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Freddie Mac report looks at Asian homebuyers in the U.S.

National Mortgage Professional
Mar 13, 2006

Another roadblock for the broker to navigateRichard H. Lovell Esq.fines, lowering credit scores, credit bureaus Increasing regulation by the various state banking departments, federal enforcement of RESPA violations against title companies paying money to mortgage entities, rising interest rates, appraisal fraud and identity theft - about the only roadblock that the mortgage industry hasn't faced yet are allegations of taking bribes from Jack Abramoff. Now, just to make life more interesting, here's one more item for brokers and consumers to deal with - "A New Threat to Your Credit Ratings" [The Wall Street Journal, Jan. 3]. We all know that there are many obstacles to getting a mortgage loan approved and a loan closed. While trying to get the best possible mortgage loan for your client, it is not always possible to obtain what the client thinks he is entitled to. Things like late payments, high debt ratios and identity theft all contribute to lower credit scores. Now, consumers and mortgage brokers are discovering new ways that one's creditworthiness can be lowered. In "A New Threat to Your Credit Rating," a whole new category of debts are starting to filter their way into consumers' credit reports. Among the tax liens, bankruptcies and student loan delinquencies, we are now finding routine municipal fines and fees. These might include unpaid parking tickets, library fines and trash collection charges. While these somewhat small debts have mostly flown under the credit report radar, municipalities that are now facing budget constraints have turned to collection agencies for help. Now, if a consumer doesn't pay a fine for walking the dog without a leash, he may be causing damage to his credit rating. The article cited as an example a man in Portland, Ore. whose credit rating dropped to "below average" because he failed to pay the $40 late fee on two of his 2-year-old's library books. The Oregon consumer said that " ... the black mark affected his interest rate on a home loan ... " and has since forbidden his children from going to the local library. He further stated that he now takes his kids to Barnes & Noble to purchase books " ...without fear of retribution." Some cities, such as Chicago and San Diego, have been utilizing the services of collection agencies for a long time. Now, however, more and more cities throughout the United States (from the East Coast all the way to Anchorage, Alaska) are turning to this practice. In fact, New York state has recently increased its collection efforts for its E-ZPass road toll collection system by referring delinquent pass holders over to collection agencies. One particularly interesting debt showing up on title and credit reports of New York City area borrowers is transit adjudication liens. These items might lead to confusion in Iowa, but these are fines levied against riders of the New York City transit system who commit infractions of the law, such as jumping the turnstile to avoid payment of subway fare or littering on transit property. It may seem like municipalities would have better things to do than waste government assets to collect what some might consider loose change. However, collectively, the debts add up to huge sums. For example, since beginning collection efforts on unpaid parking tickets in 1997, the city of Chicago has increased its ticket revenue from about $68 million to $154 million, even though the total number of tickets written has actually dropped. In the nine months since the city of Omaha hired a collection agency to collect fines for its public library system, it has collected more than $40,000 in fines and recovered about $75,000 worth of overdue books and materials. Of the more bizarre types of fines that governments have turned over to collection agencies, look at what the state of Florida has recently done: Florida has been using a private collection agency to collect "beach rescue" fees assessed against swimmers who were rescued by lifesaving personnel. According to the Wall Street Journal, two of the three major credit reporting agencies (TransUnion and Experian) include the types of items indicated above in their credit reports of consumers. However, Equifax " ... makes an effort to weed out small charges like library books and parking violations from credit files. The company says it is not fair to include them in credit reports, since municipal fines are reported unevenly around the country," according to the article. "A library fine reported to a credit bureau ... can knock as much as 100 points off of a credit score." This, of course, can make it harder for a consumer to get the same interest rate on a mortgage loan then if this information was not included in his credit report. Even if a consumer pays the amount due to the municipality, it can sometimes be very difficult to have the derogatory information removed from their credit file. Sometimes a borrower can make arrangements with the municipal creditor or collection agency before actually making the payment, requiring the municipality or collection agency to report the item as paid immediately upon receipt of payment. Richard H. Lovell Esq. is the founder of Ozone Park, N.Y.-based law firm of Richard H. Lovell PC. He was a member of the New York Association of Mortgage Brokers board of directors for more than 14 years. He may be reached at (718) 835-9300 or e-mail [email protected]
Mar 13, 2006
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