Credit Issues and Credit Repair

This is NOT an announcement about a Credit Repair Service.

Beginning in January, I will offer a free service to anyone that has issues on their credit report or has a desire to improve their credit rating. The service will begin with a new web site linked to this one and a newsletter that contains valuable methods and suggestions for building a strong credit report.

This is not a traditional credit repair service (dispute everything) that is offered by many companies today. Those techniques are illegal and could cost you and your clients up to $1,000,000 in fines (each) and up to 30 years in prison or both, that’s strong!

All of the credit repair companies that have approached me over the past three years instruct their clients to dispute accurate information on their credit report. Knowingly disputing accurate information on the credit report is intentionally conveying false information with the intent to alter the content of the report in order to be approved for a mortgage. Folks, this is FRAUD. And anyone involved sticks their head in the noose if the lender is injured by the scheme, including but not limited to realtor, loan officer, processor or anyone else that refers the borrower to the credit repair company. Especially anyone that stands to gain from transaction!

I am aware the law places the burden of proof on the company that reported the negative information to a credit bureau. However, disputing an entry requires challenging it, in other words, stating that it is wrong. The soft spot on the underbelly of the system is profit. There is no immediate financial incentive for a company to research a dispute on information they supplied to the credit bureau sometime in the past. This is a weakness that is exploited by the credit repair companies. They know that if their clients dispute every negative entry that a certain percentage of disputes will go unanswered and therefore must be removed from the credit file. But think about it, this requires a written statement that there is something wrong with the entry, and in my example that is a lie.

Not only is it a lie, in almost every case it will be easy to prove it was a lie. Guess where checks and money orders clear. Guess who has a copy of the transaction, including deposits and withdrawals. The government that audits banks is the same government that prosecutes bank fraud and audits mortgage transactions, connect the dots here. There is a paper trail, and worse, in section 9 of the loan application the borrower acknowledges that any misrepresentation could result in civil and criminal penalties.

When the borrower applies for a loan and again at the closing they must acknowledge that they are aware of these penalties for supplying false or inaccurate information in order to get a loan. It takes a special kind of person to put this in writing and then allow the lender to rely on an inaccurate credit report due to omissions.

Keep in mind the government is pursuing loan fraud like a pack of rabid dogs!

There is no safe short cut to overcome accurate negative entries on a credit report. However, there are many actions most people can legally perform on their own behalf that will have a positive impact and doesn't cost an arm and a leg.

This new service is a huge undertaking and I will need help. If you are willing to contribute information on the subject please use the sign up form on the left or the one at the very bottom of the page.

Fannie Mae Changes

There are a few more changes that could impact borrowers that have recently applied for mortgage financing. In the underwriting release notes mentioned in the last post I found a huge change. FNMA no longer counts trailing spouse anticipated income. This could be a very big problem for the thousands of relocation homebuyers next year.

Another change, Fannie now requires IRS Form 4506-T instead of the Form 4506. My company has been doing this for a long time. Both forms allow the lender to receive a transcript of tax returns from the IRS for documenting the borrower’s income. The difference is the 4506 is for the previous year and the 4506-T is for the previous two years. In the past, these forms were used after a loan closed and only for a fraction of the transactions. Today we order them on every loan and the transcript must be received prior to closing! This is a really big change and it is expensive. Each transcript cost $50 and thankfully can not be passed on to the borrower. It costs us an additional $100 to process every loan even if they do not close.