8.26.26 Borrower Relationships; Experian’s Michele Bodda on Modern Scoring; Rate Pressures

Robbie Chrisman Welcome to the Crispin Commentary, Daily Mortgage News Podcast. I'm your host, Robbie Crisman. Topics on today's episode include why the information age isn't all unicorns and rainbows. Price might go up and yield might go down, but last week mortgage applications declined. In my interview with Experian, Michele Boda on lenders engaging earlier, providing better education, and using modern credit data to help them overcome affordability and credit hurdles. Here, take a listen to a little preview. When we think about legacy underwriting in the mortgage industry and kind of the gap that's existed, now we're moving into these newer credit scoring models. Why do you think that gap existed in the first place? And why do you think the mortgage industry was kind of running behind when it came to closing it? Michele Bodda I think that the mortgage industry, because we've been reliant on a score that was built 20 or 30 years ago and didn't have the technical capability to evaluate newer ways that people manage their financial lives, held us back a bit. And I was really excited back in, I think it was maybe 2018 when the legislation went in place to get more modern scores out there. The reason that's so important is people don't manage their financial lives the same way today that they did 20 or 30 years ago. There's different types of financial utility out there, there's different types of income streams. You want to talk about gig working, you want to talk about buy now, pay later. The mortgage industry wasn't incorporating rental payment history in decisioning. You know, those things are all very, very valid. When we launched Boost, I don't know, seven or eight years ago, which is the ability for a consumer to permission things like their utility payments and their rental history and other regular payments that they make onto their credit report, the mortgage industry couldn't benefit from that because the existing score couldn't use it in the calculation. And that's not a critique of the old score, it's just a fact. And so we're finally here. Like we've been talking about it for years, and we're finally in the moment where we're actually looking at how these newer scores perform and we're pricing and underwriting and securitizing loans based off of them. And that's something I'm also, you know, you want to talk about being excited about, you know, people and how they're participating in the process and aware of everything. I'm incredibly excited about that too, because we're finally in a moment where we can let the data prove itself out. Robbie Chrisman Thanks to Experian for sponsoring this week's podcasts. From lenders and landlords to employers and consumers, Experian helps connect the lending ecosystem with data and insights needed to make faster, confident decisions. Lead a smarter housing journey with Experian, and you can learn more at Experian.com/slash mortgage. Technology. What would someone during World War I have thought of FaceTime? But the information age is in all unicorns and rainbows. Hackers intercepted about 103 bank regulators' emails for more than a year, gaining access to highly sensitive financial information, according to two people familiar with the matter and a draft letter to Congress seen by Bloomberg News. What are the implications of that? Anthropic is telling investors that it has the potential revenue of basically the entire U.S. GDP, leading one wit to say, quote, Anthropic is a gross domestic product. End quote. Speaking of relationships, the mortgage industry is starting to recognize that the homeowner relationship does not end when the original mortgage closes, particularly when millions of borrowers are sitting on low-rate loans they have no interest in refinancing. Home equity is becoming the natural next conversation because borrowers can access the value they have built without giving up a mortgage rate they consider too valuable to replace. As we have all already seen, home equity usage continues to rise, and lenders are finding ways to make the experience increasingly simple and accessible. That creates an opportunity for lenders to think beyond the traditional purchase and refinance cycle and ask what other financial needs they can help existing customers solve. A borrower with a 3% mortgage may have no reason to refinance, but that does not mean the lender has run out of ways to provide value. It leads to the larger opportunity of making that relationship part of the lender's strategy after closing, whether through servicing, partnerships, or a dedicated home equity offering. Clearly, lenders have become more focused on recapture and customer retention, recognizing that staying connected to the borrower creates opportunities to help with equity, insurance, and other variable costs of homeownership, even when a traditional refinance does not make sense. It's an important approach because the housing market can look very different depending on which homeowner you are talking about. Overall equity remains substantial, while