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Ethical Credit Repair - attorney assisted challenges to derogatory references

When does credit repair cross the ethical line and become falsification of a credit report?

More and more applicants seem not to qualify because of credit issues. They come fully aware of their image of Loan Denial credit situation and even know their credit score. In the past many would have qualified for a subprime loan. Many would have qualified for FHA financing, but FHA has tightened credit standards and many lenders have further tightened their own standards for manual approval.

These borrowers oftentimes can be helped with credit guidance. Correcting inaccurate references. Paying down some credit lines. Disputing errors. Adding non traditional references. This level of credit repair can be done by the consumer, and is certainly possible with competent help from an experienced loan originator.

I have helped many borrowers become qualified by guiding them in how to correct inaccuracies or to manage individual trade lines. Credit repair like this is done legitimately, simply by making the report reflect the borrowers' actual history more accurately.

At times, some clients may need some professional assistance in managing a large number of disputes. Legitimate and affordable credit repair can help with the sometime laborious job of filing and following up on numerous disputes with multiple credit agencies. At times a third party can expedite the process in ways that the client cannot.

The next level of credit repair is attorney assisted credit repair. This seems to be a growing industry, spurred by the tightening of credit requirements not just on mortgages, but on many consumer needs - credit cards, student loans, car loans, insurance. I think it is a legitimate service for many consumers who need legal assistance to remove some malicious, lingering references. Also to help with negotiation of settlements. It always helps to have representation to ensure protection of consumer rights.

And most definitely high credit scores are becoming very important for more and more of life's basic transactions.

Many attorney assisted credit restoration companies, however, promise, and I suppose deliver, permanent removal of all derogatory references, even accurate items. In addition, these companies offer new trade lines with significant high credit limits, as part of the package. These tradelines are not indicative of a lender's evaluation of the clients credit worthiness. They are just offered as part of the restoration package.

The basic approach of attorney assisted credit repair is not the correction of inaccuracies and errors, but image of attorney the pressured removal of all derogatory references by the threat of legal action. The credit bureaus and creditors are threatened with massive documentation requests and potential summons before out of town courts. The stated goal of the attorney assisted credit companies is to protect the consumers' rights according to the finely defined letter of the law of the Far Credit Reporting Act.

What lenders can end up with though is a decisioning credit report that is not in any way reflective of the applicants' actual credit history.

These credit repair companies even offer removal of public records to include bankruptcies, foreclosures, and liens.

Is this type of credit repair ethical? What will it do to the industry if lenders cannot trust that the credit bureau is an accurate representation of a borrowers' true credit history?

What is our obligation as loan originators to our lenders to ensure that the underwriting decision is based on accurate credit information?

How can a lender trust a credit score and an automated approval that are based a credit report that does not reflect a bankruptcy or a foreclosure that is disclosed on the Borrower Declarations? Or are our clients to fail to disclose a bankruptcy or a foreclosure because the references have been removed from the credit report?

This latter is the implied, but unspoken, answer I received when I raised the issue with one attorney assisted company that had solicited my referrals.

Is this type of credit repair ethical? Is it consumer protection or loan fraud?

Can we as an industry accept this type of credit repair? It bothers me, but I would like to hear what others think.

Richard Smith
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

Posted by Richard Smith Mortgages Home Loans FHA TN GA AL on 07/22/2008 03:38 AM

Comments (80)

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Originally posted at: Richard's Real Estate Thoughts: Ethical Credit Repair - attorney assisted challenges to derogatory references

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80 Comments on Ethical Credit Repair - attorney assisted challenges to derogatory references

JUL

Ethical Credit Repair...is refreshing.

Honest, sincere, and real mistakes and inaccuracies...Fixed

As long is it is honest and on the up & up. We are in a real estate turmoil because of all the dishonest loan officers, underwriters that let the job verfications slip by without a phone call and just closing their eyes to all the lies. The home prices were ballooned to cover $ 10,000 in fees and the underwriters knew the fees were way overboard. I think we need accountability in this counrty like what happened with Enron CEO's. The banking industry knew what they were doing and now they want bailed out. I hope the government minds their own business. The value of a dollar will be at 50 cents soon.

Richard, I guess I need to do some more research on this one. On the face, it does not appear to be ethical to me - it seems to be legal cleaning. Again, I need to get some more info on this.

