Make us your home page
Instagram

Mortgage applications to include credit score alert

WASHINGTON — Home mortgage shoppers should see an unexpected addition to the application paper blitz starting Jan. 1 — a mandatory alert on how their credit scores might affect the rate quote and terms they receive from their lender.

The new disclosure represents the end product of a congressional effort dating to 2003 to make the crucial role played by credit scores in loan pricing more intelligible to consumers, and to alert applicants when negative information in their credit bureau files triggers higher rates or adverse terms.

Lenders will be required to provide the alert before applicants finally commit to accept mortgage offers, thereby allowing some consumers to double-think their decisions, order copies of credit reports and look for inaccuracies or outdated information.

Though federal regulators have given banks several ways to make the mandatory disclosure, the one most mortgage applicants are likely to see covers the following:

• The specific credit score — including the source and the date it was pulled — that was used by the lender to arrive at a decision on the rate quote.

• How the applicant's score ranks against other consumers' scores.

• The key negative credit-file factors that affected the applicant's score, such as the number of late payments, inquiries by the consumer seeking new credit accounts, and excessive use of the credit accounts already available to the consumer.

• A reminder that all applicants have the legal right to dispute any inaccuracies they find in their credit files.

• Contact information for obtaining free annual credit reports — one each from Equifax, Experian and TransUnion, the three national bureaus — by toll-free phone, online or by mail.

• A brief description of credit-scoring methodology.

Ted Dreyer, a senior attorney with Wolters Kluwer Financial Services, an adviser to lenders based in Minneapolis, said the new forms "will certainly (be) another piece of paper" and that inevitably "some people's eyes will glaze over." But properly used, according to Dreyer, they "will be a valuable source of information" for people with negative data — whether accurate or erroneous — buried away in their national credit bureau files.

Consumers should be especially alert to the connection between credit files and mortgage rate quotes, say proponents of the new disclosure, because the hard economic jolts of the past four years — unemployment, high delinquency rates, home foreclosures and short sales — have depressed millions of individuals' credit scores.

At the same time, most mortgage lenders have steadily ratcheted up their underwriting standards and credit score requirements for good rates — or even the minimum score needed to qualify for any quote at all.

Not everyone is as optimistic as Dreyer about the efficacy of the new forms. Consumer advocates who successfully pressed for the disclosure in 2003 say the final form taking effect Jan. 1 doesn't even come close to what was originally intended: a personalized red flag from the lender to the applicant that negative credit-file data had caused the rate quote to be significantly higher than it otherwise would have been.

The concept was to encourage a borrower who received the warning to consider putting the brakes on the deal until he or she had a chance to check out what exactly in the files was causing the problem. Only applicants who were being quoted disadvantageous, higher rates by the lender's risk-based pricing system using credit scores would receive the notice, rather than 100 percent of all applicants.

Ed Mierzwinski, consumer program director of the U.S. Public Interest Research Group, said next year's form amounts to "just another disappointing generic disclosure" whose effectiveness will be limited by the fact it's a handout to everybody. Mierzwinski is especially critical of the two federal agencies responsible for crafting the final product — the Federal Reserve and the Federal Trade Commission — both of whom, he says, "choked the life out of this promising consumer reform" during a protracted seven-year deliberation process.

Terry W. Clemans, executive director of the National Credit Reporting Association, whose members specialize in preparing credit data and scores for mortgage lenders, said the final disclosure form "seems to be a very watered-down version of the intent of Congress back in 2003."

But Evan Hendricks, author of the book Credit Scores and Credit Reports and editor of Privacy Times, a newsletter that focuses on consumer credit issues, said he prefers to look for the positive in the new disclosures. Though "it's a step — a baby step — in the right direction," he said in an interview, "anything that reminds people about their credit score and how their lender is using it will be better than nothing."

Kenneth R. Harney can be reached at kenharney@earthlink.net.

Mortgage applications to include credit score alert 12/17/10 [Last modified: Monday, November 7, 2011 1:41pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Special to the Times.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. The Iron Yard coding academy to close in St. Petersburg

    Business

    ST. PETERSBURG — The Iron Yard, a code-writing academy with a location in downtown St. Petersburg, will close for good this summer.

    Instructors (from left) Mark Dewey, Jason Perry, and Gavin Stark greet the audience at The Iron Yard, 260 1st Ave. S, in St. Petersburg during "Demo Day" Friday, Oct. 7, 2016, at The Iron Yard, which is an immersive code school that is part of a trend of trying to address the shortage of programmers.  The academy is closing this summer.  [LARA CERRI   |   Times]
  2. Florida's unemployment rate drops for fourth straight month

    Markets

    How low can Florida's unemployment go? Pretty low, according to the state's latest unemployment numbers. The Sunshine State's unemployment rate dropped to 4.1 percent for June, down from 4.3 percent in May, state officials said Friday morning.

    Florida's unemployment level dropped to 4.1 percent in June from 4.3 percent in May. |  [Times file photo]
  3. Is sinkhole damage sinking Tampa Bay property values?

    Real Estate

    On a scale of desirability, the house for sale on Whittner Drive in Land O' Lakes would rank fairly low. It's a short sale; it sits on an unstabilized sinkhole and it's within a few miles of two houses that collapsed into a gargantuan hole July 16.

    A gated community in Hernando's Spring Hill area, Pristine Place has long been susceptible to sinkholes with nearly a third of its houses with documented sinkhole damage by 2012. Today, however, many houses with repaired sinkhole damage are selling for more than houses without any issues. [WILL VRAGOVIC   |   Times file photo]
  4. The real estate pros in charge of Tampa's $3 billion makeover are younger than you think

    Working Life

    TAMPA — Brooke May, a 36-year-old senior construction project manager, knew she wanted to work for Strategic Property Partners the minute she met some team members involved with the group's massive downtown Tampa makeover.

    Matt Davis, Vice President of Development posed for a portrait in the Strategic Property Partners office in Channelside on July 12, 2017, in Tampa, Fla. [MONICA HERNDON   |   Times]
  5. St. Pete Beach may loosen beach drinking rules for hotel guests

    Local Government

    ST. PETE BEACH — Drinking a beer, a cocktail or a glass of wine may soon be legal on this city's beaches, but only for hotel guests in and around their hotel's beachfront cabanas.

    Registered hotel guests would be able to drink alcoholic beverages at their cabanas on the beach under a new rule the St. Pete Beach City Commission is considering.