Original article written by Ken Harney of the L.A Times
Home loan shoppers should see an addition to the application paper blitz starting Jan. 1 — a mandatory alert on how their credit scores might affect the rate quote and terms they receive from their lender. The new disclosure represents the end product of a congressional effort dating to 2003 to make the crucial role played by credit scores in loan pricing more intelligible to consumers, and to alert applicants when negative information in their credit bureau files triggers higher rates or adverse terms.
Lenders will be required to provide the alert before applicants finally commit to accept mortgage offers, thereby allowing some consumers to reconsider their decisions, order copies of credit reports and look for inaccuracies or outdated information. Although federal regulators have given banks several ways to make the mandatory disclosure, the one most mortgage applicants are likely to see covers the following:
Ted Dreyer, a senior attorney with Wolters Kluwer Financial Services, an advisor to lenders based in Minneapolis, said that inevitably “some people’s eyes will glaze over” when they see the new forms. But properly used, Dreyer said, the disclosure “will be a valuable source of information” for people with negative data — whether accurate or erroneous — buried in their national credit bureau files. Consumers should be especially alert to the connection between credit files and rate quotes on home loans, say proponents of the disclosure, because the economic jolts of the last four years — unemployment, high delinquency rates, home foreclosures and short sales — have depressed millions of individuals’ credit scores.
At the same time, most mortgage lenders have steadily ratcheted up their underwriting standards and credit score requirements for good rates — or even the minimum score needed to qualify for any quote at all.
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Your Debt Expert,