Richard,

As I read the first two comments, I wondered about the difference between Ethical and Legal. The unethical loan officers that besmirched our reputations were doing what was legal, but far from ethical. Now it seems to be the attorneys' turn.

Mike in Tucson

JUL

Intersting topic. Although an attorney has a fidiciary relationship it is also necessary to uphold the law.

Lots of ways to skin a cat(fish). Paying a fee to produce a positive outcome is the part that bothers most of us. It seems that if the outcome is just and right, then it should not require a fee to get there. As you mention, sometimes the outcome is somewhat beyond just and right, so now we have a situation where justice is served out by your ability to pay. That kinda sounds familiar, doesn't it?
JimG

So the threat of a lawsuit is what is making accurate remarks disappear. I echo other commenters, those who have money to pay for a good attorney win. Those that don't..won't. Sad state of affairs.

Our experience is that attorneys are not the answer. In Wisconsin, few people know that there is a licensing process for credit repair folks...and to our mind, they are the most reliable and best source for anyone in need of such service,

WAY TO GO, RICHARD! Awesome post with some really good points. We've gotten into a pickle with our current lending status. Is it a true representation of the credit history? Probably not, but perhaps the only way for some to clear the waves.

Thanks for sharing & congrats on your feature!

There is a definite need for credit repair if done honestly. I knew a woman who had a serious illness. She purchased a legal service membership just to have someone negotiate the bills. She told me it took a load off her mind and helped to preserve her credit.

Credit repair is a very good thing. I've helped lots of people with my knowledge. Strong arming the bureaus because it's too expensive for them to fight back, should be illegal and is certainly unethical.

Richard, Very informative post. I know it will benefit your potential clients. Congrats on your first feature.

The applicant crosses the line when they present an application that is not a true reflection of their whole credit picture.

It does seem to be legal cleaning, but isn't that part of the reason for hiring a lawyer in the first place? Also, why is that the credit companies have such a tight grip on our lives anyway? They will accept any bad news at the drop of a hat and it then takes forever to clear your name. Who owns the credit companies - lawyers perhaps?

The bureaus should not be able to remove items it can prove as true. In this case, aren't they committing fraud? Can't they throw the requests for removal or investigation in the trash, as frivolous? The bureaus need to report the truth, first and foremost!!!

Hi Richard, very interesting post. I believe that if there are inaccuracies on the credit report, that's one thing, but to remove items that are legitimate is a whole different story. I am in the the property management business and when I am looking at a prospective tenant's credit report, I want to know what type of person I am about to let move into my building. If I have a distorted view of the prospect, I cannot accurately assess the risk I am taking and I may be in the court room 3 months from today, trying to collect unpaid rent. Same goes for the lending industry, I would assume a lender or investor would like to "really" know who they are giving their money to!

Great Blog and I agree with you for the most part. However the law states that negative information CAN remain on a file, and Bankruptcy CAN remain on a file for 7 and 10 years resectively. However does it really take 10 years for someone who filed bankruptcy due to an unexpected medical stay to get back on thier feet. Or someone who has been working at the same place for 20 years is suddenly let go due to downsizing and gets behind. (ist that really indicative of his willingness to pay his debts. What about those with a 500 fico score due to one of those downsizings, or Medical emergencies who got back on track only 2 years later, should they have to suffer for 8 more years??? When they are now back to paying on time?? It is alot to think about. But the current law is written in big favor of the creditors. That is why I do not mind giving my clients credit guidance, esspecially if they are trying to fix a problem not caused by them.

I am all for credit repair as long as it is legit and ethical. The Good Book says that whatever a man's sows, he shall reap- it's a truth that each client must face when deciding to go through this process. It's also something we must think about before advising them in a certain direction.

JB Brookman

Castle Homes and Estates

Bill,

Thanks for your quick comments. My thoughts exactly.

Richard

Paula,

Talking with the one attorney assisted program, I am concerned that we may be faced another round of mortgages made to unqualified borrowers. That is just what crossed my mind, with the extreme version of credit repair.

That concern prompted me to come to the pros on AR for their opinions.

Thanks,

Richard

Tim,

The approach is to claim violation of consumer protection rights and to use that angle to remove valid credit references. This pushed to an extreme could create some misleading credit reports, at least in my opinion.

