In an attempt to help mortgage applicants qualify, (or to generate additional income), Some mortgage brokers and bankers are engaging in or referring their applicants to credit repair firms. For mortgage professionals, credit repair can be a risky choice.
To clarify, Credit Repair is charging consumers a fee for the promise of improving their credit report and is governed by Federal law in the form of the Credit Repair Organizations Act (CROA.) Many originators provide assistance to applicants at no cost. This is often part of the mortgage origination process and as long as you do NOT charge a fee for the services - it is NOT credit repair.
Credit repair presents a special risk as it is a violation of every repository contract – Regardless of the credit reporting agency you utilize.
We are seeing significant increases in the number of investigations and audits conducted by the repositories that result in the termination of broker or lenders access to credit data. These audits are often triggered by borrowers, who at the recommendation of credit repair companies, frivolously dispute items contained in a credit report provided to them by a mortgage professional. The repositories monitor patterns on disputes, matching them to recent inquires into that consumer’s credit report. All three repositories (Experian, Trans Union and Equifax) publish a monthly list of those barred access to credit data. These lists contain the names of thousands of mortgage brokers, bankers and individuals many of whom were put out of business because of the loss of access to consumer credit data.
FICO scoring is often counter-intuitive (e.g. paying off a collection account usually results in lowering the consumers FICO score.) Before recommending your applicant dispute items on his/her credit report it’s important that you understand how the data impacts their FICO score and the potential impact of any changes. Here are a few examples of how what you don’t know may be hurting your applicants…
• When reviewing a tri-merge report, it’s often difficult (depending on your credit provider, it may be impossible) to determine what is being reported by each repository. In many cases, you are unable to tell which items to dispute through which repository. The merge logic used to produce the tri-merge may be responsible for the errors, in which case no dispute of the repositories is needed.
• When a consumer disputes any trade line, that item is locked until the dispute is resolved. It might have been possible through re-scoring tools to correct the item in as little as 24 hours. In addition, GSE and AUS guidelines may reject files containing open consumer disputes.
• Compliments of the FACT Act, consumers can dispute most any item appearing on their credit report absolutely FREE through www.AnnualCreditReport.com and obtain results faster than are possible through any credit repair company (often in just a few days) See http://www.credittechnologies.com/Ultimate_Credit_Repair.asp for the step-by-step.
• It is possible that removing an item (even if that item contained derogatory data) can cause a drop in the FICO score, or worse yet – that item might have been part of the minimum required to produce the FICO score. Once removed – you’ve lost your FICO score entirely.
You can’t un-ring a bell, unless you are certain of what you’re dealing with and the resulting change (if any) to the credit score, it’s best to have your credit reporting agency help you confirm your actions will provide the expected results. If your credit reporting agency can’t provide these crucial services, you need a new CRA.
Thomas P. Conwell III
President, Credit Technologies, Inc.®
Director, National Credit Reporting Association (NCRA)