some more recent borrowers are showing signs of financial stress. A strong customer relationship gives lenders the ability to serve both realities rather than waiting for an interest rate cycle to create the next transaction. The mortgage business has spent a long time thinking about how to originate the loan. Now is potentially the time to think much more deliberately about how to remain useful to the homeowner after the loan is already on the books. Agency mortgage-backed securities and treasuries extended their early week price rally yesterday as falling oil prices eased inflation concerns and weaker than expected, consumer confidence and new home sales reinforced expectations of a slowing economy. Easing of US Iran tensions has helped push WTI crude back toward $80 a barrel, reducing near-term fears of an energy-driven inflation resurgence, though geopolitical risk remains an important variable for treasury markets. Mortgage rates don't track 30-year bonds, think five to seven year maturities, but the focus has been on the U.S. Treasury's expanded buybacks. They may temporarily support long-end bonds, but cannot overcome the fundamental forces. That's persistent deficits, heavy issuance, inflation, and stronger growth pushing yields higher. The US Treasury kicked off this week's note auction slate with a good $69 billion two-year note offering. The auction faced a tough setup with yields at fresh lows after a 10-plus basis point rally, leaving less valuation concession versus July's 4.32% stop and little curve incentive for buyers. Demand was restrained slightly by near-term risk from today's PCE inflation reading, as well as whatever comes from the Fed Symposium and Jackson Hole later this week, alongside uncertainty over whether incoming data will justify a September Fed hike. For today's interview, we wanted to welcome back to the show Experian Michele Boda to talk about lenders engaging earlier, providing better education, and using modern credit data to help them overcome affordability and credit hurdles. She's general manager of Experian Mortgage and Verification Solutions for Experian North America. She's held various roles in general management, strategy, sales, leadership, marketing, product management, and new business development. She's currently leading the effort to start a new Experian business unit designed to help unlock the modern mortgage through data and analytics and empowered consumers. I saw that you wrote a blog on the Experian website recently to say that was titled Legacy Credit Scoring Could Cost Lenders the Next Generation of Homebuyers. It's certainly worth a read for people out there. It's it's uh relatively short and took me three or four minutes to read. Certainly helpful. What was the process of writing that like? Uh and why did you feel compelled to opine on that subject matter? Michele Bodda Thank you for asking. Actually, that's a it's a great question. We commissioned research to find out kind of where consumers were in their thinking about all of this dialogue that's been going on. There's been so much discussion since the FHFA's decision to approve more modern scores. And we wanted to find out if it was reaching consumers or not. And when the team brought me the results, I was shocked at just how aware people were of the discussion. And so I felt really compelled that this was something we needed to enter the dialogue with and make sure other people had access to and understood. Because I think there's a lot in this research that could be really eye-opening for a lot in the lender and on the business side of this equation, and maybe the regulator side of the equation, quite frankly. Robbie Chrisman I definitely get the sense anecdotally that housing has become such an issue or so unaffordable that people are very in tune with what's the Fed doing or what are interest rates doing. On the credit side and the insurance side, those have become also a paramount importance for consumers out there. And so they're certainly paying attention. So it was it was very timely and poignant. Let's talk about that research a little bit because the newest research from Experian shifts toward this consumer's perspective when we think about the transition to modern credit scores. What did you learn about what prospective home buyers now expect from lenders? And did anything in the findings surprise you? Michele Bodda There's been a lot of dialogue in the last eight years since the more modern score legislation went into place. And so far, a lot of that has been focused on things like on the business side, things like implementation, operational readiness, what the impacts are going to be to workflows and pricing. And all of that, of course, has an impact on the consumer. And it's all incredibly important. But what I thought was really interesting in this latest research is that it shows what's been happening with people kind of almost behind the scenes. And the big takeaway for us was that, like I said, people are paying attention and moving to better and more inclusive data and more modern scores may very well become the next big competitive