What then am I to do with debts that are not on the report - I either disclose them and provide a manual verification or I ignore them and help the borrower commit loan fraud.

The manual verification makes the credit repair moot.

This whole thing bothers me, which is why I posted this.

Richard

Mike,

Thanks for commenting. The credit repair folks t think they are legal and ethical. The problem comes when mortgage originators and borrowers submit a cleaned report and knowingly omit debt and public records that have been permenantly removed from the bureau.

I know there are LO's that will jumb all over this.

And what happens when lenders cannot trust the accuracy of the credit reports?

Richard

Vickie,

I do not think the attorneys are violating the laws. And they will not instruct loan officers or borrowers not to disclose the omitted references.

That will be a decision by the LO who can try to claim "plausible deniability."

Richard

JimG,

The question comes down - does the client and the LO disclose the omitted debt? If they do, then there is only questionable benefit to have the records cleansed.

Richard

I walked out on a seminar in our office recently...it was about how to get around bad debts. If you did not pay...you should not be able to buy based on that info. Some trick should not be able to wipe it out.

Richard, I would assume that an attorney assisted repair would be considerably costly for someone to erase their bad history, correct?

If someone can come up with the cash and can prove their present credit worthiness then I think it may be a costly but beneficial plan for someone who wants to move forward quicker than waiting for a better history after many years.

Truthfully, if someone defaulted on a credit card 20 years ago it is still a debt they owe -- it just can't be reported or even collected on (in most states). How is a debt that can't or isn't being reported (because of competent legal counsel) any different than that? The 7 year reporting period is there for a reason - to allow people to regain their dignity and their life.

I can say from personal experience that trying to deal with the credit bureaus and a creditor over an account that was reported negative in error was a four month nightmare. I wish I had an attorney do it.

Also, we as Realtors played a role in what is now the foreclosure crisis - we closed transactions knowing that the financing was at the least 'strange'. We had a professional obligation to make sure our clients knew what they were getting into. So another area of the business is creating a new nightmare. Every attorney who went into the settlement business to get on the money train now needs a new area of expertise - just like the agents who became agents (note I don't use the term REALTOR for them) because of the income potential are now leaving in droves. The PROs will remain and prosper.

Hi Richard, Outstanding post ! Are attorneys going to take the place of the unethical lenders and scam artists ? Very informative !

Very good post and interesting topic! I think the question of "ethical" falls to the consumer really. Attorneys do not live in an ethical world but instead in a legal one. If a consumer requests their attorney do provide a legal service then the attorney should be able to provide it and get paid. (sleeping at night not guaranteed but they can afford really nice pillows)

My thought about the how process is the credit system is so screwed up that this is probably a necessary evil. Although a consumer should not say a foreclosure never happened when it did, creditors and credit bureaus screw up quite a bit too. It probably balances things out a little, but you make a good point that the lender is going to be the one left holding the bag.

Olan Carder
www.charlottemortgageonline.com

Richard, thank you for the response. This topic and blog has stirred some great conversation - thank you for such a great one to watch and learn from.

Yes what is legal and what is ethical are two different things. It was legal to give out all those exotic and adjustable mortgages too.

Richard, Great post, it raises thought provoking questions. That being said here is some food for thought. Creditors have run amuck for years going unchecked in their credit reporting. Many of my clients are very credit worth investors, and some have had blemishes on their credit due to utility companies going after them personally for bills not paid on time by tenants.

Not paying a utility bill on time is not even necessarily a misuse of credit, since the creditor never actually borrowed money.

These thoughts inspired by your comments prompted me to write a post on the subject.

I think it's great that there is attorney assisted credit repair. In the world of credit we are guilty until proven innocent. I had a nighmare a few years ago when someone's bad credit and profile merged with mine. It took me 6 months to straighten it out and I lost a home buying opportunity because of it. Also, a $43 collection account from NCO financial from Gevalia coffee should not drop my score by 75 points and prevent me from refinancing a $300,000 mortgage which I have never been late on. There needs to be a balance here. I once closed on a house and took out a $265,000 mortgage. That same day I went to Circuit City and applied for their credit card to by a $250.00 TV. I was declined for the TV but accepted for $265,000. HELLO FOLKS....all these posts are obviously from people that have PERFECT credit and NEVER had a problem with a credit bureau.

