Released: September 03, 2006

Protection for home buyers put on hold

Source: By Kenneth R. Harney, Syndicated Columnist [Arizona Star]

A congressionally mandated consumer protection of huge potential value to home mortgage applicants has been paralyzed because two federal agencies have not published required regulations, 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 loan applications in which a lender employs a “risk-based pricing” system that taps into an applicant’s credit files.

In the mortgage industry, risk-based pricing is almost universal: Millions of home loan applicants get their rate quotes and terms this way every year. The lender checks your credit files, computer software produces a risk score, and the rates and fees you are quoted flow directly from that process.

If your credit file data — correctly or incorrectly — suggest that you might pay late or go into default, you get charged a higher rate than applicants with “better” credit. But what if there are errors or omissions in your files — common occurrences, according to comprehensive studies of credit file data by the National Credit Reporting Association and the Consumer Federation of America? What if your credit scores are artificially depressed?

Under the 2003 legislation, Congress ordered lenders to issue risk-based pricing notices whenever credit file data causes them to quote rates or fees that are “materially 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 at the time of the rate quote.

Read Full Article: Protection for home buyers put on hold