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MBA Now: Lowering the Costs of Homeownership with CreditXpert’s Mike Darne
Transcription from MBA Now video:
Adam DeSanctis (00:11):
Hi, I’m Adam DeSanctis. Welcome to MBA Now. Housing affordability is a key issue right now given the rising interest rate environment. Joining me today is a familiar face, Mike Darne of CreditXpert. Mike, thank you for joining us today.
Mike Darne (00:25):
Great to be back. Thanks Adam.
Adam DeSanctis (00:27):
So mortgage rates are right now are approaching 8%, which is having a profound impact on both lenders and borrowers. Is there anything that either lenders or borrowers can do to lower the cost of homeownership right now?
Mike Darne (00:38):
Yeah, Adam, you’re right. Along with everyone else, we’re seeing 30 year fixed rates quickly approaching that 8% mark, and this is really increasing the cost of homeownership and for lenders, it’s really reducing the pool of potential borrowers that they have out there. So when we talk about what can be done in the short run, because really what we’re dealing with here is some long-term trends around interest rates, and it’ll be a while perhaps before they come down when we talk about what you can do in the short run to impact the cost of homeownership, I think it’s important to return to the three Cs of mortgage lending, and those are capacity, collateral, and credit. And so those first two for the most part are static. When it comes to capacity, ours can do little within a purchase cycle to impact their income or the capacity to repay a loan.
And likewise collateral, when you think about that, it’s largely immovable in the short run. However, that third C, credit, can be impacted in a material fashion within the purchase cycle. So at CreditXpert, we analyze about 50% of all mortgage credit inquiries that are out there in the market. And what we’ve seen consistently is about 74% of all borrowers with a score below 780 can improve their score at least by 20 points within 30 days. And so many of these borrowers can improve that score by much more. So in an environment like the one we’re in today, we would encourage both lenders and borrowers to really focus on optimizing their credit score to help lower that cost of homeownership.
Adam DeSanctis (02:09):
Mike, you mentioned a key point there. 74% of borrowers with an initial score below seven 80 could improve by at least 20 points. What could that increased score mean for a borrower?
Mike Darne (02:18):
Yeah, I mean, it can really have some pretty meaningful outcomes there. So really you start with people that are perhaps first time home buyers looking to purchase that home, that may help them actually qualify for a mortgage and put them on a path to building generational wealth through homeownership. So that’s super significant for people, but for others, they could qualify for a better loan program that perhaps has more favorable terms, qualify for a jumbo loan if they’re in need of more purchasing power, lowering their interest rate, which is super important. And that’ll lower both the short and the long-term cost of homeownership. And then oddly enough, I mean it also can impact private mortgage insurance premiums. So some pretty significant impacts there. And so just to give you a sense of what that might look like, let’s say that you have a borrower that starts out with a 640 credit score and they can improve that by 40 points.
And that’s something that’s pretty achievable for many. And what that does is it puts them at a 680. And so in today’s rate environment, that could drop their rate from a 6.75 down to a 7%… I mean a 7.65 to a 7%. And so if you have a borrower that’s looking to purchase a $400,000 home with 10% down, that could mean monthly P&I savings of around $158 a month and an additional savings of $131 a month on private mortgage insurance premiums. So that adds up to over the life of a 30 year loan, $70,000.
But it’s not the borrowers that are just benefiting here. So that increased credit score also helps lenders lower LLPA premiums. And in that same scenario that I mentioned before, that borrower increasing their score from a 640 to a 680, the lender will end up paying $1,800 less in LLPA premiums. And what that does is it gives them more margin to work with so that they can put more compelling offers out there and close more loans. And that’s something that as we know, is very important for every lender out there on the market today.
Adam DeSanctis (04:26):
Mike, your team’s doing profound work on this front. So how is it that the borrower can improve their score so quickly?
Mike Darne (04:33):
Yeah, so at CreditXpert, we really believe that it’s important to leverage data so that both the borrowers and the lenders can make informed decisions that will land them the results that they’re looking for. So when we think about that, we think about this notion of credit optimization. And what that does is it leverages data science and predictive analytics to analyze a borrower’s credit score to A, identify their credit potential, and B, build a detailed plan that’ll help them reach that potential.
So we define credit potential as the amount a borrower can improve their credit score within a defined period of time. We’ve been talking a lot about 30 days, and I think that’s an important timeframe because that really focuses on that purchase cycle. And so the detailed plans that we generate through predictive analytics show borrowers the precise steps they need to reach that target score along with a likelihood score. So how are they able to hit that? And so with credit optimization, what we do is we look for opportunities in a borrower’s credit usage and total number of accounts to improve a score. And that’s how you’re able to make some changes in the very short run to optimize that score at the point of purchase.
Adam DeSanctis (05:44):
Mike, final question. Your team’s doing some impactful work on this front. What can a borrower do to optimize their credit score?
Mike Darne (05:51):
Yeah, I think the number one thing is to work with a licensed mortgage professional. That’s really the best way to work with them. And so most mortgage lenders offer credit optimization tools from CreditXpert. And what we do, as I mentioned before, is we help borrowers identify their potential. We help lenders generate those detailed plans and then track the progress towards that score. And today, there are more than 60,000 mortgage professionals that are using our tools. What does a borrower need to do? Just ask their mortgage professional. They’re eager to help you out with that. What we know from a lot of research that we’ve done is that borrowers are eager for this too. This is a great opportunity for a lender to cement a relationship by starting to consult early on in that process and getting them to a place where they can lower their cost of homeownership.
Adam DeSanctis (06:41):
Mike, this has been a fascinating conversation. Thank you for joining us today.
Mike Darne (06:46):
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