You apply for a mortgage but get denied, something about your Sears credit card and some late payments. But you don’t have a Sears credit card.
”That’s anecdotal, but it is very much what is going on out there,” said Ron Phipps, outgoing president of the Rhode Island Association of Realtors.
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What’s going on is that consumers are often being denied and being given little, if any, information, as to why.
Disclosure of credit information has become a national issue. The National Association of Realtors (NAR) is supporting legislation to force full disclosure of credit scores, risk scores, or risk predictors that determine whether a potential homebuyer is able to obtain mortgage credit.
Jan Barnes, a Maryland Realtor, recently testified in Washington, D.C. on behalf of the NAR.
”My clients get the feeling that Big Brother is watching them closely,” Barnes said. “Yet there is no way for these clients to find out how Big Brother is manipulating their raw credit information to come to conclusions that will profoundly affect their futures.”
Barnes added that under current law, there is simply no required disclosure.
”There is no incentive to let the sun shine on credit scores and correct wrong or misleading information,” she said. “It’s very difficult for a Realtor to respond when clients ask why a friend or family member receives a better score.”
Mortgage lenders, according to the NAR, have become more dependent on credit-scoring techniques to evaluate risks associated with lending to consumers. Although certain efficiencies have been achieved since 1995 by integrating the underwriting and evaluating processes, according to the NAR, an “iron curtain of secrecy now walls off essential elements of the mortgage-lending transaction.”
In a typical transaction, mortgage lenders contract with the three major credit-reporting bureaus to gain access to a personal credit report, a practice regulated by the Fair Credit Reporting Act and Privacy Act. When reporting bureaus sub-contract with a mathematical modeler to obtain a credit score, however, these protections often evaporate, said Barnes.
”We need federal legislation to cover a transaction’s entire spectrum of critical decisions,” she said.
Phipps said the Rhode Island Association of Realtors does not have a formal stance on the issue, but it wholeheartedly agrees with the NAR approach and Barnes’ assertions.
To Phipps, the matter is simple. Consumers, he said, should have access to all of their credit information so they can determine what steps should be taken to improve their credit – or whether mistakes have been made in determining their scores.
”As long as people know what is going on, they can determine what they need to – or should do,” he said. “There may be derogatory credit in there that you did not know about or some of the information may be inaccurate.”
Phipps points out that credit history is often as important as assets when it comes to applying for a mortgage.
”A very pivotal part of obtaining a mortgage is your credit score,” he said. “If that is not accurate, you’ve got a problem. In some ways, it is more important than your assets.”
Few people, said Phipps, bother to check on their credit history.
”When it comes up is when someone is denied credit,” he said.
Barnes pointed out that without disincentives in place, lenders subsequently use credit scores to determine loan eligibility, interest rates, and other conditions for purchasers.
”If consumers enjoy a good credit report, they also assume they have a good credit score,” she said. “Not necessarily. Reports and scores are independent variables. Consumers sometimes engage in innocent behavior that actually undermines their credit scores – shopping for loans on the Internet, for example, or transferring balances on credit cards for better interest rates – without even realizing the consequences.”
Such a system, said Barnes, “is irrational and inefficient.”
NAR cautious regarding
HUD’s lead paint action
NAR is responding with “cautious praise and prudent caution” to new rules issued by the U.S. Department of Housing and Urban Development that accompany certain housing transactions involving lead paint.
The HUD-issued rules require notification, evaluation and reduction of lead-based paint hazards in housing that receives federal assistance. Properties covered by the new regulations include housing that receives a federal subsidy, housing occupied by a family that receives a voucher or certificate, public housing, federal owned housing in the process of being sold, multifamily housing in the process of requesting a federal mortgage, and housing that receives federal assistance for rehabilitation or other purposes.
HUD has agreed to “transition assistance” that will ease compliance for certain properties affected by the new regulations. HUD will provide lead-paint testing, funding for training, technical assistance, and grace periods for certain circumstances and hardships.
“We are encouraged that HUD has listened to industry concerns,” said NAR Senior Vice President for Government Affairs Lee Verstandig. “However, while fully supporting these short-term initiatives, we are disappointed that HUD has chosen to proceed with lead-based paint regulations at a time when there is a shortage of properly trained technicians. It would be highly unfortunate if the availability of affordable housing were diminished as an unintended consequences of this advance in public health and safety.”
