Nov 302017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Your mortgage credit score is based on a credit model developed almost 20 years ago, and Federal Housing Finance Agency (FHFA) Director Watt says that’s not going to change anytime soon.

Many in the credit industry acknowledge that the FICO 4 model, the use of which is required by Fannie Mae and Freddie Mac, is deficient. It doesn’t differentiate between paid and unpaid collections. Nor is it able to distinguish medical collections, which seem to have little predictive value of credit risk. It also poorly models student loan debt, which has ballooned in the last 10 years, and only incorporates negative information for rent and utility payments.

Congress is trying to force a change through The Credit Score Competition Act, which would encourage Fannie and Freddie to consider other credit scoring models, including the newer FICO 9 and VantageScore models.

Watt contends that Fannie and Freddie already consider the same or greater levels of credit data in their computer models that determine whether a borrower qualifies. He also notes the change would be quite expensive. He prefers to wait until after Fannie and Freddie merge their investment security platforms, slated for 2019.

However, Watt fails to mention that Fannie and Freddie impose a minimum credit score, which prevents folks from qualifying regardless of how Fannie and Freddie tune their computer models. Fannie and Freddie also use credit score for determining interest rates and mortgage insurance coverage.

Defanging medical collections

 Credit Scoring  Comments Off on Defanging medical collections
Jul 132015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

One of the most frustrating consumer credit issues is medical collections. I estimate that half of credit reports I review have at least one medical collection on them. As often as not, the consumer is surprised to hear of the collection, assuming insurance had covered the charge.

Recent settlement agreements between the credit reporting bureaus and 32 state attorneys general may provide some relief. The agreement mandates that the bureaus wait 180 days before reporting a delinquent medical debt on your credit report. This should give you time to work out any issues with your insurance provider. In addition, the bureaus have been instructed to remove a medical debt from your report after insurance pays it.

Another part of the agreements requires the bureaus to have a human review documentation you submit to support a dispute rather than relying on automated systems.

These parts of the agreements may produce measureable relief for consumers, but I’m not so sure about other parts that add reporting requirements. More data may help regulators, but consumers need changes to dispute resolution systems to make the outcomes more accurate and timely. The bureaus have found that credit monitoring services are very profitable, so they benefit from consumer fear of inaccurate credit reporting.

Taming the credit bureaus

 Credit Scoring  Comments Off on Taming the credit bureaus
Jul 092015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

An FTC study in 2012 found that one in four consumers probably has mistakes on their credit reports. Based on my experience, I suspect the ratio is higher. Errors can range from duplicated accounts to closed accounts still reporting a payment to incorrectly reported collections.

In order to comply with federal law, the credit bureaus provide a process by which consumers can dispute errors, and consumers used that process 8 million times in 2011. The problem is the process has been described as a “merry-go-round of frustration.” Instead of investigating disputes, the bureaus typically rely on automated systems that result in creditors simply verifying that the report matches what’s in their system, which it should because the creditor provided the erroneous information in the first place. Any information or documentation provided with the dispute tends to be ignored.

With any luck, that may be changing. Regulators recently required bureaus to update their dispute systems to allow consumers to file them online with supporting documentation. They also have required the bureaus to submit reports to identify which creditors have the greatest number of disputes. While the latter doesn’t make the dispute process any easier, it may give regulators insights into how and why inaccurate information persists on consumer credit reports.

Recent settlement agreements with 32 state attorneys general may have the greatest effect, and we’ll discuss that next time.

Bill to remove medical collections will help homebuyers

 Credit Scoring  Comments Off on Bill to remove medical collections will help homebuyers
Jun 032015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Congress is considering a bill, the Medical Debt Relief Act, that could be a boon to thousands of homebuyers. The bill would require credit bureaus to remove medical debt from a person’s credit report within 45 days of the debt being settled or paid.

The legislation addresses a breakdown in our health insurance system that allows creditors to ding patient’s credit reports when a medical claim isn’t handled correctly or in a timely manner. Patients are responsible for what insurance doesn’t pay, and I’ve seen many cases where patients didn’t realize there was a residual balance on a bill. Medical providers understandably want to get paid, and their recourse is to file a collection action. Unfortunately for the patient, this action could ruin an otherwise pristine credit score and result in thousands of dollars of extra interest when they apply for a loan.

Congress has tried to pass similar legislation a number of times in the past, so passage isn’t guaranteed. However, numerous consumer and industry groups have endorsed this bipartisan bill, which may give it a chance this time.