Posts Tagged ‘Guide clients to correct reporting errors to qualify for home loans’

Guide clients to correct reporting errors to qualify for home loans

Posted by Joel pate in Mortgage Loans. Tagged: , , , , , , , , ,

The American dream of homeownership is bubbling up again for many consumers. By aligning yourself properly, your mortgage brokerage or bank will be able to help these families make sound homeownership decisions while also building a profitable line of business for your organization. These future homebuyers are saving money, being careful about expenditures and working to rebuild their credit through wise decision making.

One of the last steps that’s keeping these consumers out of your office and away from the closing table, however, is the inaccurate and unverifiable negative information that’s on some consumers’ credit reports, information that’s a violation of the Fair Credit Reporting Act. The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau have released recent reports that provide substantial evidence about American consumers’ rights being violated in this regard. Equally as troubling is the fact that many consumers apparently are having difficulty correcting such errors.

According to a federally mandated study by the FTC this past February, “Five percent of consumers had errors on their credit reports that could result in less favorable terms for loans.” The FTC study, in which participants were encouraged to use the Fair Credit Reporting Act process to resolve any potential credit-report errors, also found several other intriguing statistics. For instance, as quoted in the report:

• One in four consumers identified errors on their credit reports that might affect their credit scores.

• One in five consumers had an error that was corrected by a credit- reporting agency after it was disputed on at least one of their three credit reports.

• Four out of five consumers who filed disputes experienced some modification to their credit report.

• Slightly more than one in 10 consumers saw a change in their credit score after the credit-reporting agencies modified errors on their credit report.

• Approximately one in 20 consumers had a maximum score change of more than 25 points and only one in 250 consumers had a maximum score change of more than 100 points.

Although all of these findings are interesting in and of themselves, you may find yourself wondering about an even more thought-provoking matter: What happened to the consumers whose errors were not corrected or corrected with only one of the bureaus?

Further, what are some of the specific reasons why inaccuracies exist in these consumers’ credit reports?

Common issues

Although some consumers have bad credit because they simply do not pay their bills on time, many others are in their predicament because of job loss, medical problems or the death of a partner — the same historical reasons why many consumers default on home loans. These extenuating circumstances sometimes can be explained and understood by your underwriter, however.

Regardless, these initial defaults are bad enough and should be reported by the credit-reporting agencies. To a large extent, this simply is a major part of the process that keeps the credit and banking markets intact. If, however, the original creditor is showing a balance but has sold that balance to a collection company — and if the corresponding collection company also is showing the same balance — then there is an error in the reporting on the consumer’s file.

In other words, the consumer does not owe the same amount to both companies; the consumer owes the given amount to the collection company, and the original creditor must report the balance as $0 after the account has been resold to the collection agency. This violation of the consumer’s rights may occur more frequently than many mortgage professionals realize, and consequently, the given consumer will have a difficult time qualifying for a home loan until all of the items on the report are accurate.

Similarly problematic are the credit issues caused by identity-theft or identity-confusion, problems that also may be more common than some mortgage brokers and originators realize. For instance, when Hispanic consumers use both their father’s last name and their mother’s maiden name, those consumers may encounter trouble because some credit applications in the United States simply don’t accept two last names. In turn, this can cause confusion among the credit-reporting agencies, resulting in a blended file with other family and non-family members who use similar names.

Embracing Pre-Underwriting Home Buyer Development

Although the credit-reporting agencies tell consumers that they can repair their own credit and don’t need to hire a professional, it may strike some as interesting that even the FTC used a trained “study associate” to assist its sample of 1001 consumers to dispute the errors on their credit report, according to the executive summary of the FTC’s February study. Regardless, it can be difficult for average consumers to navigate their credit reports and the solution processes by themselves. In addition, many mortgage brokers and originators may be uncomfortable in assisting consumers with their credit reports, as they do not have sufficient training to do a good job for their clients. Mortgage professionals should know, however, that several training resources are available to them, including continuing-education courses, certifications from industry websites, trade associations and industry training companies.

In today’s market, potential homeowners are increasingly interested in purchasing a home that they’ll be able to afford down the road. They need the assistance of credit and mortgage professionals to guide them to the closing table. Mortgage company owners and lenders should realize that the goal of credit repair is not to help consumers purchase homes they cannot afford, but to assist them in accessing the credit markets with the credit that’s legally due to them under federal law.