Not all applicants would be issued risk-based pricing notices under the proposal -- only those whose mortgage terms and rate quotes are "materially less favorable than the most favorable terms available to a substantial portion of consumers (obtaining credit) from or through" that particular lender.
The FTC and the Fed offered two different methods for lenders to determine which applicants fit that description. Using one approach, lenders would set a credit score cutoff point at which roughly 60 percent of customers have lower scores and roughly 40 percent have higher scores. Only loan applicants with scores below the cutoff would have to receive risk-based pricing alerts.
Under a second alternative, lenders would create a tiered pricing grid, with notices required only for applicants whose scores are in the lowest tiers. For example, if a lender used five pricing gradations, only applicants who fell into the lowest three tiers would receive an alert.
In a key decision that could provoke controversy, the FTC and the Fed removed responsibility for issuing notices for most mortgage brokers -- as long as they do not function at any time as a lender during a transaction and are solely intermediaries. If the proposal is adopted, when brokers shop loan applications to multiple lenders and receive quotes, they would not need to provide multiple risk-based pricing notices.
In another limitation, the two agencies conceded that some consumers might not receive risk-based pricing notices even though negative information in their files depressed their scores. That's because mortgage brokers might send applications with apparent subprime credit exclusively to lenders who specialize in subprime. In that event, an applicant's high rate quote may be typical for that lender and not "materially less favorable" than what the bulk of the lender's other clients receive.
Whatever the shape of the final risk-based pricing alert plan, it almost certainly will heighten consumer awareness of the importance of credit data in determining mortgage rates and terms. In the meantime, remember this: Always check at least one of your national credit bureau reports -- on file with Equifax, Experian and TransUnion -- months before applying for a mortgage.
That allows you the time to take remedial action if necessary, and qualify for the best rate you deserve.
kenharney@earthlink.net
