Why Lenders Need to Verify Income for Prime Consumers
Does “Prime” Mean Perfect?
Prime rib. Prime rate. Optimus Prime. Regardless of whether you’re talking about dinner, finances or robot superheroes, the term “prime” typically means that you are getting the best quality. And that thinking goes for consumers who are considered prime borrowers, as well.
Prime consumers are so appealing to lenders because they have the highest credit scores, usually between 620 and 799. Additionally, they are associated with higher, steady income and strong ability to pay. But COVID-19 has significantly impacted some people’s employment and income — even prime consumers. In fact, we rarely see changes of this magnitude happen so rapidly.
Lenders Should Verify Frequently
Savvy lenders in auto, mortgage, credit card and other industries know they should verify employment and income on all applicants. And more importantly, they know the importance of doing it frequently throughout the loan origination process. In fact, new data we’ve analyzed bears this fact out.
Meanwhile, consumers are demanding a fast, easy loan origination process. Applicants don’t want the hassle of providing paperwork like paystubs and W-2s. Lenders want to respond to consumers, but at the same time make sure borrowers have sufficient income for repayment. Even as the origination process continues to be streamlined, every loan process has milestones where applicant employment and income are critical. For example, understanding applicant employment and income in near real-time during application, underwriting, preclose and portfolio review is key to good business decision-making.
Data Reveals Important Trends Among Prime Consumers
The latest analysis of income data collected by Equifax shows important trends affecting loan applicants and current customers. Lenders should understand these trends, particularly in the current economic environment.
Key points according to the data comparing March and April 2020:
- Pay varied more than 5% for nearly two-thirds of consumers month over month
- A third of consumers’ pay varied more than 25%
Perhaps most striking is the fact that this pay variance impacts “prime” consumers just as much as it does in subprime categories. (Credit scores below 620 are generally considered subprime.) In April, nearly half of employees with significant pay cuts have credit scores higher than 680.
Contrary to what may be conventional thought, this data shows that prime borrowers have experienced a bigger percentage impact to their pay as a result of current economic uncertainty.
That means it’s more important then ever to have the ability to monitor a portfolio of loans to help minimize risk of changes in employment and income. One point everyone can agree on is that knowledge is power. When lenders have better insight, they can make better lending decisions.
How do Lenders Verify?
The answer is simple: Use a qualified third-party provider to verify applicants at critical points during the lifecycle of a loan. Verification services like those provided via The Work Number® from Equifax offer credentialed verifiers with permissible purpose the ability to verify applicant employment and income information, and perform necessary account review. That diligence helps ensure lenders provide worthy applicant with access to credit. It can also help them be prepared to assist borrowers who need it.
Learn more about The Work Number and get additional insights and verification solutions for a variety of industries.
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