December 2018 Issue: Decreasing Loan Fallout

There are several market conditions at play that make it harder for lenders to reduce their fallout, but it doesn’t have to be that way. Get Credit Healthy is a leading Fintech company that provides an award-winning technology platform that delivers a proven methodology to maximize business opportunities for Lenders, Financial Advisors, Municipalities and Consumers. At Get Credit Healthy the company’s highly skilled staff of business opportunity experts help create millions in new loan opportunities for lender partners. Get Credit Healthy is a disruptive and award winning platform that transforms a currently untapped market into a well-qualified, well-informed applicant pool that desires and more importantly, qualifies for the financial products offered in the market today.

Get Credit Healthy is an organization that provides consumers with the tools and resources they need to eliminate debt, build credit, and make sound financial decisions. Unlike similar companies that only treat symptoms, Get Credit Healthy operates under the philosophy that the only way to break individual and systemic cycles of poverty is to treat root causes of financial difficulties. The company believes that the only way to truly help consumers become financially healthy is to educate and change their behavioral and mental approach to their financial health.

Get Credit Healthy allows consumers to physically see how their decisions and actions impact their financial well-being, while also providing a practical education. In addition to coaching, the consumer also has access to a plethora of resources such as webinars, live telephonic sessions with credit specialists, and interactive educational materials. The company’s CEO Elizabeth Karwowski discussed how she sees the mortgage market evolving here…

Q: Today’s housing market is drastically different from the market of just 10 years ago. In your opinion, what are some of the biggest challenges that lenders are facing today?

ELIZABETH KARWOWSKI:That’s a great question because you can’t really begin to formulate and fine-tune business strategies until you are able to understand difficulties common to most lenders in today’s market. Business development has always been a challenge; if it was easy, everyone could do it. However, it is becoming much harder to generate quality leads. Every day we are seeing a greater shift from a refinance market to a purchase market. Many loan officers who are accustomed to generating new streams of revenue, in house, are now having to start from scratch when trying to attract new sources of business. Lenders are being forced to devote more time and resources, pecuniary and otherwise, to lead generation. Another major concern for many of the loan officers is the rising cost of lead acquisition. Quality leads are becoming harder and harder to come by, and the demand is driving the price up. When you couple this extra cost with another major problem, the lack of qualified applicants, the cost of origination increases such that it has become a barrier to entry for fledgling companies looking to establish a foothold in the contemporary marketplace.

Q:You raised some very interesting points, especially with regard to the shift to a purchase market. Could you expand a little more on why that shift is so significant to lenders?

ELIZABETH KARWOWSKI:Of course. It’s always easier to generate business from sources or people with which you or your organization has established a relationship or rapport. Logic would also dictate that a consumer with which your organization had a successful, prior business relationship has a higher percentage chance qualifying for the financial products that you’re offering than someone else chosen at random. What we are seeing now, is that many lenders must, increasingly, rely on third party sources for leads that are often proving to be of lower quality. I think this can be attributed to the changing paradigm regarding home ownership. What used to be known as the “American Dream” of owning your own home, no longer resonates with the younger generation which, traditionally, would have made home ownership a top priority. Many of the potential first time home buyers who are applying for mortgages are at a stage later in life where previous financial difficulties and low credit prevented them from purchasing a home. Some of these people were able to overcome those financial hurdles, but many are not equipped with the resources or financial IQ to put themselves in position to qualify for a mortgage. Lenders are becoming frustrated because the applicants that are willing do not qualify, and those consumers who do qualify are not willing.

Q: That makes a lot of sense, and it’s unfortunate that younger generations do not place more value on home ownership. You did mention, however, that there are many consumers who still want to buy, but are not qualified. How does this affect the cost of lead acquisition?

ELIZABETH KARWOWSKI:Well, in this industry, credit scores that fall outside of qualifying ranges are one of the common challenges to the successful conversion of leads. Leads that look attractive because the applicant has decent income or other assets, are all too often coupled with disqualifying credit scores. According to the Federal Reserve Bank of New York, more than one-third of all Americans have a FICO score of 620 or below.

That number is staggeringly large, and has huge implications in terms of price per lead and the cost of origination. Many institutions are spending thousands of dollars, and in some cases tens of thousands of dollars, on leads every month. If one third of those leads have less than qualifying credit, then lenders have essentially payed 33 percent more than initially thought for the applicants who do have a qualifying score, with no guarantee they’ll otherwise qualify or ultimately opt for the product for which they applied.

