Overview

The credit and lending communities and federal regulators should reassess the entire credit structure and look for ways to increase the availability of credit to qualified borrowers who are good credit risks. The inadvertent response to the "risk layering" inherent in some mortgage products (e.g. no doc,  balloon, negative amortization, or  "teaser rate" mortgages) has been "safety layering" where so many safeguards are being imposed that there is little risk to making new loans.

Credit Scores and the Impact of Foreclosures and Other Credit Problems

Many REALTORS® have questions about FICO scores and the impact of various adverse credit events on the score. A FICO score is a credit score computed using proprietary formulas of the FICO Corporation (formerly called Fair Isaac), but there is not just one FICO score. Read the FAQs below to learn more.

NAR has also prepared a chart showing the impact of various adverse credit events on the ability of consumers to purchase another home with a FHA, Fannie Mae, or Freddie Mac mortgage.

Political Advocacy

What is the fundamental issue?

The housing and mortgage markets have over-corrected in response to abusive lending, poor underwriting, and a serious recession. The result has been excessively tight underwriting criteria.

I am a real estate professional. What does this mean for my business?

Many local housing markets currently suffer unduly tight underwriting criteria. Unless buyers have extremely good credit, policies adopted by the lending  and credit reporting industries can make it very difficult for them to be approved for a mortgage. Fannie Mae, Freddie Mac and federal regulators (e.g. credit scoring, downpayment requirements, rules impacting mortgage liquidity) also affect mortgage capital availability, as well as, the homebuyers' ability to qualify for a mortgage.

NAR Policy:

NAR supports the general principle that all mortgage originators should act in “good faith and with fair dealings” in a transaction and treat all parties honestly. NAR’s Code of Ethics already imposes a similar requirement on REALTORS® , who are required to treat everyone in the transaction honestly. Read NAR's Responsible Lending Policy.

The credit and lending communities and federal regulators should reassess the entire credit structure and look for ways to increase the availability of credit to qualified borrowers who are good credit risks. The inadvertent response to the "risk layering" inherent in some mortgage products (e.g. no doc,  balloon, negative amortization, or  "teaser rate" mortgages) has been "safety layering" where so many safeguards are being imposed that there is little risk to making new loans.

The current book of business at the GSEs and FHA has been referred to as "pristine." NAR believes pristine loans are the result of excessively tight underwriting, not sound business practices. The GSEs and FHA have a public mission to provide mortgage liquidity to qualified homebuyers, including low- and moderate-income families and first-time homebuyers. This mission is being impaired by limits on the availability of credit. NAR believes a reassessment of these policies will not only help well-qualified potential borrowers, but also the entire housing market.

Furthermore, NAR believes that homeownership is an integral part of the American Dream that shouldn’t be out of reach for low-income, rural and minority borrowers who lack access to traditional forms of credit. Unfortunately, many responsible Americans with "thin" credit files have been kept out of the housing market. Thus, NAR supports alternative credit scoring models aimed to responsibly expand mortgage credit for millions of hardworking families.

Additionally, given the increased dependence on credit reports by creditors, employers, insurers and law enforcement, NAR believes Americans should not be penalized by mistakes in their credit reports. Unfortunately, inaccurate credit reports have denied access to mortgage credit or have raised the cost of credit for many prospective borrowers. NAR believes that expanded access to free consumer reports and credit scores will help ensure their credit information is accurate. Moreover, NAR believes that individuals, families and students who have been victimized by unfair, deceptive or abusive acts or practices should not penalized by the malicious acts of others.

Legislative/Regulatory Status/Outlook

NAR has distributed its Credit Policy and met with industry groups and regulators to emphasize the importance of reasonable underwriting policies.

NAR supports the following credit scoring and credit reporting bills:

  • H.R. 3621, the "Comprehensive CREDIT Act of 2020" (Pressley, D-MA), which includes:
    • H.R. 3618, the "Free Credit Scores for Consumers Act of 2019" (Beatty, D-OH). H.R. 3618 would direct credit reporting agencies to provide to consumers free credit scores along with their free annual consumer reports, provide automatic free credit scores and consumer reports in other specified circumstances, as well as additional information regarding the calculation of credit scores.  Lenders would be directed to give consumers free copies of any consumer reports and credit scores they used for underwriting before consumers sign the respective loan agreements.
    • H.R. 3621, the "Student Borrower Credit Improvement Act" (Pressley, D-MA). H.R. 3621 would prohibit a consumer reporting agency from furnishing a consumer report containing any adverse item of information relating to a delinquent or defaulted private education loan of a borrower who has a specified demonstrated history of loan repayment.
    • H.R. 3622, the "Restoring Unfairly Impaired Credit and Protecting Consumers Act" (Tlaib, D-MI). H.R. 3622 would require credit reporting agencies to: 1) remove adverse information resulting from specified fraudulent lending activity; 2) shorten the time period adverse information stays on reports; 3) limit the inclusion of certain medical debt on reports; and 4) provide free credit monitoring and identity theft protection services to certain consumers, including victims of fraud, active duty military, and those 65 years of age and older.
    • H.R. 3629, the "Clarity in Credit Score Formation Act of 2019" (Lynch,D-MA). H.R. 3629 would direct the CFPB to regulate credit score models by establishing standards for validating the accuracy and predictive value of these models and report on the impact of nontraditional data in these models. The bill would also empower the CFPB the authority to prohibit the use of certain factors in credit score models.
    • H.R. 3642, the "Improving Credit Reporting for All Consumers Act" (Adams, D-NC). H.R. 3642 would revise the dispute process for consumers challenging information contained on their credit report, establish an appeals process for disputed information, and establish the right to injunctive relief. It would also require additional disclosures from credit reporting agencies and furnishers of credit information, and prohibit automatic renewals for promotional consumer credit products and services. the CFPB would also be directed to issue rules to provide for: 1) accuracy and completeness of credit reports; 2) access to consumer reporting information for nonnative English speakers, the visually impaired, and the hearing impaired; and, 3) the registration of consumer reporting agencies.
  • S. 1828, the "Credit Access and Inclusion Act" (Scott, R-SC). S. 1828 will help individuals achieve the American Dream by amending the Federal Fair Credit Reporting Act to allow providers like gas, electric, and telecommunication companies to report consumers' payment histories to credit reporting agencies.
  • H.R. 123, the "FHA Alternative Credit Pilot Program Reauthorization Act (Green, D-TX). H.R. 123 would help many households achieve the American Dream.  Specifically, it amends the National Housing Act to extend from 5 years to 14 years the pilot program to establish an automated process for providing alternative credit rating information for prospective borrowers who have insufficient credit histories.

NAR Committee:

Conventional Financing and Policy Committee

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