Do You Know That Your Credit Activity is Being
Sold for Sales Leads?
They are called Trigger Lead Sales Lists, and they are marketed by Experian, TransUnion and Equifax. It's the same concept as the credit card offers that come in the mail so frequently, but there are some important distinctions when they are used for marketing home loans.
This is how it works:
A financial institution or lead generation company compiles a list of criteria for the credit bureaus. Let's say it's a bank or mortgage company that wants a chance to get their information in front of people who are currently interested in getting a new home loan. They could include categories such as minimum credit score, zip code of the borrower, and if the credit report was accessed in connection with a home loan.
Within 24 hours, the borrower may find that 5-10 companies, different from the one with whom they applied for their loan, have generated "offers" of competing mortgage proposals. In some cases, the borrowers may not even be aware that these are coming from sources that their lender has not contacted.
Once the borrower realizes that these are coming in from other lenders, they are rightfully concerned that their credit information has been compromised, may be susceptible to identity theft, and may think that their mortgage representative is responsible. The borrower's chosen lender does not know this is going to happen, and the borrower has no voice in the matter.
It is the credit bureaus that are using this to make more money from their information files, and to please their customers. Their customers are the subscribing companies that share the credit histories that form a consumer's credit report, not the consumers themselves. So if a subscribing company wants the credit bureau to provide targeted sales leads, the credit bureau is happy to do it.
Under the Fair Credit Reporting Act (FCRA), pre-screening is allowable as long as the creditor makes a "firm offer of credit", and meets other requirements. When a creditor is making an offer of a new credit card it is very easy for them to meet the "firm offer of credit" requirement, because the offer is primarily based on the credit score.
To use the Trigger Lead Sales Lists in the case of a mortgage, and to generate a proposal to a consumer differs widely from a "firm offer of credit" because the mortgage process is so much more complex. The credit score has become important, but not defining in and of itself. The borrower's income, the appraisal of the property, outstanding debt service, liquid assets, etc. all need to be analyzed in conjunction with the credit score to feel confident that a "firm offer of credit" can be proposed.
This opens the door to unscrupulous lending companies to insert themselves into the transaction. They rely upon another lending company to identify a borrower with a need and a desire, to take time to generate the loan application, to provide counseling and advice and to put the wheels in motion to satisfy that client. The company that purchases the lead by way of the credit reporting bureau knows that the borrower is taking action on an interest to obtain a new home loan, and they can make any offer to attract that borrower to them. The offer is not "firm" and it may be too good to be true, and it may be the beginning of a "bait and switch" operation.
How to Opt Out
Consumers can opt out by logging on to http://www.optoutprescreen.com/ or by calling 888-567-8688. It may take about 5 days to go into effect, and it won't eliminate any screening that is already in the works.
If you don't like your mailbox filled with credit offers, or if you are concerned about your confidential credit file being passed around without your knowledge to generate sales leads, I would encourage you to research what the Opt Out process can do for you.
Wednesday, March 14, 2007
Wednesday, February 28, 2007
Credit Report Re-Issue Fees
Additional Credit Report Fees to be Charged by
Credit Repositories
Led by Experian and Equifax, two of the three credit repositories (TransUnion is the third), there are now additional charges in connection with your credit report when shopping for a mortgage.
Called re-issue fees, they are now charging for the exact same credit report to every lender who will view the report.
Let me give you an example: When we receive a credit report on your behalf for the placement of your new home loan, there is a charge of approximately$18.00. We use that report in our analysis of the best places to submit your loan request based on programs and pricing. Up until now, we send that credit report to each lender that we are asking to consider your request and they have used that report for their purposes in deciding whether to grant the loan request, without an additional fee being imposed.
The repositories are now going to charge the full fee for each lender that the report goes to. If we submit to three lenders on your behalf, the credit bureau will charge an additional three fees.
They feel that they are deserving of this because they have a duty under the Fair Credit Reporting Act to track each exposure of a consumer’s credit data. Ironically, the ability of the credit file to be shared electronically from mortgage originator to lender increases the exposure of the consumer’s credit report and gives the credit bureau the ability to track how many different lenders have seen it so they can charge the additional fees.
And, as it happens too often, the very people that the rules are supposed to help are the most negatively impacted by the changes.
Borrowers that have the toughest credit histories, that require the most effort to find a match for their qualifications and to find the right program will end up paying the most under the new fee structure. It may take 3 to 10 lenders to look over a loan request from a borrower with marginal qualifications. This may increase the costs to that borrower up to an additional $200 in credit report re-issue fees. And unfortunately, there is no definitive way to get an answer from a lender until they have an opportunity to look over the financial qualifications of the borrower, including the credit report.
