Credit modernization hits a crossroads as lenders weigh risk, regulation and data integrity

From Austin, Texas, HousingWire’s Allison LaForgia sat down with a panel of mortgage and credit leaders to unpack the rapidly evolving landscape of credit modernization, touching on everything from trigger leads and tri-merge credit to VantageScore adoption and the role AI may ultimately play in reshaping the industry.

Joining the conversation were Andrew Davidson, Jennifer McGuiness-Lubbert, Gregory Sher, Robert Zimmer and Shelley Leonard.

The discussion began with trigger leads and how lenders are responding to recent regulatory changes. Gregory Sher, Managing Director at NFM Lending, said it is “a little early to know exactly the impacts,” adding that lenders are now “focusing more on front of the funnel to make sure that if consumers are contacted by the servicers there, we are top of mind.”

Sher added that concerns remain about lenders obtaining borrower information improperly. “There still are some people violating the code of conduct rules,” he said. “Borrowers are being contacted by various lenders that somehow get a hold of their data.” 

Shelley Leonard, President at Xactus, expressed how lenders working with Xactus are largely in “a wait and see mode.” She added, “We really haven’t seen a shift away from soft pulls.” Leonard also emphasized the borrower perspective. “Consumers know that pulling your credit does affect your score, and so consumers are smarter about their credit these days.”

The conversation then shifted to tri-merge versus single-bureau credit approaches. Andrew Davidson, President at Andrew Davidson & Co., shared findings from a recent study analyzing data from all three credit bureaus. “About 25 to 30% of the borrowers have exactly the same score from all three bureaus,” he said. “Well, on the flip side, about 1.5% of borrowers actually have score differences of over 100 points.”

Davidson warned that relying on a single bureau introduces significant uncertainty. “The real question is, who’s taking the risk on that difference? Is it the borrower … or is it the investor taking on more risk than they were hoping to take on?”

Leonard added that the issue extends beyond the score itself. “It’s not just about the score, but it’s also about the underlying credit data right and the trade lines,” she said. “We found that when we analyze trade line level data, there’s 26% of the consumers that we looked at that had differences across the three bureaus.”

She argued for a measured rollout of any changes. “Let’s see where we are. Let’s see how we’re performing. Let’s see what the results are, before we introduce any additional change.”

Robert Zimmer, Principal at TVDC, pointed to operational realities slowing progress. “The staff there are working hard on 10T and score 4.0,” he said of the FHFA. “I don’t think the staff there have any more bandwidth to take more things on in the near term.”

Davidson said the recent FHFA announcements have dramatically increased industry attention on VantageScore. “Since the announcement last week, we’ve gotten more calls from clients about VantageScore than we had for probably like the four years before that.”

But he cautioned that the industry still lacks critical performance data. “The data we need can’t exist until the VantageScore is actually used to originate loans,” he said. “If you just between classic FICO and VantageScore could choose the higher score, that increases delinquencies by about 40% at the same score level.”

Sher argued the industry needs a more cautious approach. “You’ve got to be pragmatic and dip your toe in here. You can’t go all the way in, because if it goes sideways just the littlest bit, no one’s going to want to pay up for these loans.”

The panel also discussed FICO Direct, which Leonard said is “progressing, albeit slowly.” She noted that providers like Xactus are already “in build, test and validate mode with FICO,” with adoption decisions likely hinging on lender-specific economics and workflows.

As the discussion wrapped up, the panelists looked ahead to what could truly move the needle over the next 12 to 24 months. Sher said, “We need the data. We’ve got to be able to see that, to know where the real benchmarks are.”

Leonard pointed to technology disruption. “No one’s considering the future of what AI could do and how that could really cause true disruption in this space related to credit data and scores.”Davidson added that the next economic downturn could become the ultimate proving ground for credit modernization efforts. “ The accuracy of data will never be more important than in that moment,” he said.