In an effort to remedy this problem, lenders have begun forming strategic partnerships with organizations that specialize in credit remediation and that are able to rehabilitate consumers’ credit profiles in order to get them qualified. These organizations often offer their services at no cost to the lenders, and provide an avenue through which those lenders are able to recapture leads that would have otherwise fallen by the wayside. This strategy allows lenders to drive the price per qualified lead, and overall cost of origination, down by providing a larger qualified applicant pool for the loan officers to work with.

Q:That is an interesting statistic; I would not have guessed that many people are affected by poor credit. What are your thoughts on consumer credit health at a macro level?

ELIZABETH KARWOWSKI:Well, it is nowhere near as healthy as it could be. Although we are all aware of the credit system and how big of a role it plays in our daily lives, very few of us possess a critical understanding necessary to successfully navigate the credit landscape. Most people, through no fault of their own, simply lack the tools required for self-help. As I previously mentioned, 33 percent of all consumers have a score below 620, but what is even more alarming is that a study conducted by the Consumer Financial Protection Bureau revealed that over 45 million adults either do not have a credit score or are un-scorable. Think about that for a second. There are 300 million people in this country (that includes children), and 15 percent of them do not have a credit score. Those two statistics, alone, should be sufficiently indicative of the difficulties faced by lenders in today’s market.

To compound the problem, the reactionary measures taken by governmental bodies and financial institutions, themselves, after the 2008 recession have increased the grade of what was already an uphill battle for loan officers. In some cases, increased regulation was warranted but, in many others, consumers who would have qualified in the past because they were able to demonstrate that they had the means to meet their financial obligations are denied every day, irrespective of their actual ability to pay back those loans. This is because credit scores are now weighed so heavily.

So, to answer your question, I think there is certainly room for improvement. Many of those Americans who find themselves in less than ideal circumstances as they pertain to credit lack the resources and tools necessary to improve their standing. With a little guidance, those consumers could take the remedial measures necessary to qualify for a mortgage or reach their other financial goals.

Q:Well what types of resources or tools do those consumers need? If those consumers are able to improve their credit health, I’m sure it could create a lot of opportunity for lenders.

ELIZABETH KARWOWSKI:You’re absolutely right. That pool of unqualified applicants represents a wealth of potential business for lenders. The bottom line is that the credit system in this country, in terms of what decisions impact your credit both, positively and negatively, can be very difficult to comprehend for most people. The emphasis that is placed on consumer credit scores during the evaluation process is often what determines whether or not an applicant will be pre-approved. From personal experience, I have seen successful businessmen and women, with high paying jobs, denied for a mortgage because their credit was a mess. They could have easily afforded the payments on the mortgages for which they applied, but were denied solely because of their credit profiles. The reason I bring this up is to emphasize that credit is not just a problem for the impoverished, it affects all people of all socioeconomic classes, from all walks of life.

The good news is that credit coaching and education can go a long way in helping those consumers rehabilitate their credit. The methods by which credit bureaus calculate credit scores are often counterintuitive and, without the proper guidance, many people unwittingly wind up hurting their scores when they attempt to improve them independently. An example that I like to use, and what I encounter constantly, is when a consumer tries to raise his or her credit score by paying off a delinquent account. Let’s say that there is a delinquent account on your credit report that has been there for several years. It’s perfectly rational to think that if you pay that debt off, you would raise your credit score; you owe someone money, you pay it, so your score should go up because you’re no longer indebted to that creditor. However, paying off that account, which has been dormant for several years, can have an absolutely devastating effect on your credit score. By making a payment, you essentially “reset the clock” on that debt and, in doing so, can drop your credit score anywhere between 50-100 points.

Credit is analogous to fields like law or finance. If you’re not a lawyer or an accountant, you wouldn’t litigate a complex business case or perform a financial audit on your own company. Well, the same holds true for credit. In order for a consumer to improve his or her credit profile and credit score, he or she should engage a professional who is well versed in the field, and who is capable of accurately assessing a credit profile, and providing solutions that will actually result in positive changes to that profile.

