Beginning July 1, 2017, credit bureaus like Equifax, TransUnion, and Experian will no longer collect tax lien and civil judgement information in order to calculate credit scores – especially if the information doesn’t provide complete details on the consumer like their name or date of birth, and public records aren’t checked for updates every 90 days. According to USA Today, the change is meant to “ensure that consumer identifications in the data are accurate and current.”
As a lender, it is critical that you understand this change and how it can affect both you and potential borrowers.
This Change Could Benefit Borrowers…
When this change takes effect, if a potential borrower has a lien or civil judgement against them, it won’t negatively affect their credit scores. In fact, borrowers may see their credit scores go up, which may help them get a home loan when they previously were unable to.
But It Could Also Put Them At Higher Risk Of Defaulting
While borrowers may see this upcoming change as a boon, it could potentially put them at risk – especially if they have a history of tax liens and civil judgments. In fact, according to a study by LexisNexus Risk Solutions, consumers with liens and judgments are twice as likely to default on their loans.
As such, it is your duty as a lender to provide potential borrowers with the information they need to make an informed decision when purchasing a home. That way, they will not be paying for a home they potentially cannot afford.
It Can Make Lender’s Jobs Harder
This shift in policy can have a downside for lenders. For one, they may have a more difficult time evaluating applicants and if they have the ability and willingness to pay back their loan. According to the president and CEO of the Mortgage Bankers Association, if this information is not included in a customer’s credit report there could be “false positives” and make individuals with tax liens and civil judgments appear lower risk than what they actually are.
When the change takes effect, lenders will have to be sure to check with public records to get the most current information about a potential borrower in addition to information provided in their credit report and other documents. That way, they will be able to make informed decisions about whether or not an applicant is high-risk.