For some industry insiders, this is an old story, but for the sake of those new to the mortgage industry, and those who are always hopeful for ways to close more loans, it’s time to address some real “Facts” about credit repair. In a recent edition of this publication, there were some claims made about credit repair “Facts” by individuals who provide credit repair. Many of the claims of “Fact” were truly “Fallacies” and referring consumers to credit repair firms comes with risks that will put your mortgage origination business at risk.
The Federal Trade Commission (FTC) and state Attorney General offices (AG) from coast to coast have been very clear about credit repair, assessing fines on many credit repair companies that force them to close, only to reopen under a different name. Steve Baker, director of the FTC office in Chicago has maintained the same position as previous FTC credit repair enforcers since the early 1990s and claims that he has “… not seen a legitimate credit repair clinic.”
Check the Web sites of the FTC and state AG offices regarding credit repair and you will find that, nationwide, these firms are most commonly associated with the term scam. Before associating your business with anyone in this industry, you might want to check your local state AG’s position on credit repair. Below, please find a few state AG links and the National Association of State Attorney General link on credit repair as examples:
A good summary on the various government perspectives comes from the California AG’s Web site. The California AG warns consumers: “As you begin, be aware that there are no instant fixes and no one can "erase" your bad credit. Only your deliberate effort, correction of errors and good practices involving prompt payment of bills over time can rebuild your credit.”
More important reminders for mortgage professionals about credit repair is that working with a credit repair company could cost you the loan and your ability to obtain credit reports from any credit reporting agency. Due to the massive fraud and illegal activity rampant in the credit repair field, even by those in the industry claiming to be legitimate and in it for decades, mortgage lenders who have been documented as to referring consumers to credit repair companies have had their ability to access credit reports terminated. This termination is in effect for ALL consumer credit reporting agencies as each national credit bureau publishes a “Do-Not-Sell” list and requires mortgage credit reporting agencies to monitor it. Anyone on those lists cannot be provided credit reports by anyone in the industry. Obviously, it’s rather difficult to conduct business as a mortgage originator if you are not allowed access to credit reports.
If you are referring consumers to credit repair firms and are lucky enough not to get discovered by the credit bureaus, you better hope that your luck continues as that loan is no longer eligible for sale to many of the major wholesale lenders. Wells Fargo (Newsflash C13-057 10/15/2013), SunTrust (Wholesale Bulletin BRO 08-346 11/28/2008), and certain other wholesale lenders have taken the position that once a consumer has been working with a credit repair company, that loan is no longer eligible for purchase. Remember, non-eligible loans delivered to most lenders are subject to buy-back provisions in the contract. Lenders are turned off by multiple problems associated with credit repair. In addition, manipulating a consumer’s true credit risk, credit repair costs the banking industry millions of dollars in wasted resources from the constant re-verification of accurate data repeatedly being disputed by credit repair firms. Technicalities are not needed to correct a legitimate error, they are only needed to try to distort factual information and are why the credit repair industry has the reputation it does.
Finding similarities in the comparison to credit repair to credit rescoring provided by mortgage credit reporting companies can only be done by someone who has no idea what each program actually is. Mortgage credit reporting companies are much more than just customers of the credit bureaus, they are consumer reporting agencies under the Fair Credit Reporting Act (FCRA) with most of the exact same obligations to the consumer and lender as the national credit bureaus. They do much more than simply provide credit data in an easy-to-read format, and many of the differences have been documented in my previous articles on this subject.
Another one of the incorrect claims about credit repair is that these agencies are competition to credit rescoring. This is completely false as the credit reporting industry is required by the FCRA to correct all errors for FREE and the industry does this countless times on a daily basis. If there is an error on a credit report, the industry corrects those for free, regardless of the source of the error. If the error is on a trade line created by the mortgage credit reporting agency (a manually verified rental, or non-traditional account added to the report), then the mortgage credit reporting agency will correct that data and provide a new report with the updated information to the mortgage lender, free of charge. If the error is from information provided from one of the national credit bureaus, the mortgage credit reporting agency will pass the consumer dispute onto the national credit bureau with the error on behalf of the consumer at no charge.
If the mortgage originator requires changes to the credit report on an expedited basis—with the credit report updated at the national level so a new credit score can be calculated and then reissued into an automated underwriting system rather than waiting for free consumer disputes to take effect (this could take up to 45 days)—then rescoring fees will apply. But that is at the choice of the mortgage originator. The charges for that expedited service are also a fraction of the cost of what credit repair firms charge and include a new report, a new score and the report is reissued into the automated underwriting system of the lender’s choice.
Another major distinction in this is also that the consumer is prohibited from being charged for credit rescores. Mortgage originators should know that their contracts to purchase credit reports, in the section about rescoring, will contain language that clearly prohibits consumers from being charged—either directly or indirectly—for rescoring fees.
Please note that in all the FTC and state AG notices about scam credit repair firms, there are no listings about credit rescoring in them. For the past 12 years, I have worked closely with several attorneys at the FTC and with the Consumer Financial Protection Bureau (CFPB) since its creation, and none have ever suggested that credit rescoring is remotely like credit repair.
While the credit reporting system is not perfect and errors do occur, those errors are most often quickly corrected through legitimate means. Despite some uninformed claims, credit report accuracy is not subjective. The debt is either paid or it’s not paid, and the payment was either on time or it was late. The research can be done to document the real story and attempts to fool the lender to try to distort actual payment history are scams and there is no subjectivity to that. The reason that there are different accounts reported to the three national credit bureaus is due to FCRA not requiring creditors to report to the credit bureaus at all as reporting is completely voluntary. If a creditor chooses to report, they report to the bureau or bureaus of their choice. The differences in the creditors and the data they provide each bureau are from that voluntary nature of our system, but the data accuracy is certainly not subject in Federal law.
One of the industry’s biggest problems, one that holds back the level of data accuracy is the very existence of credit repair companies. Preying on desperate consumers who are looking for a quick fix and disputing known accurate data in hopes that the creditor has made a mistake in their documentation, is manipulation of the system. Do yourself a favor and don’t refer consumers to entities that every U.S. AG office warns their citizens about. Your reputation, a loan buy-back, and potentially, your entire career, will be at risk.
Terry W. Clemans is executive director of the National Consumer Reporting Association (NCRA). He may be reached by phone at (630) 539-1525 or e-mail email@example.com.