Mortgage lenders today are setting higher loan qualification standards for borrowers with weak credit files. Since they're facing mounting defaults in the subprime segment, they have to. Now there's another issue to contend with. When they study a credit report, the one compiled by FICO, are they really looking at the applicant's true financial background, or has it been artificially boosted by someone else's excellent credit file?
This is what's happening. Companies are turning up on the Internet that offer to marry a stellar credit file with a file that is so-so, or worse. In essence, the high-quality information is shared and that'll help the poor file. These online stores argue that this maneuver will enhance a FICO score from 50 to 250 points. That is a lot. Now, is this legal? It appears to be.
Namely, Federal law allows someone to add an authorized user to his credit card account. Usually it's done within the family, parents for children happens a lot, but the law actually does not limit in any way who can be included in an account. It can be anybody. And that's where the loophole is.
So these Internet shops are purchasing trade lines from people with stellar credit backgrounds and renting them for a nice fee to those who need an upgrade. And the seller gets a cut, too. How about that? Does this mean that home loan lenders have to be even more vigilant now? Absolutely. Loan officers and underwriters have more questions to ask an applicant if something looks suspicious. And make the process take even longer to everybody's frustration.
Mortgage, real estate and apartment industry analyst
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