With Your Permission: Data and Default Servicing

Consumer-permissioned data is already reshaping the loan origination verification process. Using data permissioned directly from their bank accounts, borrowers can apply for a mortgage and verify their assets, income, and employment, all while avoiding the lengthy and often inaccurate experience of verification via paper statements. Direct access to bank accounts has made verification faster, easier, and more streamlined for both borrowers and loan officers.

Now, default servicers can harness the same data to predict missed payments and defaults, monitor financial wellness, create new business through refinances, and provide tools to borrowers that help them improve their financial literacy and likelihood to repay.

Consumer-Permissioned Data Basics

Consumer-permissioned data is the transactional and account-level information found in a customer’s bank statement, which the customer has permissioned a business to access on their behalf. This all happens in a matter of minutes through a portal that’s branded for the lender or servicer. Consumers can simply select their bank, login to their profile, and permission the selected accounts from which they want to provide data.Regulators recently recognized that the use of this data may improve the speed and accuracy of credit decisions, help firms evaluate the creditworthiness of consumers, and provide similar benefits in the servicing realm.

Applying Consumer-Permissioned Data to Servicing

Once a loan has closed, servicers can receive ongoing permissioned data for enhanced visibility into the health of their borrower.

• By combining transaction data with credit files, servicers can see an up-to-date debt-to-income (DTI) ratio each month. A consistently increasing DTI ratio could signal problems ahead.
• Similarly, servicers can identify income via direct deposit transactions. Any interruption to vital income could be an early warning sign of a lost job and the potential for an upcoming missed payment.
• Other indicators, like cash on hand, positive balances, or recency and frequency of transactions, can serve as wellness signals across the life of a loan. Servicers can use these indicators to suggest the right programs to borrowers before, during, or after they default.
• Servicers can also use this data to make personalized recommendations to their borrowers. These opportunities include refinances, home equity loans or other mortgage products. If you provide services beyond mortgages, you can also use permissioned data to determine who would be a good fit for personal loans, credit cards, or other products offered by your institution.

In addition to internal uses, servicers can also share this with their borrowers through a personal finance management (PFM) application. Insights into their own household’s financial situation can help borrowers stay on track or improve habits, reducing the chance of default. In a pilot program, we found that borrowers who used a PFM after a loan modification increased their likelihood to stay current over the next six months.

Not only can consumer-permissioned data aid in traditional servicing, but it can also help service loans better, broaden financial products, and even empower your consumers with access to more insights into their financial health and wellness.