FICO scores for risky borrowers to rise under new rules


Rather than digging deeper to verify federal tax liens and civil judgments and include them on your credit report, the three major credit bureaus decided to opt out of reporting these items as of July 1, according to a Consumer Data Industry Association announcement Monday.

Say what?

Equifax, Experian and Transunion cut a deal in March 2015 with the New York Attorney General, and eventually added 31 more attorneys general to do a better job of validating information and credit report dispute investigating. The credit bureaus are blaming inconsistent reporting for this change.

Earlier this month, the Consumer Financial Protection Agency pointed to similar problems and its intent to fix the broken dispute process.

Good camouflage to do less work for the same price and, consequently, create more havoc.

Unless your name, address and either your full social security number or date of birth are on civil judgments and federal tax liens, the credit bureaus will ignore them and leave them off of your credit report.

Your complete social security number and your date-of-birth are typically left off federal tax liens and civil judgments due to identity theft concerns.

“We will not give out the social security number or date of birth in judgment forms,” said Gwen Vieau, spokesperson for the Orange County Superior Court.

Some credit scores will go up as a result.

According to Ethan Dornhelm, principal scientist at FICO, this reporting change will affect approximately 6 percent of the total FICO scorable population. Just under 11 million consumers are projected to see an increase of less than 20 points to their FICO’s.

House of cards? Lenders may be making credit decisions based upon incomplete information. Borrowers with liens or judgments may not have the ability to repay their home loans in addition to these types of debts.

California law mandates that a civil judgment or federal tax lien that predates a purchase money loan becomes subordinate to the first trust deed according to Glenn Awerkamp, title manager at Lawyers Title. But on a refinance, the pre-dated judgment or lien is in first position, potentially allowing a creditor to foreclosure on your property to pay the piper.

For home loans, you fill out a form called an SI or statement of information. The title company does something called a general index search, looking for liens, judgments and more.

Unlike credit bureaus, title insurers guarantee their work via the policy you eventually pay for. They better catch this stuff.

Make sure your title insurer is fast, financially stable and reputable.

Goodness gracious. This might be real havoc for home sellers, buyers and realty agents. You may learn long into escrow that the buyer can’t get title insured because nobody knew during the pre-approval process of an outstanding tax lien or civil judgment. Currently, those show up early, on the credit reports as part of the pre-approval process.

I believe credit bureaus are going to sell a second type of judgment and lien search product. And, title insurance costs will increase title as every prudent listing agent is going to demand a general index search before accepting any buyers’ offer.

If you have questions or comments, please contact Jeff Lazerson by clicking here.

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Jeff Lazerson - Mortgage Columnist since 2011