Executive Conversations is a HousingWire web series that profiles powerful people in the financial industry, highlighting the operations and the people that make this sector tick. In the latest installment, we sit down with James Frasche, vice president and general manager of Equifax’s property data and analytics practice, to discuss how lenders can utilize property data to improve response and conversion rates.
Q. We’ve heard there are some exciting trends in the home equity space. Can you share some of that with us?
A. Sure, I’d be happy to. It’s no secret that many financial institutions are interested in leveraging home equity to drive profitability in the face of rising interest rates and lower mortgage refinance volume. Home equity lenders that work with Equifax have been successful in utilizing data-driven marketing campaigns to grow their businesses in a cost-effective and responsible manner. The most successful campaigns are generally those that take traditional factors such as home price appreciation and lendable equity calculations into consideration, but also take advantage of recent advancements in predictive modeling and analytics to help improve response and conversion rates and ultimately maximize customer satisfaction.
Q. So let’s talk about using property data. How would that work in a typical home equity marketing campaign?
A. Property data is a powerful tool that home equity marketers can use to create and segment marketing populations and can be combined with other predictive datasets to help ensure relevant messaging reaches the right consumers at the right time. There are dozens of variables that are likely to improve home equity campaign performance, but some of the more common data points include loan-to-value (LTV) or combined-loan-to-value ratios and flags that indicate the presence of an existing junior lien on a given consumer’s property.
When marketing lists are segmented by an attribute such as LTV and are then further refined via a credit score as part of a prescreen program, the lender has the benefit of estimating the prospective customer’s ability to qualify from both an equity and credit perspective. It is also becoming more common for marketers to use property data in conjunction with “life event” data such as marriage or divorce flags to help measure a consumer’s propensity to respond to an offer and actually utilize a HELOC once it has been originated.
Lastly, there are a number of property data elements that are commonly used for suppression purposes such as a listing flag. For example, if a consumer currently has their home listed for sale on the market, they probably aren’t an ideal target for a home equity offer and may be removed from the marketing list.
Q. You mentioned using property data as a segmentation tool prior to conducting prescreen programs. What about invitation-to-apply (ITA) campaigns?
A. Many lenders are unwilling to take on the risk that may come with extending a firm offer of credit in conjunction with a prescreen program in today’s interest rate environment. In those cases, an ITA campaign is a great alternative that allows lenders to narrow focus to high quality prospects that are likely to be interested in a home equity offer.
Property data is regularly used to create direct mail lists that meet a lender’s geographic and other criteria. In addition, property data is also regularly appended to existing customer lists and can help financial institutions identify real estate-secured cross-sell and up-sell opportunities that don’t require a firm offer of credit.
Q. What are some of the other things lenders should consider when constructing a data-driven marketing program?
A. Data quality and accuracy is of critical importance to ensure the lender’s marketing dollars are being spent in the right places and to help minimize the chance of a poor customer experience. There is nothing worse than having a consumer respond to an offer and apply only to find that they don’t qualify for one reason or another.
High quality data that is sourced from a reputable vendor may help prevent that kind of thing from happening. Taking the time to understand how a vendor gains access to the data that will be used in given campaign and the vendor’s data quality control policy is definitely time well spent.
Q. So what happens when you’ve found the right applicant and you’re ready to close the loan or HELOC? What can lenders do to help improve profitability and the customer experience?
A. There are a number of data points a lender could factor into its home equity underwriting requirements. From a collateral valuation or property data standpoint, many financial institutions use an AVM or AVM cascade bundled with an exterior property condition report in lieu of an appraisal, where appropriate, to reduce the cost associated with the underwriting process and aid to improve time-to-close.
That said, it’s important to understand that not all automated collateral valuation tools are created equal and even the most reliable or accurate AVM may be inappropriate based on the nature of a given transaction. When used correctly, property data can help lenders create significant competitive advantages for themselves, but it is up to the lender to ensure property data solutions are deployed in a manner that is consistent with regulatory expectations and with prudent risk management practices in mind.