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Home arrow Real Estate News arrow General News arrow Protections for Mortgage Applicants were stalled key Consumer Protections by Federal Agencies
Protections for Mortgage Applicants were stalled key Consumer Protections by Federal Agencies Print E-mail
Monday, 04 September 2006
That congressional mandate, part of the Fair and Accurate Credit Transactions Act of 2003, is now the law of the land which notifies buyers whenever sellers price higher. But virtually no lenders comply with it because two federal agencies have not yet issued regulations telling them how to do it.   The 2003 law directed all lenders to issue "risk-based pricing" notices to applicants whenever negative information in their credit files leads to rates or fees that are "materially less favorable" than the terms available to other applicants.

FICO credit scores are the central component of most lenders' risk-based pricing software. The lender checks your national credit files, pulls FICO scores, and quotes rates and fees accordingly. High FICO scores -- generally 720 or above -- get the lowest rate quotes.

This is particularly important for mortgage applicants because even small differences in FICO (Fair Isaac) scores can lead to unfavorable quotes. For example, as of last Friday, a mortgage applicant with a FICO score of 639 would be charged 7.68 percent for a $216,000 home loan, while an applicant with a score just 21 points higher would be quoted 6.7 percent for the same size loan. That information comes from a research company that surveys hundreds of lenders nationwide and reports the findings on score differentials and rate quotes to Fair Isaac for posting at

Under the 2003 law, you are supposed to be informed about the negative file data and have the right to obtain a free credit report to correct any errors or omissions.

But 33 months after Congress's mandate was signed into law, the two federal agencies tasked with writing rules telling lenders how and when to issue the credit alert notices, still have not produced even a preliminary proposal. Spokesmen for both agencies also say there is no specific time target for them to do so, either.

According to consumer advocate Evan Hendricks, editor of Privacy Times and author of the book "Credit Scores and Credit Reports," it's all about lobbying by lending trade groups.

"Lenders don't want to tell their customers that they've been charged more than they otherwise would," said Hendricks. And they definitely don't relish the possibility of losing mortgage transactions because applicants opt to get their credit reports and correct any bad information depressing their FICO scores.

The Federal Reserve in particular, according to Hendricks, is gumming up the works because "the Fed looks at (lenders) as its constituency, and does the bidding of that constituency, not consumers."

Edwina Baniqued

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