"Mortgage underwriting remains fundamentally document-driven. W-2s, tax returns, pay stubs, and bank statements confirm that income occurred. But they say very little about how that income behaves."
"Research following the 2008 financial crisis consistently found that payment shocks, income volatility, and liquidity constraints are key drivers of mortgage default often more predictive than initial income levels alone."
"Over the last decade, lenders have gained access to something far more powerful than documents: financial behavior. Through payroll integrations, asset verification, and cash-flow data, lenders can now observe deposit frequency and consistency."
Mortgage underwriting has traditionally focused on verifying income through documents, but this approach is becoming inadequate. The real challenge lies in understanding income behavior over time rather than just its existence. Two borrowers with the same income can present vastly different risks based on their income stability and liquidity. Research indicates that factors like income volatility and liquidity constraints are more predictive of mortgage default than initial income levels. The industry possesses the necessary data but lacks a model to effectively utilize it for assessing financial behavior.
Read at www.housingwire.com
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