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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 42 April 2023 F E A T U R E SURVEYING TODAY'S LENDING LANDSCAPE As lenders continue to navigate one of the trickiest economies to date, the industry is making significant progress in pulling back the layers and re- examining its risk management practices. B y S A R A H DAV I E S T he current lending landscape has a very mixed outlook—a natural re- action whenever there are periods of economic downturn. We are all very familiar with the recession of 2008 and the resulting impact it had over the next decade on everything related to our risk strategies and lending practices. Across the board, CEOs, Chief Risk Offi- cers, and various industry execs have become accustomed to navigating these uncertain economic and social times. Even during the early stages of the pandemic, lenders were tasked with this, and to do so successfully, needed to implement the proper strategies to help them grow without any added risk. As we prepare for a possible recession this year, many lenders are again adjusting their risk strategies and reevaluating tradi- tional credit models to ensure that they are ready for the months ahead and help man- age losses in the case of a potential market downturn. Understanding the Current Environment L enders are already navigating one of the trickiest economies we've ever seen. With 2008 in the rearview, it's important to look back at what we learned from this period, how it can be applied to today's environ- ment, and examine the underlying economic factors to see where there are fundamental differences. The driving factors behind today's market are vastly different from what we saw in 2008. This leaves us with a few positives such as a potentially shallower and shorter recession than what we experienced back then. On the flip side, new factors such as the unstable job market and the current levels of inflation, have lenders unsure about how to navigate these different levels of uncertainty. One thing we didn't have 15 years ago was the level of technology and innovation that we do today. From a data and analytics per- spective, the world is much different today. Naturally, this has triggered discussions in the financial services community around the topic of credit scores and whether they are the strongest barometers for determining a consumer's ability to pay, when there are now alternative data sources available that have proven to be effective. Even during the 2008 recession when I was on the VantageScore team, we were start- ing to pull back the layers and re-examine our risk management practices. We could see even then the fundamental cracks in traditional credit reporting that prevented true financial inclusion and the potential alternative data had for removing those barri- ers. While we've made significant progress since then, the current market has reinvigo- rated these conversations as lenders reach a new tipping point. Embracing New Data Sources in 2023 I t's undeniable that credit data-based underwriting practices provide a strong ba- rometer for decision-makers. There's a reason this has been the dominant practice all this time. However, traditional credit-based under- writing practices sometimes miss key variables when evaluating a consumer's ability to pay (e.g., job changes, multiple income streams, S A R A H DAV I E S is Chief Data and Analytics Officer for Nova Credit. After spending more than 15 years as an executive leader in the banking and airline industries, Davies focused her career on analytics and risk analysis. She spent almost 12 years with VantageScore, where she led their risk and analytics function and was instrumental in taking the product from an idea to one of the most recognized and used scores in the market, with more than eight billion scores provided to date. She joined Nova Credit in 2018.