Big Three credit bureau Equifax on Wednesday announced a new product, Income Qualify. This could provide a significant improvement in how lenders can pre-approve mortgage borrowers. The Work Number®, a computer application available to lenders through Income Qualify, can provide instant employment and income verifications, making pre-approvals faster and more accurate.
Said Joel Rickman, general manager and senior vice president of U.S. mortgage and verification services at Equifax, "By delivering key income and employment data alongside our trusted credit report at the prequalification stage, Equifax is helping lenders act faster, support affordability, and move the borrower forward in the process with more confidence."
What Is Pre-Approval?
For a wannabe homeowner, going shopping for a house or condo without a pre-approval letter from a mortgage lender is almost as futile as shopping for a new TV without a wallet (actual or virtual). In both cases, you won't get far unless you're paying cash.
A pre-approval letter tells home sellers and real estate agents that a mortgage lender has vetted the buyer, done a financial deep dive, and has agreed in principle to lend him or her up to a specified sum. Those sellers and agents know that the buyer is serious and credible, and stands an excellent chance of being able to proceed to closing.
A prequalification is a weaker version of a pre-approval. The lender has agreed to a loan in principle based on the applicant's claims rather than by verifying those claims. So, sellers and agents find these less credible. Still, Income Qualify can be used for pre-qualifications, making those stronger.
Someone with neither a pre-approval nor a prequalification letter is just another person off the street with little chance of getting a mortgage application approved.
What The Work Number Does
Equifax has teamed up with VensureHR to deliver the improved service. And the credit bureau explains what visibility The Work Number delivers to lenders within its new Income Qualify product:
- Name/SSN: Gives improved confidence in the accuracy of the applicant's name.
- Employer Name: Establishes the applicant's employer's name, helping reduce employer name-matching errors during later submission to Fannie Mae or Freddie Mac, where applicable.
- Tenure: Provides greater confidence in the applicant's job tenure, along with future income data, which will later be needed for underwriting (the final loan approval process).
- Prior-Year Total Income: Permits high-level debt-to-income (DTI) ratio calculation and categorical confirmation of data provided on an application.
Having instant access to all this verified information should speed up the pre-approval process, and perhaps provide extra credibility to those pre-qualification letters that use The Work Number.
Credit Score Questions
Having a decent credit score is as important to a mortgage applicant as his or her employment status, income and DTI. However, a new report, published on Wednesday, suggests that scores can be misleading.
The publisher, ValidiFI, says the report, "reveals significant discrepancies between traditional credit scores and actual consumer risk profiles. ... As economic pressures mount, with layoffs reaching a 22-year high, savings declining 10%, and nearly 70% of consumers living paycheck to paycheck, the report argues that static credit scores fail to capture fast-changing financial realities."
These discrepancies can work for or against a credit applicant. If you have fair credit, in the 581-670 range, you might reasonably expect to be approved for many loans, including most mortgages. But ValidiFI reckons that 30% of those with scores within that range represent a high risk to lenders.
At the same time, many who have had their loan applications declined based on their scores actually showed "strong real-time banking behaviors, including clean ACH histories, stable identity markers, and successful loan repayment patterns," according to the report. ValidiFI uses real-time banking activity, along with other measures, to assess consumers' likelihood of repaying loans on time.
It's not a huge shock that credit scores are an imperfect way to judge borrowers' creditworthiness. However, even skeptics may be surprised by just how hit-and-miss they can be.
