A new contagion is now spreading through the consumer credit industry. Mortgage professionals will want to be especially vigilant to avoid contact with this disease, which promises to bring as much misery to brokers as it does to the customers who are its carriers. The virus is called “Credit Repair,” and it spreads through late night TV commercials, junk e-mails and yard signs in low-income neighborhoods. Slick hucksters create the ads, disguising themselves as earnest professionals promising to magically wipe the black marks of late payments, defaulted loans and maxed-out credit cards from a consumer’s credit report. Their procedures for the “doctoring” of credit records can range from merely useless to downright fraudulent and malicious.
While there are many good reasons for a mortgage professional to help a customer improve their credit score, it is important to avoid using the phrase “credit repair” to describe this assistance. It is equally important to avoid associating yourself with firms who use the phrase to refer to their services. Chief among the reasons: All three of the major nationwide credit repositories strictly prohibit providers of credit repair services from receiving their reports or credit scores. Mortgage lenders who associate with a credit repair company similarly run the risk of losing the ability to access Equifax, Experian and TransUnion for mortgage lending.
The best antidote is to recognize the critical difference between lawful assistance in helping a consumer qualify for a loan and the unethical activities of a credit repair firm. Some firms charge hefty fees for services a consumer can perform for free. Other credit repairers are out-and-out fraudsters, taking advance payments from desperate borrowers and skipping town without providing any service whatsoever. The most egregious operators use unscrupulous techniques to artificially manipulate a credit score, jeopardizing the nation’s credit reporting system for the sake of a short term improvement.
No good, says the FTC
According to an article at Bankrate.com, the Federal Trade Commission (FTC) has yet to uncover a worthwhile repair operation. The FTC raises the legitimate question: How can bankruptcy be legally removed from a credit report when, by law, it is supposed to remain on it for 10 years? A key to understanding the FTC’s concerns lies in the definition of the phrase “Credit Repair.” Most of the firms that promise to “repair” credit are actually correcting errors in a credit record. Consumers can accomplish this task on their own at no charge. All three repositories comply with laws that require a do-it-yourself procedure for correcting the erroneous data that can lower a consumer’s credit score. Amending the record can often raise scores sufficiently, elevating a previously unqualified borrower to a status where a loan might be possible.
The most troublesome operators in the credit repair business go beyond merely selling free services, seeking to artificially improve their clients’ scores by exploiting loopholes in the federal laws that govern U.S. repositories. The flood of paperwork creates major headaches for administrators at Experian, Equifax and TransUnion, which potentially increases the cost of credit reporting for everyone.
Big trouble for mortgage professionals
Association with a credit repair operator holds the potential to paralyze a mortgage lender’s ability to write new business. Repositories have strict rules against providing credit information to firms associated with the credit repair industry. Credit information services providers like Credit Plus must be very careful to comply with the prohibition as well. Some credit repair operators circumvent the roadblock by partnering with legitimate lenders, including mortgage companies, and using them to obtain credit information in exchange for a commission or business referral. Other mortgage professionals choose to unwittingly assist the repair scammers voluntarily, based on the misguided belief that they are benefitting their borrowers. The result of partnering with a credit repair company could be a complete cutoff of credit reports to the lender or broker, effectively eliminating the ability to close new loans.
Fortunately for mortgage professionals, there are many helpful alternatives to credit repair:
►Self-service: Most borrowers are capable of fixing errors in their credit report on their own, although the process requires a bit of effort. The procedure to follow is well-documented in a comprehensive article on the FTC Web site, and federal credit laws have been established to make the steps as straightforward as possible. The down side of self-help is the time commonly required to make a correction. A complete amendment process can take 30 to 60 days, far longer than some eager borrowers are willing to wait.
►Credit service agencies can offer a valuable shortcut for borrowers who seek to correct a report: Credit service agencies can use their insider access to amend a report in days rather than weeks, using proof of an error provided by the borrower. Additional assistance can advise mortgage professionals on personal finance changes that applicants can make to improve the possibility of loan approval.
►Credit advice: The vast majority of borrowers aren’t approved because their financial situation truly disqualifies them from obtaining a loan. Although the process isn’t immediate and painless, the outcome of true credit improvement can be ultimately more satisfying for all concerned.
Considering facts and feelings
Consumers often turn to credit repair for emotional reasons. A quick fix seems to be the perfect antidote for the shock of being rejected for a loan. Mortgage professionals can help by explaining that restoring credit worthiness is a restorative process, like healing a broken leg. Proper care and time to convalesce yields a far better outcome than grasping for a miracle cure.
It is important for everyone in the mortgage lending process to maintain a proper sense of perspective. We’re all in this together. Credit reporting agencies, lenders, borrowers and the public at-large ultimately want the same things: To help individual consumers manage their own credit in the best way possible, and to make sure lenders create the soundest, most solid loan portfolios. This goal will be best accomplished when we all work toward the day when credit repair joins smallpox, a scourge which once threatened but has thankfully become a thing of the past.
This article was co-authored by Greg Holmes, national director of sales and maketing for Credit Plus Inc.
Mike Hall is vice president of operations and Greg Holmes is national director of sales and marketing for Salisbury Md.-based Credit Plus Inc., a provider of credit and mortgage information services since 1928. They can be reached at [email protected]