Fraud analytics, alt-data reduce risk for nonprime lenders

The ability to identify risk as early as possible in the loan origination process can improve portfolio performance, and lenders focused on nonprime segments have better resources than ever before to reduce loan risk. Early identification of high-risk borrowers can reduce or potentially eliminate defaults. Fraud analytics and alternative credit data — which provides a more detailed picture of borrower financial strength — easily integrate with cloud-based loan origination solutions to help nonprime lenders reduce risk and increase lending opportunities.

Fraud Analytics Identify Misrepresented Information

Some nonprime applicants boost income, provide inaccurate employment history, or use false identities to improve the odds of securing a loan. By analyzing millions of applications, machine learning can identify those that may contain misrepresented information.

Fraud analytics evaluate applications for hidden indicators of fraud. These tools provide confidence scores that guide underwriting. Applications with high fraud scores may require additional information to make a decision, while borderline scores can be decisioned by experienced underwriters. Analytics enable nonprime lenders to recognize risk the moment applications are submitted, thereby limiting exposure to borrowers likely to default.

Nontraditional Data Offers Better Decisions, New Opportunities
In the nonprime segment, credit scores can be the biggest hurdle to obtaining loans. However, credit scores alone provide only part of the picture of a borrower’s financial strength.

Alternative credit data can include bank accounts, employment history, income statements, utility payments — like electricity, gas, water, and mobile phone — and rental records — like location, length of the lease, and payment history. These data points improve lending decisions in two ways.

1. For applicants in the near-prime and subprime segments, the combination of credit score and alternative data provides a more detailed picture of creditworthiness. With this information, lenders can more accurately assess risk levels and structure deals.

2. For applicants with thin or nonexistent credit histories, alternative credit data can provide evidence an applicant has a considerably stronger financial position than would otherwise be indicated. With this information, lenders have new opportunities that previously would have been missed.

Cloud-Based Loan Origination Solutions Provide Easy Integration

Lenders can take advantage of fraud analytics and alternative credit data with cloud-based loan origination solutions that come pre-integrated with these services. Configuration menus allow lending professionals to quickly incorporate these services into underwriting processes to reduce risk and increase opportunities in the nonprime segment.

With more than 20 years’ experience in the auto finance industry, Lana Johnson leads the charge to drive innovation as COO at defi SOLUTIONS. defi SOLUTIONS is the Technology Partner of Auto Finance Excellence (AutoFinanceExcellence.org), a sister service of Auto Finance News.

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