This blog bothers me. The consumer has the right and the obligation to do what ever it takes to fix their credit within the limits of the law. Large Corporations including FICO, Credit Reporting Bureaus, Creditors and Collections agencies twist the law to their their benefit (and often break the law) - consumers feel guilty enough for their mistakes - they don't need to be made to feel more guilty. Why should it be ok for large and wealth corporations to use the legal system in their favor but it not be ok for the consumer to do the same?

JUL

THANK YOU KATE FOR YOUR POST. I couldn't agree with you more. This blog has a holier-than-thou attitide as if none of these people ever had a problem with a credit bureau or have no derogs still haunting them after several years. I belive credit reporting is imbalanced and does often does NOT look at a borrower's prioroties. If someone has never been late on a mortgage after several years and several mortgages, DESPITE being late on other accounts, wouldn't this be an indication that their mortgage is the top priority no matter what else goes on in their lives? I was a loan officer for 15 years, through the good times and the bad and I've seen people's lives become ruined because of the Nazi-like practices of the credit reporting industry. Might I also remind people that the "irresponsible" practices of the lending industry were probably responsible for half the money in OUR pockets over the last few years. You don't like how the lenders did business...just wait and see how many transactions you won't be able to close because decent people (mostly self-employed like you and me) can't get a loan.

I've helped lots of people improve their credit with my knowledge. Strong arming the bureaus because it's you know it is too expensive for them to fight back, should be illegal and is certainly unethical.

Kris,

Sorry for taking so long to respond, a storm kicked my internet off at work then at home. An afternoon and evening without AR. It was tough.

It is exactly the threat of a suit that is being used to remove accurate information. That is my concern. I will respond to the recent comments by Kate and Sharon in a little bit. But I am trying to catch up in order.

But it is a concern for me that credit bureaus might not be accepted as trustworthy if accurate information is being omitted. How will lenders evaluate a loan application?

Richard

Sally and David,

My understanding is that credit repair does require some licensing, but I think attorney assisted credit repair is allowed because the attorney can represent the client.

BTW, I think attorney assisted credit repair is absolutely the answer for many situations. The credit bureaus are difficult and creditors many times need a stick and consumers always need their rights protected.

My question is about the ethics of using attorney assisted credit repair to fabricate an inaccurate credit report and basing an automated underwriting decision on that inaccurate report.

Further what does a lender do with an approval that evaluate a bankruptcy or a foreclosure because it was removed from the credit report?

Maybe some lenders that are on AR can comment.

Richard

Yvette,

Thanks. I had not noticed the post was featured until your comment. I almost did not submit the post, the question has bothered me for over a week. The feature and the number of responses have really surprised me. I am more used to responding to 4 comments. :)

We have borrowers who need help. We as an industry need borrowers.

How far can I go to clear credit and still fulfill my obligations to the lender? In the past I have been able to work with borrowers and generally just getting the bureau to be accurate can be enough to obtain loan approval.

The credit repair company I spoke with went beyond accuracy to promise removal of legitimate public records to include bankruptcy and foreclosure. This also gives the real temptation not to disclose the bankruptcy and foreclosure on the borrower declarations.

It the borrower declarations do disclose the bankruptcy and foreclosure, how does the lender treat the credit report that does not report them?

Where is the ethical line draw between consumer rights and consumer obligation to present the lender with accurate financial disclosures?

Thanks,

Richard

Diane,

Credit repair is essential for consumers and for our industry. I have taken 10 applications this week from borrowers who are not qualified to buy and need credit work. I am actively helping these clients, as I have for over 10 years.

That is why this question matters to me. It is too important to be abused, if in fact the practice I am questioning constitutes abuse.

Thanks,

Richard

Shrader Inc,

My thoughts are that it is unethical, but the post puts that question to the AR community. I do not know how to define its legality beyond the requirement to answer the borrower declarations correctly and to disclose all debts.

Another question for me is if lenders do not trust the credit information, and I think the issue will begin to come up if this approach becomes prevalent, then do applications get delayed and loan costs increased while lenders institute manual, verbal credit checks?

Richard

Kate posted this, "This blog bothers me. The consumer has the right and the obligation to do what ever it takes to fix their credit within the limits of the law."

