disruptive to the origination process.

Additionally, the mortgage industry funded this project via increased transcript processing fees. During the fee increase period, the IRS collected $72mm in additional fees from the mortgage industry for a process that will not work for originations. The IRS is required to implement a solution this year that provides results, “in as close to real-time as is practicable” per the Taxpayer First Act. The IRS has scheduled a conference call with IVES participants on February 7th to further discuss modernization efforts.

Portfolio Review

MSR activity is rampant throughout the mortgage industry as IMBs seek to offset the volume losses of the previous year. S1 portfolio services include borrower income review, credit reporting, AVM, multiple models, and automated residency solutions for pre or post-portfolio acquisition. Baseline individual incomes, collateral values, and credit scores. With options through LexisNexis®, Experian®, NCS, and many others, we can create a fast and effective solution to kick off your next project.

Dual Bureau, Dual Score

On October 24, 2022, during the MBA Annual Conference, FHFA made the announcement for, “the validation and approval of both FICO 10T and the VantageScore 4.0 credit score models for use by Fannie Mae and Freddie Mac.” MISMO conducted a workshop at the conclusion of their winter conference to discuss the implications and all the parties to the changes.

There remain significant unanswered questions;

  • “What’s going on with the middle score?”

  • “What will be the credit overlays from investor to investor related to the scores? They ingest different data sets.”

  • “So many models will need to be thrown out and re-engineered.”

  • “Tri-merge logic will need to be re-tooled.”

  • “What will be the impact on pricing?”

FHFA has studied this topic for nearly 10 years and is farther along in this project than many industry participants are aware. We expect to see significant communication and action on this topic from FHFA and the GSEs as we near Q4 2023.


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