Credit Rescores: Pay More. It's the Law.

Credit Rescores:  Pay More.  It's the Law.

 

It goes without saying that the mortgage process is in some ways more complicated and unforgiving than ever.  It also bears mentioning that there remains a handful of home loan professionals who have embraced these modern day challenges and found legal and ethical ways to shepherd their clients through the storm to the Promised Land of the best mortgage terms possible.  I like to count myself in this group.  Making home ownership possible, or lowering the cost of same, is perhaps my greatest professional satisfaction, and I have a sense of responsibility to provide this service standard to my clients.

 

One of the tools I have widely employed to address credit report inaccuracies or obstacles has been the Rapid Rescore.  With a Rapid Rescore, I provide our credit reporting agency with borrower documentation regarding an inaccurate credit report tradeline, and we have them make the necessary corrections to the report.  Let's say you had a credit card bill that showed a maxed out balance and a very high payment --- the first item hurting your FICO score itself and the second aspect crushing your debt-to-income ratio.  Let's also say you just received a bonus at work and paid off the card last week and now want to document the current standing of the account.  Ideally, with a rescore and within two to three days, we can update the balance and payment, realize the improved score, and affect the lower debt ratio, all of which benefit you, the borrower, and which may even make a loan approval possible where it did not exist before.  Oh, and that higher FICO score, it just got you a rate that is .25% better and will save you thousands over the term of the loan!

 

But there are two, inherent challenges with Rescores:

1)  They are expensive.  In some cases, it can cost $75 per tradeline, per bureau, per borrower.  So let's say you have three credit tradelines, all reporting inaccurately with Experian, Equifax and Transunion, and for a married couple.  Get out your calculator:  3 x 3 x $75 x 2 = $1350.

2)  The borrower cannot pay.  Directly or indirectly.  Yes, that is correct --- the clients cannot pay to have their scores improved.  Even if they want to, even if they need to, the law says "No!"

 

Let's examine why this is the case.  The Fair Credit Reporting Act (FCRA), section 611 states, "if the completeness or accuracy of any item of information contained in a a consumer's file at a consumer reporting agency is disputed by the consumer and the consumer notifies the agency directly, or indirectly through a reseller, of such dispute, the agency shall, free of charge, conduct a reasonable reinvestigation to determine whether the disputed information is inaccurate and record the current status of the disputed information, or delete the items from the file before the end of the 30-day period beginning on the date on which the agency receives the notice of the dispute from the consumer or reseller."

 

So, to translate the legalese above, the real hangup here is that the consumer ALREADY has the right to a FREE rescore, just not so rapidly.  It could take thirty days, maybe 60, maybe 6 months.  Most of us have had some experience contacting the credit bureaus.  And typically in these cases, an exit survey would reveal that having done so, most would have rather visited the dentist or DMV.  It's not fun and it's not fast.  But it's free.  The spotlight for real estate transactions must shine on the fact that "time is of the essence."  Very rarely does the mortgage applicant have time to wait around for an organic rescore.  It's just not practical in the real world.

So what can you do?

 

1)  You can begin your loan process very early, indentify any problematic credit items and work to address them via the free time window.  We can certainly assist in advising what actions should be taken.

2)   Absent the opportunity to wait, you can find a lender who is willing to eat the cost of any rescore.  Obviously, it's easier to do when it's a small tab, but realize that in all cases this was more feasible for us when we actually had a reasonable degree of flexibility over our compensation.  The Dodd-Frank provisions make allocation of loan revenue extremely rigid and when it comes to helping our clients via anything related to rate and revenue, we may well be prohibited from doing so.  Ironic, but also the law.

3)  You can write to me and we can craft a letter to go to your representatives in Washington so that we can work to have sensible, real-world, pro-real estate legislation promoted today and for the future.  Understand that lawyers and lobbyists are presently determining the future of our real estate economy.  If we don't like this notion, we must "be the change we wish to see."

 

The Rapid Rescore is another example of a great tool in home finance that is vastly restricted by the laws on the books.  Without informed guidance from your lender, you could end up paying more for your mortgage than necessary --- because it's the law.  Until these regulations are made more practical, we must work together within these confines.  Knowledge and understanding is our first requirement.  Once we have that, action is our next.  Let me know how I can assist you and your clients with your Rapid Rescore questions and needs today.  

 

 

Rob Spinosa
Mortgage Loan Originator
NMLS: 22343 CalBRE: 01297944
Cell: 415-367-5959 Fax: 415-366-1590
rspinosa@rpm-mtg.com www.rpm-mtg.com/rspinosa 
1058 Redwood Highway, Frontage Road, Mill Valley, CA 94941

 

 

 

RPM Mortgage, Inc - BRE# 01818035 – NMLS# 9472 - CA Bureau of Real Estate, Real Estate Corporation License. Equal Housing Lender.