Low-to-Moderate Income Consumers Present $300 Billion Growth Opportunity for the Mortgage Industry

Rhea-AI Summary

TransUnion's new study reveals a significant opportunity in the mortgage market for low-to-moderate income (LMI) consumers, who make up about 50% of the credit-active U.S. population. With a potential of ~$300 billion in refinance and purchase originations, 95% of LMI consumers are credit eligible for mortgages. The study underscores a 38% lower likelihood for LMI consumers to secure refinancing compared to non-LMI, indicating an urgent need for lenders to bridge this gap.

Positive

• Study indicates a $300 billion opportunity for lenders targeting LMI consumers.
• 95% of LMI consumers are credit eligible for mortgages, highlighting growth potential.
• Lenders can earn CRA credits, enhancing their revenue by focusing on LMI lending.

Negative

• LMI consumers are 38% less likely to secure refinancing compared to non-LMI.
• Funding rates for LMI applicants are 22% lower for refinancing and 38% lower for purchase loans.

New TransUnion study analyzes the creditworthiness of this consumer segment and how lenders can grow market share and revenue

CHICAGO, Oct. 19, 2021 (GLOBE NEWSWIRE) -- Low-to-moderate income (LMI) consumers have traditionally been overlooked in the mortgage market and trail non-LMI consumers in terms of homeownership. A new study from TransUnion (NYSE: TRU) suggests closing this gap could yield mortgage lenders as much as ~$300 billion in refinance and purchase originations.

Roughly 120 million consumers – equivalent to approximately 50% of the credit active US population – are considered to be LMI consumers and as many as 95% of these consumers are credit eligible for a mortgage. These consumers are typically defined as having a credit score over 500* and exist across income levels; as many as 65% have an income greater than $50,000.

As such, this segment of the population can offer mortgage lenders a significant growth opportunity. Many LMI consumers may qualify for loans through the Federal Housing Administration (e.g., 3.5% down payment) or through Government Sponsored Enterprises (GSEs) such as Fannie Mae or Freddie Mac. Originating more of these types of loans can not only help close the wealth and homeownership gap, banks and credit unions can also earn Community Reinvestment Act (CRA) lending and service credits and become another source of revenue for mortgage lenders.

Loan Opportunities for LMI Consumers

Credit Score*	~120 Million LMI Consumers	Loan they could qualify for
Greater than 680	50 million	GSE credit eligible (LLPA waiver)
620-679	25 million	GSE credit eligible USDA (auto-eligibility at 640 & above)
580-619	16 million	3.5% down payment FHA credit eligible USDA eligible
500-579	23 million	10% down payment FHA credit eligible
Less than 500	7 million	Nurture into 10% down payment FHA credit eligible

LMI consumers who qualify based on Income and/or LMI Tract; Incomes modeled using CreditVision Income Estimator; MSA Median Family Income and Tract Income Based on FFIEC
*Based on VantageScore® 4.0

“Many financial institutions are interested in expanding financial inclusion efforts to better serve low-to-moderate income consumers and communities. However, they may not have the right tools at their disposal to find and reach specific LMI consumers who are in the market for a home purchase or may benefit from refinancing,” said Joe Mellman, senior vice president and mortgage business leader at TransUnion. “This can be a real win-win for lenders and consumers – lenders can grow their business by increasing awareness to consumers that can benefit and consumers are able to realize their dream of homeownership or save money with a refinance.”

The Disparity between LMI and Non-LMI Consumers and the Growth Opportunity for Lenders

TransUnion’s study looked at the credit active population of LMI consumers from Q3 2019 to Q3 2020 and found a significant disparity in the number of LMI consumers with a refinance or purchase mortgage in comparison to the non-LMI cohort.

LMI consumers, for example, are 38% less likely to get a refinance and 34% less likely to get a purchase mortgage than non-LMI consumers. Should lenders take steps to close this gap, it could result in approximately 1 million more refinance loans and purchase loans and yield as much as $300 billion.

LMI consumers, however, often assume that they may not have sufficient credit to qualify for certain mortgage products. According to a recent TransUnion Consumer Pulse Survey, almost half of the 601-660 credit score population incorrectly assumed their credit scores are too low to qualify for a mortgage. Yet, many of these consumers are likely credit eligible for FHA or GSE loans.

When LMI consumers do apply for a mortgage, the study found there is also disparity in the funding rates in comparison to the non-LMI group. LMI applicants are 22% less likely to get a refinance loan funded and 38% less likely to get a purchase loan funded than the non-LMI group. This discrepancy could potentially stem from many LMI consumers being unprepared to navigate the mortgage process.

