Free service via telephone rates homebuyers' credit

January 22, 1995|By Kenneth R. Harney

Washington -- Homebuyers in dozens of large cities across the country will soon be able to pick up their phone at any time during the day or night and within minutes find out precisely how much of a house they can afford, how their current credit rating stacks up, and what size mortgage they can handle.

The service will be free, confidential, utterly low-tech for the consumer -- all you'll need to access it is a touch-tone phone -- and will not commit users to any particular loan type or lender.

If you choose to follow through with an application, however, the initial report you'll receive will function as a bona fide loan preapproval. You'll be able to take it to the bank, assuming the information you provided the computer was accurate.

Here's what's heading your way. Already up and running on a limited basis in Phoenix, Ariz., the so-called "Mortgage Connection" uses highly sophisticated "credit-scoring" programs -- plus 24-hour on-line access to national credit bureau data on millions of Americans -- to answer homebuyers' most basic questions: How costly a house can we buy? And what type of loan will suit us best?

The system is a joint product of Atlanta-based Creative Solutions Group -- a financial technology consultant that works with many large banks and mortgage lenders -- and Chicago-based Trans Union, a national consumer credit data repository.

Credit-scoring -- one of the hottest subjects in mortgage lending -- is a technique for evaluating a loan applicant's creditworthiness based on statistical models of borrower behavior. The models home in on combinations of risk factors that "matter" in a statistical sense. Your credit report is just one of many pieces of the overall equation. Factors like your age, length of employment, length of residence play roles in your final score as well.

With the right computer software, a lender can take just a few bits of information about you -- Social Security number, income, monthly debt, ZIP code -- and in less than 60 seconds produce an underwriting analysis of your creditworthiness and likelihood of default. Once the system has produced a credit score on you -- assuming you pass -- it then offers you a selection of alternative mortgages.

Picture yourself as a potential first-time buyer trying to figure out how to finance a house. You pull out an 800 number given to you by your employer -- Mortgage Connection is being offered in part as an employee benefit through some large corporations -- and you plug into the system.

A voice asks you about 10 questions -- Social Security, income, length of employment, etc. -- which you answer by using the phone's keypad. If you have a facsimile machine at home, you'll get a printed preapproval letter -- or a "we need more information" letter -- within a few minutes of hanging up. Otherwise, the letter will be faxed to your office or wherever you direct that it be sent.

Then what? Here's where the lender comes in. Typically there will be a follow-up call to you from the mortgage company or bank tied into the specific 800 number you used. You'll be under no obligation to do anything further. If you want to pursue a full application at some later date, you'll at least have a ballpark sense of whether you qualify, and for how much. When is the program due in your area? Shortly, says Paul Henry, a marketing executive with Creative Solutions. Thirty-five large lender clients already are tooling up their systems, he says. That group alone, according to Mr. Henry, will take it nationwide this year.

The downside? Keep in mind that your preapproval "connection" will be to one lender alone. The rate and terms may not be the best available. So use it as a shopping tool -- not necessarily as your first and last route to mortgage money.

Kenneth R. Harney is a syndicated columnist. Send letters car of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071.

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