Credit Bureau Changes Hurt Buyers Who Must Shop Around For Home Loans

Buyers and refinancers face higher fees for credit reports beginning January 1 — a shift that has mortgage, credit and consumer groups fuming, writes syndicated columnist Kenneth Harney in Sunday’s Los Angeles Times.

Some believe the higher fees will have an inordinately heavy effect on minority first-time home mortgage applicants and those in the middle-income bracket who have non-traditional credit patterns, marginal credit scores or “thin” credit files.

They also predict that as a result of the increased costs, home mortgage loan officers may not shop as aggressively for such clients — leaving those applicants with worse mortgage choices than they would have otherwise.

The core of the controversy is a policy change by national credit bureaus Equifax and Experian that neither company ahs announced publicly: Beginning next month, they expect to be paid every time a lender or investor obtains an applicant’s credit file as part of the funding process.

To understand the significance of the change, consider how mortgage brokers — who originate an estimated two of every three new home loans made in this country — go about their business. Brokers do not loan their own money; they connect borrowers with lenders.

• To do so, they must shop applications to competing “wholesale” lenders who generally have different interest rates, loan terms and specializations.
• The shopping process involves sharing borrowers’ key financial information, property details, credit reports and scores with potential lenders.
• For home buyers with straightforward credit backgrounds, high scores and substantial assets, a mortgage broker might need to send an applicant’s file to only one or two lenders.
• However, for applicants with more complicated credit histories and marginal scores, brokers often need to shop loan files more widely.

Under the policy changes ordered by Equifax and Experian, each time a home loan broker shops an application package to a potential mortgage lender, “reissue” fees would have to be paid to the credit bureaus. Under current practices, no additional fees are due. Spokesmen for the two bureaus confirmed the policy change but would not discuss the higher fees to be charged.

“The whole goal,” said David Rubinger of Equifax, “is strict compliance with [the law] and the security of credit information.”

Donald Girard of Experian said: “We believe we should be fairly compensated” each time the company’s data are accessed. Harry Dinham, president of the National Assn. of Mortgage Brokers, a McLean, Va.-based trade group with about 30,000 members, estimated that for some applicants with marginal or incomplete credit profiles, brokers’ add-on credit fees resulting from the new policy could raise total costs to the borrower by $100-200.

An extra charge of $100 or $200 “may not sound like a lot, but it moves the line on who is going to be able to afford to buy a house.

A potentially more costly effect on minorities, recent immigrants and sub-prime applicants, said Terry Clemans, executive director of the National Credit Reporting Assn., is that some brokers, to avoid the new, higher charges, “will simply not send files to as many” wholesale lenders for competing offers.

That, in turn, could mean that borrowers with complicated credit profiles requiring more extensive home loan shopping “could end up with worse terms than they otherwise might have received” — higher rates, higher fees, less generous underwriting terms, Clemans said.

Brokers association President Dinham said, “We intend to fight this …. We think it is unfair that consumers are being forced to pay more but are getting no additional benefit.”

One independent credit reporting agency, Columbus, Ohio-based CBC Cos. Inc., has filed suit against Equifax over the issue, charging antitrust violations. Equifax has asked the U.S. District Court in Columbus to dismiss the suit, but no decision is expected before the end of the year.

Bottom line: Unlike other segments of the economy, there’s no price competition for credit in the home loan arena. When the bureaus say they want more, you pay more.