During the mortgage origination process, lenders use credit reports in two instances: For the pre-screening process, it is the first indication of the individual’s creditworthiness. Then, right before closing, a pre-close report will indicate if there are any worrisome changes since the previous reporting.
However, during the period in between the pre-screen and pre-close — known as “the quiet period” — the consumer may unknowingly rack up new debt. In doing so, he or she could become disqualified for the loan, but the traditional credit report won’t catch that right away. It is not until the final pre-close report that many borrowers and lenders learn of potential problems. When the lender and borrower make that unpleasant discovery, it holds up the entire closing process.
Poor borrower experiences
The mortgage lending process is complex for all parties, and the threat of becoming unapproved just days before closing can send the buyer on an emotional roller coaster. Most borrowers do not increase debt ratios and purposely fail to disclose debt, so they’re likely shocked about the risk of having the closing delayed or even canceled as the result of the pre-close report. This is especially true for those who may be selling another home at the same time or need to move quickly.
It’s a terrible customer experience that, rightly or wrongly, they will associate with your organization. They’ll tell friends and family — and in this age of social media, very likely post it online — which will create some negative associations with your business.
Risks to partners
To further complicate matters, partnerships are often damaged after these hiccups occur. This includes real estate agents and other partnerships that lenders rely on to bring in mortgage borrowers. If a mortgage lender experiences repeated problems with closings, few partners will want to continue these relationships.
Often, real estate agents who have had closings delayed or postponed are less likely to recommend the same mortgage lender to a future buyer as well.
Finding a solution
The credit report is a static form with information only presented at the start and near the conclusion of the origination process. This process lacks any real information for the lender or the buyer during the quiet period.
However, the use of ongoing credit monitoring, such as the programs available through Equifax, will allow lenders to keep a close eye on the borrower, potentially reducing the risk of undisclosed debt occurring and becoming a problem later. Ultimately, tapping the basic credit report isn’t enough. Extensive monitoring throughout the process reduces risk, increases potential profit and delivers a better customer experience, especially if delays are minimized.
Contact us today
To learn more about Equifax’s dynamic credit monitoring service, Undisclosed Debt Monitoring™, visit www.equifax.com/mortgage/UDM.