Young buyers get a boost from Sallie Mae

Nation's Housing

November 16, 2003|By KENNETH HARNEY

IN A MAJOR victory for young homebuyers, the country's largest student loan company, Sallie Mae, has agreed to resume reporting the credit histories of its 7 million borrowers to all three national credit bureaus.

The move has special importance for younger buyers because their on-time student loan repayment histories often have disproportionately large impacts on their credit scores. Those scores, in turn, directly affect the interest rates, loan terms and fees they are quoted when applying for a mortgage to buy a home.

For more than a year until the recent policy reversal, Sallie Mae - formally the SLM Corp. - had refused to report its customers' payment histories to two of the three national credit bureaus, Experian and TransUnion. It never stopped reporting to the third bureau, Equifax.

Sallie Mae argued that its purpose was to protect its borrowers' "privacy" and shield them from offers from competing student lenders. But the side effects of its policy could be harshly negative on customers' credit scores - harsh enough, in fact, to deny them home mortgages or raise their rate quotes substantially.

Sallie Mae never disclosed its nonreporting to its customers, effectively leaving them in the dark when artificially depressed scores penalized them in other credit transactions.

The issue came to light only last month when a Colorado mortgage broker, Chris Neuswanger, noticed that a young homebuying client had been pushed into a high-rate loan solely because two of his three credit bureau reports omitted his large, on-time student loan accounts with Sallie Mae, depressing his credit scores by 40 points.

The client, Eric Borgeson, a 31-year-old architect, ultimately had to accept a 30-year fixed-rate mortgage costing him $200 a month more than he'd have been charged if his Sallie Mae payment history had been reported to all three bureaus.

Neuswanger demanded an explanation from Sallie Mae. He also contacted me. The resulting column and other publicity attracted the attention of congressional and public interest group experts concerned about consumer credit abuses. The news also coincided with congressional debate over reauthorization of the Fair Credit Reporting Act.

Sen. Richard J. Durbin, an Illinois Democrat, prepared an amendment that would have required Sallie Mae to report to all three bureaus. But the day before scheduled Senate action on the bill, the company sent a letter to the Senate announcing its intention to voluntarily resume reporting to TransUnion and Experian in addition to Equifax. Durbin withdrew his amendment.

Spokesmen for TransUnion and Experian confirmed the agreement. A Sallie Mae spokeswoman said reporting of all 7 million student loan borrowers' payment histories should resume within weeks. TransUnion and Experian spokesmen also confirmed that as part of their agreements, the bureaus would electronically code Sallie Mae borrowers in such a way that competing student lenders could not easily cherry-pick Sallie Mae's best accounts and target them with loan offers.

Sallie Mae's reversal was welcomed by the U.S. Public Interest Research Group, one of the organizations that urged Congress to force the company to report to all three bureaus. However, Kate Rube, an education spokeswoman for the group, said it would still seek to get the mandatory "full reporting" rule into law next year, when the Higher Education Act comes up for reauthorization.

A credit industry leader also applauded the outcome. Terry Clemans, executive director of the National Credit Reporting Association, said Congress should go even further and require all creditors to adopt a "full reporting" policy with the credit bureaus to whom they supply, and pull, consumer credit data.

Clemans noted that "the issue goes far beyond" Sallie Mae and can take more subtle forms than withholding payment histories. For instance, he said, some credit card issuers intentionally fail to report customers' maximum credit limits, a tactic that can significantly lower credit scores and mask top-quality borrowers from competitors.

Some subprime mortgage lenders "report to no one," said Clemans, effectively keeping homeowners' on-time payments out of sight of competing mortgage marketers - and artificially lowering their credit scores.

Meanwhile, in Colorado, homebuyer Borgeson said he was pleased to hear of Sallie Mae's decision "but it's a day late, dollar short for me."

Borgeson's $237,000 mortgage not only is costing him $200 a month more than it should, but it also came with higher closing fees and a $5,000 prepayment penalty, according to mortgage broker Neuswanger.

The bottom line for other homebuyers here: Make sure you check your credit reports from all three bureaus either before application or with your loan officer. If you find credit accounts missing or incomplete, ask your lender to factor them into any rate determination.

Then contact your nonreporting creditors and tell them to cut it out.

Ken Harney's e-mail address is kharney@winstarmail.com.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.