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72 Although on opposite sides of a mortgage transaction, the goals of both lenders and borrowers are closely aligned. Each wants the homeowner to remain in the home for as long as they desire. Delinquent payments or defaulted loans are detrimental to everyone. Yet, good intentions and aligned outcomes are not enough. Unforeseen changes in life or financial circumstances or even external macroeconomic forces can dramatically and quickly affect a borrower's ability to pay. To help borrowers weather these storms, independent mortgage companies, lenders, portfolio managers, and servicers must identify issues when they are small and manageable before they become large and require significant action. ere are five key warning signs that could telegraph a borrower's diminished ability to pay their mortgage. 1. NARROWED CASH FLOW Most borrowers depend on their monthly income to pay for their mortgage. A loss of or decrease in employment can diminish their ability to pay their expenses every month. Cash-flow issues can also stem from an increase in the cost of other monthly expenses. Either way, bills must be prioritized. While the mortgage might continue to be paid in the short term as an essential bill, a sustained change in cash flow could eventually lead to late or missed payments. 2. CHANGE IN LIQUIDITY Emergencies such as a health issue, car accident, or family crisis can often require a large outlay of funds that cannot be immediately covered by income. Tapping savings can then put pressure on borrowers and reduce their margin for error. Some emergencies could also lead to new ongoing expenses that further diminish their capacity to pay priority bills like a mortgage. 3. INCREASED DEBT Most borrowers have a finite amount they can spend every month in order to maintain financial health. Unless income increases, or they receive a lump sum of cash, regular, steady budgets are important for maintaining the ability to meet all financial responsibilities. An increase in someone's debt position could lead to future difficulty paying a mortgage. Even if borrowers have the disposable income to cover new debt today, unemployment or personal emergencies may arise and quickly alter someone's financial position later. 4. DECREASING CREDIT SCORE A credit score can drop because of late or missed payments, applying for new credit, or an increase in credit utilization rate. It may indicate a borrower has financial issues that are not yet showing up in their banking activity. Opening up new credit lines, or maxing out the ones already open, could lead a borrower to late or missed mortgage payments if they prioritize other bills over their mortgage. 5. MACROECONOMIC TRENDS Local, national, and global economics can all be turbulent, leading to unforeseen downstream consequences on borrowers. Whole industries can shift over a few years, meaning layoffs or reduced salaries. Tax laws and policies regarding homeownership can reset, changing a borrower's tax profile and throwing off their assumptions about what they can and cannot afford. ese macroeconomic headwinds can be an early indicator of future problems. SERVICERS NEED REAL-TIME ACCESS Up until now, lenders felt the pain of loans turning sour without much warning. at's because these warning signs of mortgage default risk were opaque to all but the biggest banks. at is changing with the growth of real-time lending metrics. Most of these warning signs are linked to a borrower's financial position, meaning that access to real-time mortgage data analytics and borrower insights can help catch changes the moment they start. Monitoring borrower-level data allows mortgage companies to prioritize outreach as circumstances change before a borrower has entered financial hardship. e goal for servicers is to identify these red flags early, before a single payment is late, to mitigate against loss, avoid increased portfolio risk, and help borrowers remain in their homes. Proactive assistance can help fend off delinquency or default: a win-win for both the lender and the borrower. Nadim Homsany is the Co-Founder and CEO of EarnUp, a financial technology company committed to helping people pay off debt faster and maximize homeownership possibilities. Quick Take By: Nadim Homsany FIVE WARNING SIGNS OF MORTGAGE DEFAULT RISK To help borrowers weather financial storms, servicers must identify issues when they are small and still manageable.