Equifax, Incorporated Barclays 24th Annual Global Financial Services Conference

Thanks for having us. Thank you.

Mark, maybe- This is two weeks in a row we're with you.

Yeah. We should probably separate what's happening in the mortgage market related to higher rates. Obviously, with where the 10-year went, it touched 5 today. That's going to push mortgage rates up at 7 or north, and that's clearly having an impact on mortgage activity, particularly in refis, but also in the purchase side. Your question is more around the consumer, which I always think about, and I think it's a great indicator. If consumers are working, which they are, unemployment is low, which is very good. Employment is very high. That's always a good environment for the consumer. They have the capacity to repay, and that means our customers are still out there originating. I don't see a change in that. Clearly, at the lower end, and you can go into mid-market, as you point out, inflation, particularly with fuel, is having pressure.

That lower end subprime consumer has been challenged for quite some time. Really post-COVID, there's been an inflation that's been higher than anyone would like, which has clearly pressured that demographic. That is one where the subprime lenders 2 years ago kind of reset some of their originations, but it's fairly normal now. Clearly, with where inflation is, it's not good. It's not helpful for the economy. It's not helpful for interest rates. But broadly with the consumer working, I think we're in good shape. The other side is that our customers are still strong. Whether it's a bank or a financial institution or a fintech, they have strong balance sheets. They're managing themselves well. I think they're operating at a fairly strong level. They're obviously still originating, as they would. That's what their business is.

We haven't seen any change of our customers changing cutoff scores, pulling back around thinking there's a change coming in the economy. Now, mortgage clearly with where rates are now, that's more challenging. That's one where we started the year expecting a slightly down mortgage market. When we got to July, it was getting a little bit weaker through this first quarter and second quarter. Clearly that adds some pressure with where rates are now.

Well, the guidance we gave in July is kind of as Mark indicated, right, that we were expecting to see overall, we're going to see a decline in the mortgage market in terms of originations, right? Obviously we haven't updated our guidance since then. But obviously you've seen rates move up meaningfully since when we gave guidance in July, right? We've seen that impact on transaction volumes in the market certainly over the last month.

Yeah, I think mortgage is down in the ZIP code of 50% from historic levels, mortgage activity. The good news is that even at these lower levels, there's still mortgage transactions happening. So we're building what I would call a population or a backlog of higher interest rate mortgages when inflation does come under control, when rates do come down some, there's going to be a tailwind from mortgage activity. We saw that, you may remember, pre the war in the Middle East. We saw that in the March timeframe. Rates came down slightly. We saw an uptick in refis. It only takes about a quarter point and John, there's what? 15 million mortgages now above 6% and there's almost 10, right, over 6.5, right? So there's a large population out there and obviously we'll see what the Fed's going to do on Wednesday.

I think the expectation is clearly the 10-year has moved up expecting the Fed is going to do a rate increase. But at some point the war's got to get resolved. At some point, inflation from really fuel and oil should come under control. There should be an opportunity for rates to come down. We've been very clear that when there is a mortgage market recovery, it's all going to flow through to shareholders. We've sized that at kind of today's levels, a normal mortgage market when it comes, and as you point out, it's harder to see today with where the tenure is, but at some point, whether it's 2027 or 2028, there's a $1 billion plus of incremental revenue available to Equifax and very high incremental margins. So think $700 million plus of incremental margins and that'll flow through to our bottom line.