I find it interesting that the term used here is "fix their credit" rather than "correct what's reported". The way I read it, that is what this blog is all about and why it is searching for an ethical answer. Attorneys "fix" credit by challenging burden of proof, threatening expensive litigation, occassionally influencing a creditor to report incorrectly that a balance is paid in full when a settlement has been reached, and numerous other practices deemed to be legal. The last thing they want to consider is whether the debt is accurate and owed. Is that Ethical?

I think "attorney assisted repair" is still just a marketing term and that the attorneys are still not doing anything that a consumer cannot do himself. If you look on any credit repair forum, www.creditinfocenter.com, comes to mind, you can learn the same techniques that lawyers use to challenge items on the report.

The thinking behind credit repair is not to erase the bad credit history and present a fraudulent history, but to challenge items particularly from collection agencies in order to have them prove they are legally entitled to collect the debt. Many consumers do have credit problems, work to rebuild their credit, only to have a collection agency come along and purchase the account for pennies on the dollar and slap it back on the credit report in order to try to collect.

I don't think anyone, attorney or not, is going to be able to remove a recent foreclosure or judgment. As far a adding new tradelines, I am not familiar with how that works but I would have to say that sounds both illegal and unethical.

Jimmy,

I appreciate your comments always.

Thanks,

Richard

Danial,

I am far from a fan of the credit agencies. Information that is reported is often grossly inaccurate and not current.

It is much too difficult to dispute inaccuracies and takes much too long. We are in an automated world. Disputes should be resolved in days (or hours) not weeks.

I would like a fine to be imposed on inaccurate information.

But the question is consumer and loan officer obligation to disclose accurate financial information to the lender. If accuracy is the goal, how does removing correct bankruptcy, foreclosure, judgment, tax liens, etc make for a more accurate report?

Is it right to remove and not to disclose pertinent obligations and credit history because they have been removed from a credit report?

The issue and potential for abuse bothers me. If a person with a true sub 500 score, with current delinquency, gets the late payments removed and is given a house they cannot afford ....

Removing a reference from a credit report does not remove the ability of the creditor to collect. The obligation remains.

If the late payments are removed from the report, the problem that is causing the late payments remains.

Richard

Tom,

I agree, and so does the loan officer who assists them in presenting an inaccurate financial picture. Just like previously with abuses in stated income loans. What is the difference between a loan granted on false income and one granted on false credit?

Richard

Richard, this is an interesting discussion. What I'm finding as I read it is that there is a significant naivety combined with a lack of understanding and education regarding FICO scoring and the credit bureaus within the Active Rain community.

If the FICO scoring model were black and white, if the FICO model were consistent across all consumers, I would be taking a very different stand. The fact is that FICO is manipulated by creditors on a regular basis. FICO is nothing more than a mathematical model where certain components can be turned on or off based on the needs of the creditors. If creditors find that scores are too high or too low, they work with FICO to change the scoring algorithm to bring the scores to where they want them. Now that's unethical!!!

In response to the comments about creditors not trusting the reports - come on - the creditors create the credit reports. They are the ones that report the information and manipulate it. They pay the consumer credit bureaus (there is nothing consumer friendly about them). The fact that creditors pay the bureaus creates a conflict of interest. It behooves the Credit Bureaus to make it as difficult as possible to remove in inaccurately reported information - again another conflict of interest!

In response to the comment that you are not getting a true assessment of the "risk" - I say that the opposite is true. If someone has taken the time to educate themselves and take the necessary actions to bring their credit score back up, this person is an excellent risk. The likelihood of someone who has taken the time or spent the money to repair damage is likely to be a better risk than someone who has never had any problems. They are a better educated consumer and they are going to make sure it doesn't happen again.

I am a firm believer that the consumer has an obligation to do everything in their power manage their credit. If that means using the legal system in their favor, so be it. The punishing mentality of our financial community and society boggles my mind.

We expect people to be able to manage money in a society that gives no financial education in the school system, that encourages consumer to spend to keep the economy strong. We take away tax incentives for saving and bankrupt our social security system. Then we punish people for seven to ten years when they a financial mistake, keeping them in a hole of fear and embarrassment. The icing on the cake is calling it unethical when someone wakes up and decides to take control of their financial future.

My stand is that is every consumers responsibility to manage their credit in any legal way possible. It's responsible money management!

