The Impact of Social Credit Modeling
New concerns have already been raised in 2014 over how many lenders are looking at social media accounts to evaluate potential borrowers. So how will this affect home buyers looking for mortgage loans. More importantly, what impact will that have on investors?
What factors are lenders looking at? Will this process help or hurt the housing market? More importantly, how can real estate professionals, investors and those buying homes boost their social credit scores?
The Widespread Impact of Social Credit Modeling
According to the Wall Street Journal, the practice of monitoring social credit is not a new development. Social media platforms have already been used in business lending and smaller consumer loans. On the other hand, FICO and mortgage giants have focused on evaluating ways to predict behavior based on certain metrics.
It certainly makes sense. After all, Facebook once claimed it could predict who users would be in relationships with by their activity and who their friends were. Studies (and some profiling) might be able to show significant indicators of likelihood of repaying debt too.
This will ultimately have a big impact for the foreseeable future, as social media platforms impact almost every aspect of our lives. For example; it could be used by retail home loan lenders, credit card companies, when underwriting business loans at banks, for credit decisions on home equity loans and start-up capital lent to real estate agents.
What’s Involved in Social Scoring?
Social modeling will offer lenders the ability to view countless aspects of an individual. The more an individual posts on social media, the more they pronounce to the world for all to see. Some of the things they have admitted looking into include:
- Double checking accuracy of loan applications
- Current job verification, outlook and past employment history
- Identifying signs of money trouble
- Size of social network and friends lists
- Measuring strength of community ties
- Who lenders can contact to track down delinquent borrowers
- How credit worthy friends and connections are
- What people are saying about you and your business
- Bad habits which could prevent ability to repay loans
- Types of devices used to determine how much money someone has
- Personal and family issues which could result in debt to income ratio changes
This practice, for all that it is worth, may favor some and cripple others. The wealthiest individuals may be the most private and not have any social presence. Those that are unemployed may have the most developed social networks. It really comes down to what each person posts.
However, there is some concern with this form of credit monitoring. With lenders wired into social accounts, there will always be the risk of your friends getting notifications when you are late on your payment or process servers showing up at happy hour with foreclosure notices.
Regardless of the direction this heads, it is important to practice due diligence. Be mindful of what you post on social media. As an investor, you should already be screening your own posts to make sure they help your business.