VOL. 10 | NO. 38 | Saturday, September 16, 2017
EMPHASIS: Financial Services
Credit Report Changes Remove Some Info, Put Greater Burden on Lenders
By Don Wade
Lenders don’t just want a snapshot of potential borrowers. They want the full picture. In theory, the three major credit reporting companies – Equifax, Experian and TransUnion – were providing that. But the reports routinely included errors. It was not uncommon for the credit information of people with similar names to be confused.
Jason Woods, branch manager and loan officer at Community Mortgage’s DeSoto branch, says credit reports show a consumer’s “life history.” New regulations put a greater burden on lenders to determine someone’s credit-worthiness. (Memphis News/Houston Cofield)
Thus, consumer advocates and government officials such as state attorneys general were pressing the national credit reporting agencies for greater accuracy.
A report by the Consumer Financial Protection Bureau detailing the frequency of errors has resulted in new requirements as of July 1: A majority of civil judgments and tax liens will now be removed from the Equifax, Experian and TransUnion credit reports because now each citation must be accompanied by the person’s name, address, social security number and birth date to be included.
An analysis by Fair Issac, the company that provides the formula to produce the credit scores known as FICO, indicates about 7 percent of the 220 million people in the United States with credit reports will have a civil debt or tax lien eliminated from their record. In turn, it’s estimated those people will see their credit scores rise about 20 points (a conservative amount given that credit scores have a range of 300 to 850).
The changes are aimed at protecting consumers who could not get loans because of bad information on their credit reports. In one extreme case, The New York Times reported that a California jury awarded a group of consumers $60 million because TransUnion had falsely identified them as terrorists and drug traffickers in a case of mistaken identity.
Now, with less information on the credit reports they receive, more responsibility will fall on lenders to make sure someone is a good candidate for a car or home loan.
“When we pull a credit report, we see their life history – credit cards, car notes, houses,” Jason Woods, branch manager and loan officer of Community Mortgage’s DeSoto branch, said of the role the credit reports have served. “We see late payments, we see judgments, and we see tax liens, bankruptcies, foreclosures, collections. So we have to sift through those things and we have our guidelines as far as what we can do.”
But with the July 1 changes, every time a source of data doesn’t have the name, address, social security number and date of birth, less information will come forward.
“Tax liens and judgments have to be paid before you can do a mortgage,” Woods said. “When someone takes a judgment off or a lien off that doesn’t mean, ‘Whoo, we get to go to closing.’ We have to do our due diligence on the back end.
“Let’s say it’s a $1,000 apartment and they moved out early and had two months left and they were slapped with $1,000 and they didn’t pay it; well, now it’s $2,500 because of court costs and late fees.”
Ann Bell, a senior loan officer at Mortgage Investors Group, says the first meeting lenders have with potential borrowers is more important than ever.
“We’ve always had declarations, the yes-or-no questions – ‘Do you have any unpaid obligations?’ – and it gets asked in a couple of different ways,” she said.
It’s also answered in different ways.
Woods says people sometimes have memory problems when asked about outstanding debts.
“Be honest with your lender up front,” he said.
“This removes information from the picture that our customers get about what a borrower has done in the past,” Francis Creighton, chief executive of the Consumer Data Industry Association told The New York Times.
“The title companies will be our backup,” Bell said. “That’s where it will show up. So it’s going to be imperative the attorneys and title companies get their information to us in a more timely manner. So if there is something there we don’t know about and we have to go back to them, and they don’t have the money to pay it, it’s either going to slow the deal down or cause them not to close.”
L. Patrick Sandlin, president and CEO of Community Mortgage, says there are always changes in the industry and it’s just a matter of adjusting and being alert to potential issues.
“When working through a file, stuff starts rising to the surface,” Sandlin said. “We have a lot of people that are married that say they’re not married.”
Down payment assistance, Woods explained, takes into account household income; people will claim they’re single when they’re not in an effort to stay below the cutoff line to receive the financial help.
Woods says he understands why the latest reporting changes were made: “A lot of consumers were not being allowed to get a loan because of some type of erroneous information somewhere.”
But now a greater burden will rest with lenders.
“It all comes back to the mortgage company,” Bell said. “Everything should show up in title, but there are times we get title work very late in the game. It’s one of those things that (if debts are discovered near closing) it could upset people if money’s being spent to order appraisals and home inspections.”