Agencies Delay Implementation of Law Protecting Florida Home Loan Applicants
A mandatory and hugely important consumer protection measure to Florida home mortgage loan applicants has been frozen because two federal agencies have not published the required regulations — a staggering 33 months after the legislation was signed into law.
The new consumer protection, created by the Fair and Accurate Credit Transactions Act of 2003, covers all home loan applications in which a lender employs a risk-based pricing system that taps into an applicant’s credit files.
In the Florida mortgage industry, risk-based pricing is almost universal. Millions of applicants get their rate quotes and terms this way every year. The lender checks the prospective borrower’s credit files, their computer software produces a risk score, and the rates and fees flow directly from that.
If your data suggests that you might pay late or go into default, you get charged a higher rate than applicants with a better credit score, regardless of whether said data is even accurate. Errors and/or omissions in your files are common occurrences, too, according to many experts.
Under the 2003 legislation, Congress ordered lenders to issue risk-based pricing notices whenever credit file data cause them to quote rates or fees that are less favorable than the most favorable terms available to large numbers of other applicants. The notices were to be provided at the time of application or rate quote.
Either scenario would allow mortgage applicants to request a free copy of their credit report and check to see what negative information in their files was causing the problem. The requirement for notices took effect December 1, 2004.
Congress also directed the Federal Reserve and the Federal Trade Commission (FTC) to issue regulations describing the content, scope and format of the notices. So far, the two agencies have issued nothing, and both say they have no specific schedule to do so.
Meanwhile, consumer advocates say, Congress’ intent of helping consumers obtain the best possible home loan rates and mortgage terms in a risk-based pricing environment is being thwarted.
Evan Hendricks, editor of Privacy Times and author of the book Credit Scores and Credit Reports, blames both the banking and mortgage industries lobbying for the delay.
“Lenders don’t want to tell customers that they’re being charged more than they otherwise would. Nor do they like the idea of potentially putting a loan application on hold while customers check the accuracy of their credit reports,” he said.
Hendricks says the Federal Reserve is the main obstacle because it looks at the financial industry as its constituency, and does the bidding of that constituency, not consumers.
The industry itself, according to a legal memorandum prepared for the Mortgage Bankers Association of America, wants only a generic notice, distributed upfront to all applicants explaining that credit reports may affect pricing and other terms.
So what can you do as a Florida home mortgage seeker?
- Order your three national credit reports long before applying for a loan. Make sure any errors are corrected, and that any missing positive payment information is included.
- Ask your loan officer to show you whatever credit information is being used to compute your rates and fees. Make certain you are receiving the same pricing as someone with the highest credit scores.
