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Still standing? Time to strengthen your foundation

National Mortgage Professional
Dec 12, 2007

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 tclemans@ncrainc.org.
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