differentiator for lenders. What we found was that 41% of people are aware that mortgage lenders now have access to newer score models that incorporate things like rent and utility payments, among other financial utilities. About a third of them, so 33%, would actively seek out a new lender if they learned their current one relied on old approaches, which I think should be a wake-up call to all of us. That for me was one of the bigger indicators of just how aware people are of kind of what's going on here and why. And what's really interesting is that younger people are paying really close attention. So about two-thirds, 62% of Gen Zers over 18 know that lenders are gaining access to newer scores that leverage more data and more diverse data. And 76% of them, or three and four of them, say that the type of scoring models a lender uses would influence whether they stay with that lender or walk away. And to me, that shows that if the ability to score more people, to manage risk more effectively, and to expand access to homeownership wasn't enough reason to embrace these tools and better data, then consumer expectations are giving lenders another one. Robbie Chrisman Yeah, I would go one step further and say rather than it could become a competitive differentiator, it already is a competitive differentiator. I think you're right. Yeah, especially when you consider the home equity market going gangbusters and all the people that can qualify for that. You mentioned younger consumers, and there's another finding that jumped out at me, and that's nearly half of Gen Z consumers say they expect to be in a position to buy a home within the next four years. This actually gives me pangs as a millennial of like, have we become the forgotten generation in home ownership and we did spend all our money on clarineing avocado toast? Anyways, I digress a little bit. Given everything we hear about affordability and younger generations being locked out of the housing market, what does it tell you about Gen Z being in a position to buy the home over the next four years? Michele Bodda I mean, you're a millennial, Robbie, but I'm a mom of two younger Gen Zers. Uh, I've got twins that are about to turn 16. And I'll be honest with you, that really jumped out at me too. My kids are obviously a little young for our research. Uh, we connected with Gen Zers who are over 18, but I think the optimism is really encouraging. So, of course, things like affordability are a real challenge, but what this data tells me is that people haven't given up hope. And as we've talked about this just a bit ago, young people are engaged, they're paying attention, they're not avoiding it whatsoever. And I don't think we should mistake today's affordability challenges for a lack of interest in homeownership. That aspiration is clearly still there. You know, are there going to be challenges? Yeah, none of this is ever easy. There is for every generation as they come into kind of the age, the income, and the stability to be able to buy a house. But the question for us as an industry is how do we help more of those people understand whether they're ready and what they can do if they're not quite there yet? And we've got a very big cohort of people who are listening and want us to help them. Robbie Chrisman Nothing like an interview with you where we both age ourselves. I should have seen. Michele Bodda I know. Yeah. Every time. Robbie Chrisman Let's talk about some of those obstacles that are out there. Maybe not just for Gen Z, but prospective home buyers overall. And as I mentioned, it's certainly become an issue at the forefront of consumers' minds out there. The American dream of owning a home is not dead, but it's become certainly difficult. And in addition to being noted by everyone across the nation, that includes members of Congress. And they pass the Road to Housing Bill and there's talk of other potential solutions before the midterms. We'll see what happens there. What are some of the hurdles that you're seeing out there? And how can our industry help prospective buyers overcome them? Michele Bodda Yeah, I mean, there's certainly some real economic barriers. There's also some, I'd say psychological barriers because we're still in that hangover period, for lack of a better word, of those really low interest rates during COVID. Absolutely, things like affordability, obviously, home prices, interest rates, having enough money for a down payment, those continue to weigh on prospective buyers. But one of the barriers I think we can do more about as an industry is the knowledge gap. So buying a home is complicated. It always has been, especially if you've never been through the process before. And a lot of people may not know where to start. They may not know what they can afford, what credit history and score they need, or even whether homeownership is realistically within reach. And sometimes those assumptions are stopping people before they ever even get started. So our research found that about one-third of consumers, 34%, have delayed exploring homeownership because they have assumed, and I want to put the emphasis