Vertical Lending,

As I understand it, the disputes are generally based not on accuracy but on challenging that the documentation of the debt and the delinquency does not meet the standards required by consumer protection laws. I do not know whether the documentation standards are met or not, but evidently the continual demand for more and more documentation has the effect of getting the desired removal of the derogatory item.

The question whether it is legal to remove an accurate debt is very legitimate. It may be that the creditors are deciding to remove the reference themselves rather than deal with the numerous requests for documentation and the threat of a suit.

Of course, in my opinion the credit bureaus are especially responsive to ensuring that information is factual. But that is just my opinion after seeing so much inaccurate negative reporting.

Thanks,

Richard

Mina,

Yours is the first comment on this post I have read from a lender type perspective. It is important that lenders can rely on the decisioning information. this is part of my concern.

Thanks,

Richard

Thomas,

You and I probably fall pretty close together on the balance between ethical and unethical credit repair.

You are right that the law and practice are currently in favor of the creditors against even accuracy, hence a real need for proper attorney assisted credit repair.

Thanks,

Richard

JB,

I also am for credit repair. The sowing/reaping point is beyond my ability. And I am all for a little forgiveness and grace being thrown in.

My question is how far can we go and keep the repair "legit and ethical."

Thanks,

Richard

Team DiMuria,

Was the session something like I am trying to describe? How did others react to the presentation?

Thanks,

Richard

Susan,

I intend very much to use attorney assisted credit repair. I am just concerned where the line is drawn when derogatory references are being challenged and removed.

Some references cannot be removed with the clients' efforts even with my guidance. But some references should not be removed, because they are legitimate and lender disclosure is required.

Where is that line, ethically and legally? Who draws the line?

The company I am speaking about promises to remove all derogatory references, and would not listen to my questions about the need for accuracy and legal requirements to disclose financial information.

Richard

Great article. There are lots of credit repair scams out there. I hope more people will get educated on how to repair their credit.

Sandy,

Thank you for commenting. Your points are all well made and well taken.

Richard

Bill,

Thanks for your comments. Attorneys can help with credit repair, even protecting the consumer rights for derogatory information that is not correctly documented.

But there seems to me a line that is crossed when pressure and abusive demands for documentation are used to remove material and accurate information.

Thanks,

Richard

Olan,

Thanks for your comments. What happens if this develops to the extent that lenders are aware of the potential for "repaired" credit and no longer trust the broker's provided report? Or asked if the report has been repaired?

The system needs to be able to trust that pertinent information is being provided.

Richard

Russ,

Thank you. There does not seem to be much difference between extreme credit repair and the stated income abuses.

Richard

Ralph,

Credit repair is an important issue to me. Expanding the pool of qualified buyers is important to me. I just want to do so ethically.

I will look up your post as soon as I can.

Thanks,

Richard

Sharon,

Thanks for commenting. I fully support credit repair, especially now with tiered pricing and the loss of some many programs.

I have been practicing credit repair for several years and think I have a proven track record. I certainly have a system.

Attorney assisted repair is absolutely necessary at times. I use it. Please do not think this post is against attorney assisted credit repair.

It is just that borrowers and originators have an obligation to lenders to disclose material financial information. The service that prompted this post had as its policy the removal of all derogatory information, to include bankruptcies, foreclosures, judgments, etc.

It is my opinion that disclosue of these items is a ethical and legal requirement. Further it is my opinion that credit reports that do not report these items may very well be rejected by the lender.

Where does that leave the loan application if the borrower with a repaired 750 score that does not report a previous bankruptcy? Does the lender accept the findings knowing that material information has been omitted?

I think that is a delayed closing.

Richard

Kate,

Thanks for commenting. This blog is not meant to be against credit repair or against attorney assisted credit repair. I have always tried to help with credit repair and to refer to professional services when necessary.

My goal though was to correct impacting inaccuracies.

At issue here is the use of strong arm tactics to hid pertinent and accurate information.

Where do you draw the line?

Do you remove as much as the attorney can accomplish, and then do you fail to disclose the omitted obligations?

If FHA requires a judgment to be paid, and you can get it off the report, do you fail to disclose it?

If a lender requires 3 years from a foreclosure, and you can get it off the report, do you fail to disclose it?

Where do you draw the line?

I am sure that your lenders are interested in your answer.

Thanks,

Richard

Sharon,

Thanks for your comments. I am not trying to pronounce judgement on another person's circumstances. I have met this week with numerous people who need credit repair, and I will work hard for them.