Be aware that these costs are being imposed by the credit repositories and will be passed on to the consumer in due course. They are not lender fees, but it will be the lender that informs you of what those fees total.
Because there is no real competition among the credit repositories they can and will collect these fees without fear that anyone will “take their business elsewhere”. There is no “elsewhere”.
You can be sure that I will always take the most efficient path to placing your loan that I can. I will not shop your request among many lenders without justification and, as a result create additional costs for you that are not necessary.
Credit Repositories
Led by Experian and Equifax, two of the three credit repositories (TransUnion is the third), there are now additional charges in connection with your credit report when shopping for a mortgage.
Called re-issue fees, they are now charging for the exact same credit report to every lender who will view the report.
Let me give you an example: When we receive a credit report on your behalf for the placement of your new home loan, there is a charge of approximately$18.00. We use that report in our analysis of the best places to submit your loan request based on programs and pricing. Up until now, we send that credit report to each lender that we are asking to consider your request and they have used that report for their purposes in deciding whether to grant the loan request, without an additional fee being imposed.
The repositories are now going to charge the full fee for each lender that the report goes to. If we submit to three lenders on your behalf, the credit bureau will charge an additional three fees.
They feel that they are deserving of this because they have a duty under the Fair Credit Reporting Act to track each exposure of a consumer’s credit data. Ironically, the ability of the credit file to be shared electronically from mortgage originator to lender increases the exposure of the consumer’s credit report and gives the credit bureau the ability to track how many different lenders have seen it so they can charge the additional fees.
And, as it happens too often, the very people that the rules are supposed to help are the most negatively impacted by the changes.
Borrowers that have the toughest credit histories, that require the most effort to find a match for their qualifications and to find the right program will end up paying the most under the new fee structure. It may take 3 to 10 lenders to look over a loan request from a borrower with marginal qualifications. This may increase the costs to that borrower up to an additional $200 in credit report re-issue fees. And unfortunately, there is no definitive way to get an answer from a lender until they have an opportunity to look over the financial qualifications of the borrower, including the credit report.
Be aware that these costs are being imposed by the credit repositories and will be passed on to the consumer in due course. They are not lender fees, but it will be the lender that informs you of what those fees total.
Because there is no real competition among the credit repositories they can and will collect these fees without fear that anyone will “take their business elsewhere”. There is no “elsewhere”.
You can be sure that I will always take the most efficient path to placing your loan that I can. I will not shop your request among many lenders without justification and, as a result create additional costs for you that are not necessary.
Wednesday, January 31, 2007
Conforming Mortgage Limits and Deductibility of Mortgage Insurance
Conforming Loan Limits Remains the Same
Every year, usually in December, Freddie Mac (FHLMC) and Fannie Mae (FNMA) establish the new loan limits for which they will purchase loans. The 2007 loan limits, which are the same as during 2006 are as follows:
$417,000 for one-unit properties
$533,850 for two-unit properties
$645,300 for three-unit properties, and
$801,950 for four-unit properties.
The agencies do not purchase loans above these dollar limits, nor do they purchase loans on 5+ unit apartment buildings, commercial properties or unimproved land. The loan limits are based on the October-to-October change in the average house price in the Monthly Interest Rate Survey of the Federal Housing Finance Board. This last year there was a slight decline, but rather than disrupt the creation and sale of mortgages, they elected to keep the limits unchanged.
This is meaningful to borrowers who have loans near the limit points. All things being equal, you can expect a better rate if the loan is within those limits. Once you go above those amounts, the loan falls into the "jumbo" category and the rate is typically higher.
Mortgage Insurance May Now Be Deductible
Mortgage insurance is typically required on a loan that is above 80% of the value of the property, and the premium is calculated on the full loan amount. This is designed to insure the lender against the higher risk of making a loan that approaches the full value of the property.
In recent years, a request above 80% of the value of the home has been split into two loans: a first loan not exceeding 80% of the value, and a second loan to complete the financing request. The 80% first loan has received the best market rates available, and the second loan has been created at a higher interest rate to compensate the lender for the increased risk associated with that loan.
Until recently, mortgage insurance has not been tax-deductible. It has been more favorable to a borrower to pay a higher interest rate on the second loan, and have the interest paid be deductible, rather than pay non-deductible mortgage insurance.