on the word assumed, that their credit history or their credit score wouldn't qualify them. And that really stood out to me. These aren't necessarily people who applied for a mortgage and were turned down. Some are essentially taking themselves out of the process based on what they think a lender might say. And when people who are denied a mortgage or who ultimately decide not to apply tell us they also don't know where to turn for reliable information. And I think that highlights a real opportunity for our whole industry. We need to help people better understand where they stand today, what might be possible for them. And if they aren't ready today, what they can do to get there. And that's a core focus for us at Experian. We engage with millions of consumers directly with tools, resources that are designed to help them better understand and improve their financial health. We help lenders bring that same kind of personalized credit insight into their own digital experience with people. Because ultimately, education isn't just good for the sake of being good. Someone who's more informed can become a more confident and better prepared prospective borrower. And if we can help someone who has assumed that home ownership wasn't possible, understand that they may be closer than they thought, or give them a clearer roadmap for getting there, I think that's a real win for real people, for lenders, and for our entire industry. Robbie Chrisman Education is certainly a central piece of the equation. How, and you mentioned your twins. How are you talking to them about home ownership? How are you teaching them financial literacy or what's being done in schools? And uh what do you feel like is incumbent upon you as a parent versus them getting from their peers or their teachers or Google searching or ChatGPT and whatever, whatever research methods they might have? Michele Bodda Kids that age are very much on social media and everything. And as we all know, the algorithm feeds you the information that you're drawn to. So as a parent, quite frankly, one of the things I've been doing is pushing content that I think is educational and good to my kids. They don't, I'm sure they don't always read it, but I also know that it's probably informing their algorithm and it'll inform what ends up in their feed, not necessarily what's being just sent from them to me. My kids are the kids of somebody who's worked at Experian for 25 years plus. So, you know, they've they've heard about this stuff their whole life. What I'm trying to do right now with them at this age, they just started their sophomore year of high school. And what I'm trying to do with them right now is help them understand budgeting a bit, you know, giving them the money that they can use for their school lunches or some of their sports stuff or whatever, and they've got a certain amount during the month. All the things that parents can do to kind of help kids start to learn how to manage money before they get in and into the real world on their own. We've been talking about interest, both what you have to pay when you have debt and what you can earn when you're investing. And you know, one of my kids is much more interested in this than the other one. So you got to take different approaches with different different kids and different people. But whatever we can do to kind of help inform their algorithm is probably the most effective tool right now. Robbie Chrisman Yeah. Unfortunately, not everybody listening to this podcast or uh of the younger cohort that wants to own homes as a child of somebody who's worked in the industry. So, what advice would you have for our audience who may be listening now in terms of the opportunity this new research represents? How should they be thinking differently about identifying and engaging with prospective home buyers? Michele Bodda Yeah, I think the first thing I'd say is don't underestimate this next generation of folks. So the research tells us that people are interested, that they're engaged, and many believe home ownership is within reach. Like I said, one of the things I was most shocked by in this research was just how many people knew what was going on. You know, lenders may not always recognize the full extent of that opportunity if they rely on traditional approaches and a more limited view of people's financial lives. And quite frankly, that's why better data, especially things like rental payment history and utility payments, are more and more modern scores, are so important. You know, those are areas where Experian invested heavily too. We were the first bureau to incorporate positive rental payments into credit reports and Rent Bureau, our database, the nation's largest repository of rental payment history. It recently surpassed 50 million lease records, which is really exciting. It's a meaningful, meaningful data set. The second piece of advice I have is to engage earlier in the journey. You know, lenders have always wanted to build relationships with borrowers or potential borrowers before they're deep into the mortgage process, because that's where you have an opportunity to