I am no fan of the abusive credit reporting system, nor of their additional charges, nor of their selling inquiry information.

I spend a good deal of time in consulting people to make their bureaus accurate.

I do not understand how this will impact self employed people more than others.

Thanks,

Richard

Richard, I'm not understanding how credit reports would be rejected by the lender. As it stands now close to 90% of credit reports hold inaccurate information, and they are not being rejected. I'm not getting this ethical argument.

Now, if the consumer commits loan fraud by answering the question: Have you ever filed for bankruptcy as No, when in fact they have ? That's a different story, it's unethical.

Working within the guidelines of the law to improve your credit score is a smart financial decision.

I also don't get the argument that credit repair is in any way comparable to committing loan fraud by overstating income. They are two different animals!

Karl,

There are other credit repair scams out there. Plenty of companies that are charging a lot to support a marketing staff. That is another issue that needs to be addressed.

Credit repair is important and necessary.

I am just looking for an approach that respects the obligation of proper disclosure to our lenders.

There are some credit repair companies on AR. They have solicited referrals and I am sure that they provide legitimate service.

Maybe they can comment here and provide some additional insight.

I would also like to hear from some of the actual lender reps.

But I will tell you. I am not used to so many comments. Jason Crouch wrote a post about how to get 100 comments. I am not sure I want a post with 100 comments. :)

Thanks,

Richard

Kate,

I agree that credit bureaus are inaccurate. Maybe over 90% of them have inaccuracies.

That is the question. What constitutes a material inaccuracy and what to do about it.

If we target a reported bankruptcy and get it removed to get the score over 700. Is that ethical?

The question of disclosing a bankruptcy that is not reporting is a separate question. What does a lender do with a finding based on a repaired credit report that does not include a bankruptcy?

A very quick check of FNMA guidelines finds this:

"The following types of changes are unacceptable: deletion of tradelines that pertain to a borrower's bankruptcy."

"Each credit report must include all public records information ... and disclose whether any judgments, tax liens, or bankruptcies were discovered."

"we require only a 7 year history to be reviewed for all credit and public record information."

This can be interpreted I suppose however it seems best for your circumstances.

That is my question, how does this extreme attorney assisted credit repair that is the subject of my post fit with the guidelines and ethics requiring accurate financial disclosure to the lender?

I would love to hear from any actual lender underwriters or credit repair professionals.

Thanks,

Richard

Richard, I understand what you are saying, what is critical here is that we as loan officers pull the credit report as required by the lender. If the public records and credit reports don't indicate any "judgments, tax liens, or bankruptcies" then none were discovered. Therefore I don't see how there is a violation of ethics on the LO's part. In addition, if the credit repairing was done within the guidelines of the law - it's legal, so is it really necessary to exhume the information.

The burden of proof is on the CRB's and Public Record Reporting - if it's not there it's not there! I've seen cases where legitimate judgements were dismissed because the reporter of the information committed fraud by reporting additional charges. I believe that the actual judgement was for $800.00 or something like that and the reported amount was $1,300.

I went into the courthouse with this client and the clerk behind the desk looked at her and told her to file an appeal to have it dismissed.

It's not as cut and dry as it seems! My experience is that the creditors are more guilty than the consumer!

Kate,

Thanks for commenting. And I think I actually missed replying to one of your comments.

If the borrower has cleansed their credit on their own and chooses not to disclose a bankruptcy, foreclosure, judgment, or liens, the the originator is as much a victim of misrepresented information as the lender.

The ethical issue for the originator arises when the originator is a participant in assisting with the removal of such pertinent information.

The lenders that I have asked indicate that a bankruptcy that is disclosed on the application but is not reported on the credit bureau will be a problem. And if we explain that we had an attorney clean the credit, then I suspect that the entire transaction will be questioned.

I don't think these items can be removed and not disclosed, ethically and legally.

I don't think these items can be removed but disclosed, and the report be accepted by a lender.

I could be wrong, and would love to hear from an underwriter who can speak to the matter.

Thanks,

Richard

Richard, I now get the ethical question that you are asking. You are not referring to the consumer but to the LO who assists clients with credit repair.

You can't lie on a loan app, period, however I don't know that you have to disclose that an attorney cleaned the credit. What good is cleaning the credit if the LO has to disclose it?

