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Mortgage Customer Retention and Recapture: Better Identify Borrowers that are Likely to Prepay with Household Total Income Measure

IXI’s Estimated Total Income Measure Identified a Segment of Loans that was up to 7 Times More Likely to Prepay and Provided Enhanced Differentiation within CCLTV and Credit Score Groups
By incorporating IXI’s total household income measure into prepayment models and servicing processes, mortgage servicers and investors can gain insight on household financial capacity and better segment and identify loans that are more likely to prepay.
Objective

Mortgage originators, servicers and investors can gain a significant advantage if they can better identify borrowers that are likely to prepay.

Given that interest rates are at an all-time low, many borrowers are seeking to refinance, opening a short window of opportunity for mortgage originators and servicers to retain their customer relationship with borrowers and keep mortgages in-house. By better identifying borrowers who are likely to prepay or refinance, mortgage originators and servicers can take steps to enhance their customer retention programs, preserve servicing revenue, generate origination revenue and maintain the opportunity to cross-sell other financial products and services.

Investors can better identify loans that are likely to prepay and use that information to make appropriate portfolio management decisions.

Solution

A comprehensive analysis was conducted on a whole loan portfolio to test the effectiveness of IXI Services’ solutions to segment and identify borrowers that were more likely to prepay. The subject portfolio consisted of more than one million loans that were current at the beginning of the year and had prepaid or refinanced by the end of the year.

The analysis showed that Income360 was effective at identifying loans that were more likely to prepay. Income360 provides a total household income estimate, including income from wages plus income from investments.

Results

The analysis showed that Income360 was able to help segment and identify loans that were more likely to prepay:

  • The higher the Income360, the higher the likelihood of prepayment:
    • Households with Income360 of $2M+ were 7 times more likely to prepay than Income360 of <$50K
    • Households with Income360 of $200K+ were 4 times more likely to prepay than Income360 of <$50K
  • Increased differentiation in predicting likelihood of prepayment was achieved by incorporating Income360 into prepayment models that focus on traditional indicators such as CCLTV ratios and credit scores
  • Segmentation power was enhanced when Income360 was used together with other IXI Services measures

Differentiation in Identifying Likelihood to Prepay Based on Income360 Total Income Estimate

 


IXI’s products were neither developed for the purposes of, nor intended to be used for, the extension of credit to any individual, nor should they be used for purposes of determining an individual’s creditworthiness or for any other purpose contemplated under the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq.
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