educate and build trust. One of the things I saw from my team the other day, outside of this research that we built this comms plan around, is that the majority of people who close a mortgage loan only had one inquiry on their credit report. So they only engaged with one lender. And that's an area I'm especially excited about with what we're building and experience. We already have tremendous data, analytics, housing expertise, relationships with millions of people, and all of that stuff. But recently we acquired a company called Own Up, which adds another important dimension and helps us really get in front of people at the beginning of their journey to kind of show them the types of options that are available and help help them on that journey. So my advice to lenders would be to use the best data and tools available to you, find ways to engage people earlier and more meaningfully. I think the ones that do that well are going to be in a much stronger position to serve that next generation of home buyers. Robbie Chrisman So let's put all of this together: better data, more modern scores, more informed consumers, and the ability to engage people earlier in their home buying journey. What makes you most optimistic about where the mortgage industry is headed? Michele Bodda I am optimistic about this. What makes me optimistic is that we've got more tools than ever to make this journey work better for both people and lenders. And for me, the opportunity is about bringing all those pieces together. You know, I imagine a housing journey where fewer people count themselves out before they even begin, where better, more inclusive data is being used to make. Smarter decisions and where people have a clearer understanding of where they stand and what steps they can take. There's a lot of work ahead of us, but I think we're moving toward a mortgage ecosystem that's more inclusive and more connected. And that's something I'm incredibly excited for experien to be able to help enable. Robbie Chrisman Michele, fantastic conversation. You know, I love talking to you. I'm already looking forward to the next one. Very much appreciate you making the time today. Michele Bodda Thanks, Robbie. I hope you have fun on your hike or whatever you're doing. Robbie Chrisman On the data front, new home sales fell a sharp 10.5% month over month in July to a 607,000 annualized pace, pushing inventories higher and potentially putting downward pressure on prices. Speaking of, home prices remained relatively firm with the Case Schiller index rising 2.1% year over year, even as the FHFA index was flat, indicative of a housing market where demand is softening faster than prices. Consumer confidence also weakened its lowest level of the year in August, with a deteriorating outlook offsetting improved views of current conditions and signaling growing household caution. Today's economic calendar kicked off with mortgage applications from MBA, which fell 1.0% last week as the 30-year fixed mortgage rate rose to 6.78%, its highest level in three weeks. Refinancing remained the biggest drag, down 2% week over week and negative 17% year over year, while purchase applications were relatively resilient, but still 5% below last year. The roughly 20-basis point rise in mortgage rates over the past two months is increasingly weighing on housing demand, particularly refinancing activity. Robbie Chrisman Core PCE prices, which were up 0.2%, about as expected. GDP, which came in up 1.5% as expected, personal incomes, which were up 0.4%, and personal spending, which was up 0.2%, both higher than expected. Later today brings weekly crude oil inventories and an auction of $70 billion of five-year treasury notes. We begin hump day with agency MBS prices, little change from Tuesday's close, the two-year yielding 4.19, and the 10-year yielding 4.64% after closing yesterday at 4.64%. Robbie Chrisman Let's wrap up with a joke and some housekeeping. One time a friend and I were walking our dogs down the street in the early evening when we happened upon a bar. My friend suggested we stop in and get a drink. I looked at my friend's German Shepherd and said, They're not going to let us in there with our dogs. He said, just follow me and do what I do. When we got inside, sure enough, the bartender told my friend, Sorry, but you can't bring your dog in here. To which my friend replied, I'm legally blind, and this is my seeing eye dog. To which the bartender answered, Well, that's okay then. The bartender then turned to me and snapped, Sorry, no dogs. Just as my friend had instructed, I replied, I'm legally blind too, and this is my seeing eye dog. To which the bartender said, Yeah, right. Nobody has a miniature dash und for a seeing eye dog. Trying to think of something fast, I managed, they gave me a miniature dash undesh, Experian for sponsoring this week's podcasts. From lenders and landlords to employers and consumers, Experian helps connect the lending ecosystem with data and insights needed to make faster, confident decisions. Lead a smarter housing journey with Experian, and you can learn more at Experian.comslash mortgage.