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].