Lenders can address this issue and serve LMI consumers better by deploying effective technology solutions focused on financial literacy and the well-being of their would-be borrowers. TransUnion has partnered with FinLocker, a financial fitness app that helps LMI consumers monitor their progress towards mortgage readiness and streamline the homebuyer journey for them. FinLocker’s mortgage readiness assessment analyzes the consumer’s enrolled financial data and provides a personalized plan, tools and resources to increase their credit score, save for their down payment, and reduce their debt-to-income ratio to achieve mortgage eligibility.

“Several factors are used to determine whether an LMI consumer is credit eligible. By helping them understand where they stand on their path to mortgage readiness prior to their application, will provide a better overall experience and aid more LMI consumers in refinancing their home or making the transition to becoming homeowners,” said Henry Cason, CEO of FinLocker. “Tools like FinLocker that educate, empower and support consumers in the mortgage process will improve application and approval rates and help more LMI consumers get through the pipeline.”

New Approach to Identifying Credit-Eligible Consumers

Lenders can also better tap into this segment by accurately finding consumers that are likely to qualify, and by looking at factors such as estimated income, census tract and homeownership vs. renter status, in addition to credit score.

To enable lenders to address the LMI market and identify credit-eligible consumers, TransUnion’s new Low-to-Moderate Prescreen Solution helps lenders better determine which consumers are more likely to be eligible for LMI loan programs and to then present firm offers of credit to those consumers. This allows lenders to tailor marketing offers while supporting lender commitments to affordable lending, in addition to driving greater awareness of credit eligibility among target consumers.

“Mortgage lenders are hungry to grow their market share among LMI consumers but to effectively do so, it is important to be able to identify which consumers are already eligible versus those that are on the cusp of becoming eligible. Lenders will then be able to employ appropriate strategies to help consumers with the greatest likelihood of approval, but also provide resources and tools to the consumers who would greatly benefit and may become homeowners down the road. Combining this with consumer-specific information, like how much a specific consumer could save each month, can be a real call-to-action with LMI consumers,” concluded Mellman.

To learn more about TransUnion’s study, please download the insight guide: Mortgage Origination Opportunity for Low-to-Moderate Income Borrowers. More information on TransUnion’s LMI prescreen solution can be found here.

About TransUnion (NYSE: TRU)
TransUnion is a global information and insights company that makes trust possible in the modern economy. We do this by providing a comprehensive picture of each person so they can be reliably and safely represented in the marketplace. As a result, businesses and consumers can transact with confidence and achieve great things. We call this Information for Good.®

A leading presence in more than 30 countries across five continents, TransUnion provides solutions that help create economic opportunity, great experiences and personal empowerment for hundreds of millions of people.

http://www.transunion.com/business

About FinLocker
Headquartered in St. Louis, Missouri, FinLocker provides a secure financial fitness app that aggregates and analyzes a consumer’s financial data to offer customized journeys for the consumer to create goals, save, budget, monitor credit, manage debts, and receive net worth and cash flow analysis, to achieve loan eligibility for a mortgage and other financial goals.

Within the FinLocker app, consumers can take a readiness assessment before applying for a mortgage, begin their property search, and securely store personal and financial documents, which can be shared with a lender directly from the app to start their loan application. Financial service providers can utilize their white-labeled FinLocker to generate and convert leads, gain market share, cross-sell value-added products, reduce loan processing costs, decrease risk, and create customers for life. For more information, visit www.FinLocker.com.

Contact	Dave Blumberg
	TransUnion
E-mail	dblumberg@transunion.com
Telephone	312-972-6646

FAQ

What is the potential financial opportunity for lenders in the LMI segment as highlighted by the TransUnion study?

The TransUnion study suggests that lenders could unlock approximately $300 billion in refinance and purchase mortgage originations by targeting low-to-moderate income consumers.

How many LMI consumers are considered credit eligible for mortgages according to the study?

The study indicates that about 95% of low-to-moderate income consumers are credit eligible for a mortgage.

What disparity exists in mortgage funding rates between LMI and non-LMI consumers?

LMI consumers are found to be 22% less likely to have their refinance loans funded and 38% less likely for purchase loans compared to non-LMI consumers.

What strategies can lenders employ to better serve LMI consumers?

Lenders can deploy technology solutions focused on financial literacy and use programs like TransUnion's Low-to-Moderate Prescreen Solution to identify and support credit-eligible LMI consumers.

What can financial institutions do to improve access to home loans for LMI consumers?

Financial institutions can enhance outreach and educational resources, helping LMI consumers understand their mortgage eligibility and navigate the application process more effectively.