- The Washington Times - Monday, July 24, 2000

Most home buyers do not know their credit score, a principal factor in determining their mortgage rates.

Legislators and consumer advocates are trying to change that by attempting to convince Fair Isaac and Co., which determines borrowers' "FICO" scores, to disclose those numbers to consumers. The San Rafael, Calif.-based data analysis firm has posted factors that go into the score on its Web site.

L. George Griffin III, a senior policy representative at the National Association of Realtors, is part of that effort. He has lobbied for full disclosure of the credit score on behalf of Realtors, who deal with home buyers on a daily basis.

Question: What is credit scoring, what is your credit score?

Answer: Well, credit scoring is essentially a risk-management tool that lenders use when they make the decision about extending credit, either consumer credit or mortgage credit to a borrower. It's a general rubric for a series of models or statistical models, algorithms that take a look at one's past credit history and make some sort of prediction about whether you will repay the loan, that's essentially it.

Q: I've been told that behavioral models go into it too. Are there other factors besides your actual credit history that go into it?

A: Well, there are behavioral models. Then there is the credit score, the mortgage score. Recall what your credit history is: Your credit history is essentially a statement of the lines of credit that you have and how you have paid back those loans or the extensions of credit. And so you have late payments and that sort of thing shows up.

Q: Do most lenders focus more on the score than they do on the details of the report?

A: I don't know. One of the concerns, of course, is that mortgage applicants don't know what their credit score may be or what their mortgage score may be. And they don't know what weight lenders put on their credit score.

Because borrowers don't know, they are essentially disarmed, they can't shop, they don't know whether they're getting rates that are in line with what [other individuals with] their credit score generally get.

One of the things that we're kind of concerned with is that so much weight can be put on the credit score that folks are tracked into more expensive mortgages needlessly. That is, if your credit score is 650 or 680 or something of that sort, out of a possible range of 900 or whatever, the score is in a band generally. Lenders can oftentimes match up that band with mortgage terms.

So one of the questions that a home buyer would be asking is, "If I know my mortgage score, am I being offered rates and terms on a mortgage that everybody else in my band may have?" You don't know. That's part of the armament of financial management that home buyers should get into.

Q: What is considered a good credit score?

A: Well, at least above 620, 650. It depends on the model, it depends on the lender, it depends on the mortgage product.

Q: Have you all been able to get a good answer as to why folks don't get their credit scores?

A: Well, yeah. At this point, the only time that folks can get their credit scores is by law, as a function of being turned down for credit. And the credit score was a principal factor for having that application turned down. There is no federal statute that requires disclosure of credit scores beyond that situation where someone is denied.

But lenders oftentimes do give credit scores and mortgage scores to home buyers, sometimes knowingly, sometimes not so. It just depends on the loan officer, the person whom that individual is dealing with.

It's that inconsistency it's a combination of inconsistency, it's a combination of lender inconsistency at any rate in terms of disclosure. It's a growing awareness that mortgage and credit scores are so important now in the mortgage transaction.

And one of our efforts, Realtors' efforts, is to make sure that mortgage credit consumers are aware of the fact that there are credit scores out there, that there are consequences for their past credit histories plan now and then be able to get these things, hopefully.

Q: Don't the Realtors have some sort of policy as to what members should disclose to customers?

A: No. Understand, the Realtor doesn't get the credit score. The Realtors are as much in the dark about what a credit score is as a mortgage applicant. It's the lender who has the credit score. It's the credit reporting bureau, it's the FICO score that's being used to determine.

If you're asking me what is it that we would like to see disclosed, is that the question?

What it is that we would like to see disclosed in the way of credit score information [is] the credit score; the range that the credit score is in; the date of the score; the model used; and at least four of the reason factors that are associated with the credit score and the credit report.

And that's very much in line with where the California credit score disclosure bill is requesting. It's the California Association of Realtors that is sponsoring the bill out there that's pending in the state Assembly at this point, it's already passed the Senate.

But those are the sort of things that we would like to see disclosed, and that disclosure would come from the lender to the mortgage applicant.

Q: At this point, I guess the entity responsible for nondisclosure is Fair Isaac… . Doesn't Fair Isaac tell the lenders not to disclose?

A: Fair Isaac, they dominate the credit scoring model in the business, I think they've got 75 [percent], 80 percent of the market. They have had contracts with lenders which require that they not disclose the credit score.

Now, however, at the urging of Freddie Mac trying to get more transparency, Fair Isaac has indicated that they are going to be working on getting more disclosure made to the consumer.

But that doesn't mean we don't need the credit scoring bill. A lot of people are saying, well, if Freddie Mac and Fannie Mae are disclosing what their underwriting guidelines are with regard to credit scoring, their reason factors, and Fair Isaac is saying that they're going to make this sort of disclosure, then we don't need [the bill]. But my only response to that is, we haven't gotten it yet. Credit scores are not disclosed consistently. And the issue of disclosure wasn't even moving until we said, there ought to be some disclosure here.

Q: And how long ago did you start doing that?

A: Two years ago.

Q: Is there anything that prompted it in particular?

A: Well, yeah. Starting in about 1995, 1996, Freddie Mac and Fannie Mae added credit scoring technology to their automated underwriting technology. And over time, more than 30,000 loans a day go through Freddie Mac and Fannie Mae's automated underwriting and credit risk modeling management technology.

So you're seeing credit scoring being introduced into the mortgage lending process where it had never been before, not like this, at any rate. But credit scoring has been around for I don't know how long, more than 30 years, in the consumer credit industry.

Realtors became concerned about that because it was clear that there was lots of confusion on the part of lenders as to what the credit scores were, how you used them.

There was some evidence or some concern that credit scores would be used as a cheap filter, if you will, to push people into more expensive mortgages and they wouldn't know it. And then this whole matter of the growing importance of credit scores based on what's in the credit report. And everybody knows that there are errors, oftentimes grievous errors, in the credit histories that result in denied credit.

We became particularly interested in [Utah Republican] Rep. Chris Cannon's bill because he was responding to some constituents of his who said, "I can't get my credit score. I know it's there, but I can't get it." And it's a good idea. There are a couple of other Congress folks who have had some bad experiences with credit reports and credit scoring, and someone needs to step up to the plate and press to get some consistency in disclosure.

Q: What exactly is in Mr. Cannon's bill?

A: It's a short bill, very short. It amends the Fair Credit Disclosure Act, and it simply requires that upon request, a consumer should be given their credit score.

Well, we'd like to have a little more detailed, per our discussion earlier on, but that's essentially it.

Q: So the consumer still has to know to ask for the score?

A: Yeah.

Q: If this goes through, do you all plan any kind of education campaign to let people know they should be asking for it?

A: We haven't gotten that far yet. By virtue of the discussion going on, people are going to know that this is something to ask for. We're at the point where the issue is, get on with the bill, get a hearing on the bill, make amendments to the base bill where we have a bit more detail here and we move forward.

Q: What about other states beside California, is anything happening?

A: Not that I know of.

Q: What do you all think of the chances of this bill? Mr. Cannon seemed pretty optimistic about it.

A: There is likely to be a hearing in the fall. There's growing interest on the House side, and there's also growing interest on the Senate side. So the clock is ticking, of course.

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