In the grand scheme of things, adding $7 to the cost of getting a mortgage is not a big deal. After all, loan closing costs already include fees for processing, underwriting, document drawing, appraisal, settlement, and title insurance that total something like $2,500. So what’s the $7 for?
It’s for what is called Secondary Use of the credit report. When we meet clients and take their application, we get a credit report that typically costs about $20. Normally that would be the end of it. But every lender we deal with relies upon some kind of Automated Underwriting system. The most frequently used are those of FannieMae and FreddieMac. But many lenders have their own "engines," as they refer to them.
In the process of uploading a file to these systems to get our approval, we enter in the credit report number assigned to it by the provider. Then the Automated Underwriting System goes to the agency that issued the report and has it reissued. That would be in lieu of ordering a new report which would cost another $20 and result in a "hard" inquiry that can result in lowering your FICO scores.
Re-issuing the old report does not add an inquiry. The lender ends up getting the same one we got but they can also be assured that the report is genuine. That eliminates one opportunity for fraud although being able to get inside a report to delete negative items would be exceedingly difficult.
Up until recently, there was no charge for this service, although everyone realized that the computers at the bureaus really do have to turn on again to reissue a report. The difficulty was in the agencies through which the reports were ordered. Apparently there was a lot of programming that need to be done. Frankly, I think that the biggest problem was how to take the fee on the reissue and pass it through to a company like mine. But that’s just a guess.
Now when a lender re-issues the old report, it will be added to the bill and passed on to the customer. That’s no big deal, but imagine someone who has a really difficult loan. If his mortgage broker submits it to five different lenders, guess what? He and you are going to incur a $7 charge for each of those re-issues.
Now perhaps my industry will accommodate this change and lenders will agree not to re-issue the credit report again until they have looked at it and are virtually sure that the loan will be approved. That’s the way it ought to be anyway.
Just be aware of this change and be sure to mention it to your loan officer. He will be surprised that you are so knowledgeable and it will improve your relationship.
Randy Johnson Randy is a Credit.com contributor and seasoned mortgage expert. He writes about home buying, mortgage laws and real estate finance issues. He has financed over $1 billion in properties, is the author of How to Save Thousands of Dollars on your Home Mortgage and he is a feature columnist for Savvy Borrower.
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