This may be an argument for not doing credit repair for one's clients!

JUL

Inaccuracies should be removed. Applying pressure to remove legitimate derogatory remarks is manipulating the spirit of the law. Always hire the best attorney you can afford.

Richard-

This is really a great post. I fully support the removal of errors. What I have a problem with is removing items that are LEGITIMATE. This does give the Undewriting engines a false picture of credit and may cause a loan to be approved that would otherwise be denied.

Some Loan Officers may say, "So what"? Well, now you have someone getting a loan that is more likely to default (and would not have been granted a loan in the first place if the legitimate trade line was on there) now this loan goes into foreclosure. Multiply this by X number of cases. Now the mortgage credit problem has just gotten worse. Is this really good for our industry? I would like to know what other Loan Officers think.

JUL

Kate,

Thanks for the exchange.

Wayne,

I agree and I am concerned about the effect of manipulating the spirit of the law. I want more qualified buyers, but I want them truly qualified, not approved by manipulation.

UVALHA,

You are right about the potential impact. I would like to hear from lender underwriters more than other LO's. It has been encouraging to hear so many LO's express their concerns about the ethics of this approach.

Thanks,

Richard

JUL

Maybe removed items should be reported. Then, at least we could see the residue of a removed debt. They can list why they deleted it and when and we could investigate at our will.

wow, that feels like debtors prison to me! How will people ever be able to turn their lives around with that kind of reporting!

I do not see a scenario in which credit repair is unethical. Even if you challenge factual items. Is it unethical to go to court on a speeding ticket even if you were speeding? Mortgage apps ask about BK's and late mortgage payments, if the applicant lies there then they have an ethical and legal issue.

JUL

Dick - that is exactly how I feel and what I was trying to communicate - you put it better. A lot of people are taking a very holier than vow attitude which isn't sitting well with me. The ethical question at hand is when a Mortgage professional knows that there was a BK and that the credit report has been "cleaned" and how to handle it in the loan application.

Vertical Lending - I am not sure how a removed item that is put back on is still a removed item. Many items can be corrected and dated properly to give a very high score result.

Such a corrected report is accurate and gives the lender a true picture to underwrite. It gives the automated system accurate information to evaluate.

It maintains credit grading integrity within the mortgage industry.

What happens when underwriting is based on wrong information - such as grossly overstated income? The mortgage industry loses capacity grading integrity, and we have a mortgage crisis in the nation.

The same thing will happen when accurate bad debt is removed. The debt is still owed. The cause of the derogatory payment history is still present.

The mortgages will default. If a borrower needs a fabricated credit report to qualify, there will be a problem with the loan, or certainly with a large percentage of them.

Richard

Dick,

Thanks for your comment.

One question is if a bankruptcy, foreclosure, judgment, public record lien is removed and is not evaluated in the automated underwriting engine, but it is manually disclosed on the applicaton.

The lenders that have answered this question have all indicated that they would not accept the automated approval.

Based on that, the ethical issue is that the credit repair will invalidate automated findings and jeopardize the ability of the borrower to get approved. As opposed to becoming qualified with a corrected report.

A second question is if the above references are removed and not disclosed manually on the credit report. My understanding is that you agree that this is unethical. It is actually illegal and considered bank fraud.

Additionally, the guidelines for credit reporting that I have read specifically forbid the removal of items that pertain to bankruptcy, foreclosure, judgement, etc.

Then we get to the fundamental ethical issue, can the mortgage industry withstand the widespread use of inaccurate credit reporting. Lenders, secondary markets, federal guarantees. What happens when a true 500 score credit profile is sold to an investor as a 750 score profile.

Is that ethical or fraud?

Richard

Kate,

It is not my intention to be holier that thou, but I do feel an obligation to my lenders.

If it is not ethical for a loan officer to fail to disclose, how is it ethical for a borrower to fail to disclose?

And how do you handle disclosing a major derog that has been cleansed? The lenders will question the automated approval. Those I have spoken with, indicate they would not accept the approval.

How do you handle that?

In my mind, this is credit repair crossing the line from consumer advocacy to loan fraud.

Richard

JUL

How would an LO even know, if it has been cleaned off? I've seen reports 3 mos. out of BK with all positive trades, no derogs and 750 score!! So why the BK????

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