Secondary use of credit reports ready to shift into high gear Terry W. Clemanscredit, NCRA, Experian, Equifax,TransUnion, Fannie Mae, Freddie Mac, Desktop Originator/Desktop Underwriter, Loan Prospector
A few months ago, in the August edition of The Mortgage Press,
we addressed, at length, the three credit repositories (Experian,
Equifax and TransUnion) new rules about the re-issue or secondary
use of credit reports. These new rules call for the mortgage
originator to pay a fee each time someone in the mortgage lending
process reviews the credit reportin whole or in part,
electronically or on paper.
And yes, you can interpret that to mean that just sending your
wholesale lender the loan package and the applicants credit score
while trying to seek a funding source for your loan is a billable
secondary use. Not sending the whole credit report will not get you
out of this one. Sorry! Nice try though!
While the new repository rules have required that mortgage
originators report and pay a new fee for each company that shares a
copy of the credit report already in place since February
(Experian) and April (Equifax and TransUnion) of this year, many of
the mortgage credit reporting agencies have not been aggressively
pursuing total enforcement of this program when it comes to
situations like the above scenario, nor have they been auditing
their customersthe mortgage originatorsto guarantee complete
compliance. Your mortgage credit reporting company is most likely
about as unhappy with this new plan as you are, but is not being
given many options other than rolling the plan out or putting their
business at risk.
To compensate for that perceived lack of compliance, the three
credit repositories have been charging the mortgage credit
reporting agencies an additional secondary use surcharge, over and
above the actual volume of reports they sell the mortgage lending
community. This added volume surcharge is designed to offset the
missing secondary use transactions until such time that they can be
properly documented and billed.
That time is arriving soon. Fannie Mae and Freddie Mac have been
working on changes in their automated underwriting systems (Desktop
Originator/Desktop Underwriter and Loan Prospector, respectively)
that will be tracking the secondary use within their systems and
reporting it to the credit reporting agencies for automatic billing
of the new secondary use fees. With several software updates
scheduled to be released in December 2007 and into the first
quarter of 2008, by spring, any mortgage originator using those
systems to pass the loan package to lenders for funding will
automatically be getting billed for these secondary uses of the
credit report. The more lenders that review the file during the
underwriting process with Fannie Mae's and Freddie Mac's systems,
the more you will be charged under the new rules.
Mortgage originators who are not happy with the new program need
to be vocal regarding their opposing views and stress them to their
legislative representatives in Washington, D.C. Another option is
to file a complaint with the Federal Trade Commission (FTC) at
www.ftc.gov, as it seems that only Congress or regulatory oversight
will be able to change this new program at this time.
The National Credit Reporting Association (NCRA) is battling
these proposed changes in Washington, D.C. and has been working
with some legislators on a proposed bill to prohibit the credit
repositories from creating these new charges. The NCRA has also
been to the FTC, the federal regulator of the Fair Credit Reporting
Act, regarding this program and are still awaiting a reply to our
complaint from the FTC.
In the FTC meeting, NCRA made a complaint to both the Division
of Financial Practices and the Bureau of Competition as this new
program has implications for both. It should be noted that the
three credit repositories either directly own a mortgage credit
reporting division that will be greatly benefited by this new rule
or have a sizable ownership interest in one so that each of the
three national companies are giving themselves an even greater
advantage in an already unlevel, anti-competitive playing
field.
In closing, as your credit reporting bills start to escalate the
next couple of months with Fannie Mae and Freddie Mac systems
getting updated, use your voice and your consumers voice to
challenge this practice. The repositories have been interpreting a
law one way for a decade and since no one has said that they were
wrong, they just decided to change the practice in a manner that
gives them a huge financial boost and helps eliminate their
competition. Should it go unchallenged?
Terry W. Clemans is the executive director of the National Credit Reporting Association
Inc. He may be reached at (630) 539-1525 or e-mail
[email protected].