Congress recently passed legislation that allows some mortgage insurance premiums to be tax-deductible for purchase and refinance loans closed on or after January 1, 2007. Mortgage insurance premiums for loans closed prior to 1/1/07 will not be deductible. This law pertains to 2007 only, but it may be extended by Congress.
Borrower Criteria:
There is an income threshold for being able to deduct the mortgage insurance paid in 2007.
If the household Adjusted Gross Income (AGI) is < $100,000, the mortgage insurance paid is fully deductible.
If the AGI is between $100,001 and $101,000, the mortgage insurance is 90% deductible.
If the AGI is between $101,001 and $102,000, the mortgage insurance is 80% deductible.
If the AGI is between $102,001 and $103,000, the mortgage insurance is 70% deductible.
If the AGI is between $103,001 and $104,000, the mortgage insurance is 60% deductible.
If the AGI is between $104,001 and $105,000, the mortgage insurance is 50% deductible.
If the AGI is between $105,001 and $106,000, the mortgage insurance is 40% deductible.
If the AGI is between $106,001 and $107,000, the mortgage insurance is 30% deductible.
If the AGI is between $107,001 and $108,000, the mortgage insurance is 20% deductible.
If the AGI is between $108,001 and $109,000, the mortgage insurance is 10% deductible.
Above $109,000, not deductible.
Property Criteria: Primary residences and second homes that have not been rented during the year are eligible. Investment properties are not eligible for this deduction.
Every year, usually in December, Freddie Mac (FHLMC) and Fannie Mae (FNMA) establish the new loan limits for which they will purchase loans. The 2007 loan limits, which are the same as during 2006 are as follows:
$417,000 for one-unit properties
$533,850 for two-unit properties
$645,300 for three-unit properties, and
$801,950 for four-unit properties.
The agencies do not purchase loans above these dollar limits, nor do they purchase loans on 5+ unit apartment buildings, commercial properties or unimproved land. The loan limits are based on the October-to-October change in the average house price in the Monthly Interest Rate Survey of the Federal Housing Finance Board. This last year there was a slight decline, but rather than disrupt the creation and sale of mortgages, they elected to keep the limits unchanged.
This is meaningful to borrowers who have loans near the limit points. All things being equal, you can expect a better rate if the loan is within those limits. Once you go above those amounts, the loan falls into the "jumbo" category and the rate is typically higher.
Mortgage Insurance May Now Be Deductible
Mortgage insurance is typically required on a loan that is above 80% of the value of the property, and the premium is calculated on the full loan amount. This is designed to insure the lender against the higher risk of making a loan that approaches the full value of the property.
In recent years, a request above 80% of the value of the home has been split into two loans: a first loan not exceeding 80% of the value, and a second loan to complete the financing request. The 80% first loan has received the best market rates available, and the second loan has been created at a higher interest rate to compensate the lender for the increased risk associated with that loan.
Until recently, mortgage insurance has not been tax-deductible. It has been more favorable to a borrower to pay a higher interest rate on the second loan, and have the interest paid be deductible, rather than pay non-deductible mortgage insurance.
Congress recently passed legislation that allows some mortgage insurance premiums to be tax-deductible for purchase and refinance loans closed on or after January 1, 2007. Mortgage insurance premiums for loans closed prior to 1/1/07 will not be deductible. This law pertains to 2007 only, but it may be extended by Congress.
Borrower Criteria:
There is an income threshold for being able to deduct the mortgage insurance paid in 2007.
If the household Adjusted Gross Income (AGI) is < $100,000, the mortgage insurance paid is fully deductible.
If the AGI is between $100,001 and $101,000, the mortgage insurance is 90% deductible.
If the AGI is between $101,001 and $102,000, the mortgage insurance is 80% deductible.
If the AGI is between $102,001 and $103,000, the mortgage insurance is 70% deductible.
If the AGI is between $103,001 and $104,000, the mortgage insurance is 60% deductible.
If the AGI is between $104,001 and $105,000, the mortgage insurance is 50% deductible.
If the AGI is between $105,001 and $106,000, the mortgage insurance is 40% deductible.
If the AGI is between $106,001 and $107,000, the mortgage insurance is 30% deductible.
If the AGI is between $107,001 and $108,000, the mortgage insurance is 20% deductible.
If the AGI is between $108,001 and $109,000, the mortgage insurance is 10% deductible.
Above $109,000, not deductible.
Property Criteria: Primary residences and second homes that have not been rented during the year are eligible. Investment properties are not eligible for this deduction.
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