Q:Well if consumers shouldn’t be attempting to fix their own credit, is there anything lenders could do to help?

ELIZABETH KARWOWSKI:Of course. Lenders are uniquely positioned to help their prospective clients. Through their interaction with an applicant, a lender learns about that applicants’ goals, which products will allow that applicant to reach those goals, and what that applicant needs to become qualified for those products. As I mentioned before, if the lenders are able to form partnerships with organizations that specialize in this type of credit rehabilitation, they could steer their potential clients toward the guidance and resources needed to help that applicant become qualified for the lender’s financial products. Several of these organizations are not-for-profit and were established to help consumers, but lenders are quickly becoming indirect beneficiaries.

Q: You’ve brought up these partnerships with credit remediation companies several times, but is there any reason that the lenders cannot help their applicants, themselves?

ELIZABETH KARWOWSKI:That’s a great question, and the answer is that there are several reasons that lenders should be weary of assisting consumers in-house. The most obvious reason that comes to mind is that most lenders would find themselves in violation of federal law, specifically, the Credit Repair Organizations Act, or CROA for short, if they began helping these consumers fix their scores in-house.

CROA is a law that was promulgated to regulate the credit repair industry and sets forth requirements by which credit repair organizations must abide when performing credit repair services. When I bring this up to lenders, I usually get “but this is not a credit repair company” as a response. The issue is that by definition, any organization that provides advice to consumers about how to improve their credit, and stands to gain, financially, as a result of providing that advice is a “credit repair organization” under the law. What this means, in practical terms, is that if a loan officer provides advice to an applicant about how that applicant could raise his or her credit score in order to qualify for a loan, that advice, no matter how well-intentioned, could result in that company being classified as a credit repair organization. If that happened, that lender would then be required to meet all requirements under the law and could potentially be subject to unwanted and unintended liability, including lawsuits from both, consumers and the CFPB.

Lenders may also lose their ability to pull credit as another unintended consequence of performing these services in-house. Many providers of independent verification services explicitly prohibit those businesses to which they provide services from engaging in credit repair. Because these types of prohibitions are commonplace across the industry, lenders could very likely run afoul of these covenants, which would obviously have devastating consequences.

Finally, by partnering with organizations that specialize in this field, lenders are able to free up time, money, and resources for business development and other areas of need. If those non-profits are providing services to consumers at no cost to lender, then it doesn’t make much sense for lenders to undertake this task themselves, especially in light of the aforementioned potential consequences that we just discussed.

Q: If lenders are interested in forming these types of partnerships that you discussed, what are some attributes that they should look for in a potential partner?

ELIZABETH KARWOWSKI:First and foremost, lenders should do their homework to ensure that they only select organizations that have a proven track record and are actually capable of providing consumers the competent assistance that they need. Any partner should not only provide credit remediation services, it should be a full-service company that provides consumers with a wealth of resources such as credit education and one on one guidance to help ensure a successful outcome for the referred consumers.

Lenders should also ensure that there are mechanisms in place so that the lender is able to monitor referrals’ progress. Everything should be measured to track results.  This will also allow the lender to keep in contact with the referral throughout the remediation process, and will make it easier for the lender to recapture the leads that they’ve referred once that lead reaches his or her goal and becomes qualified for the desired product.


Elizabeth Karwowski is the CEO of Get Credit Healthy, a technology company that has developed a proprietary process and solution, which seamlessly integrates with the lenders’ loan origination software (LOS) and customer relationship management software (CRM) in order to create new loan opportunity and recapture leads. Get Credit Healthy helped their partners create over $200M of new loan opportunities in 2017 alone, and plan on continued growth in 2018. As a recognized credit expert, Elizabeth has been featured on NBC and Fox News, and published in a number of financial industry publications.


Elizabeth Karwowski thinks:

1. Competition is not going away in the mortgage industry. Lenders will continue to see rising cost to acquire leads causing margin compression.

2. The large amount of information on credit is not shrinking, it’s just making it even more confusing. Did you know some credit score models now go to 990? What happened to 850? Consumers are overwhelmed. We have not made the process to educate consumers EASY, digital, or interact.

3. Lenders will continue to spend large amounts of money to meet their CRA (Community Reinvestment Act) requirements if they don’t change the way they do things. Need to leverage technology and find ways to tap into different pool of people without spending a fortune.

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