Why Haven’t Loan Officers Been Told These Facts?

Consumer Protection, The First Principle

Congress took an extraordinarily long time to pass the Truth in Lending Act, which eventually became law in 1968 after over eight years of legislative wrangling. Senator William Proxmire sponsored the legislation. Before Proxmire took over, economist and US Senator Paul Douglas shepherded the effort.

Senator Proxmire was a well-known congressional maverick. He authored the Golden Fleece Award in government, which was given to federal government officials for squandering public money. In Senate testimony, Senator Proxmire articulated TILA’s legislative essence in five principles.

“The first principle of the bill is to insure that the American consumer is given the whole truth about the price he is asked to pay for credit. The bill would not regulate interest charges, but would rather aim at a full disclosure of the cost of credit so that the consumer can make an intelligent choice in the marketplace. I emphasize that it would not regulate interest charges. It would not set ceilings.

A crucial provision of the bill deals with expressing credit charges as an annual percentage rate. Without the knowledge of an annual rate it is virtually impossible for the ordinary person to shop for the best credit buy. However, in an effort to remove objections to earlier truth-in-lending bills, my new version makes it abundantly clear that lenders need only state an approximate annual rate and would not be held to absolute accuracy down to the last decimal point.”

 

 

BEHIND THE SCENES – Senate Trigger Lead Legislation Dies In the House

Trigger Lead Skullduggery

Data brokering may be the straw that breaks the back of any semblance of decency or fairness in the information age. We’ve all become all too familiar with the fact that we live in the surveillance age and that numerous clever actors successfully lure unsuspecting consumers into revealing their private affairs.

Your age, health condition, race, religious views, and age are well known to the data brokers. Your browser searches, health history, hobbies, viewing habits, and driving habits are all for sale. However, while social media platforms’ ugly side has come to light recently, consumer reporting agencies still lurk in the shadows, their reach primarily unknown to most consumers.

You must hand it to these clever minds. Their ability to find and create new markets and the means to exploit these markets is a testament to human ingenuity. Case in point: trigger leads.

What are Trigger Leads

When a mortgage lender pulls a consumer credit report, the national credit reporting agencies (NCRAs) market this information to mortgage sellers and any charlatan, crook, or huckster willing to pay for a lead.

Existing Consumer Privacy Laws

What about the Gramm Leach Bliley protections? Is not the fact that someone is buying a home non-public personal information? How can these CRAs share this data with non-affiliates? In a word, the CRAs are not financial institutions under the GLBA. GLBA covers financial institutions.

Like lambs to the slaughter, consumers use electronic banking, purchasing, and browsing, all under watching eyes. They are oblivious to the extent that they are surveilled. They are also unaware that information merchants are harvesting this data and finding new ways to monetize it. In addition to the nuisance of unwanted solicitation, the storage and sharing of non-public personal data creates various security risks for consumers. It’s all somewhat alarming and even creepy.

Lawmakers have worked to limit consumer reporting agencies from sharing data about mortgage credit inquiries. The first bill that sought to restrict the use of trigger leads was the 2020 H.R.5720. More recently, the 2024 Senate Bill S. 3502 and House Bill H.R. 7297. Both died on the Congressional Vine last year. Hopefully, sponsors will reintroduce or, better yet, write more effective bills for the new Congress. The bipartisan sponsors of last year’s trigger-lead legislation are all still there.

When Only Banks Compete, You Lose

Despite the self-congratulatory posturing of some key mortgage and housing stakeholders, S 3502, while better than nothing, is filled with loopholes that favor big banks and mortgage servicers over mortgage companies and brokers. For example, one of the S 3502 exemptions on trigger lead sales was when selling leads to an entity that “originated a current residential mortgage” for the consumer who is the trigger lead’s subject. The bill’s language does not define what “originated a current residential mortgage” means. In the case of third-party originations, would that include the third-party originator or not?

Giving banks leads that brokers and mortgage companies cannot access is not good for consumer protection or consumer prices. Remember, a few banks nearly owned the mortgage industry not long ago. More than any other factor, competition protects consumers from unnecessarily high settlement and mortgage costs. Not to mention crappy service and abuse. Consequently, favoring the banks in mortgage origination adds another obstacle to sustainable homeownership.

From Senate Bill 3502

‘‘(B) LIMITATION .— If a person requests a consumer report from a consumer reporting agency in connection with a credit transaction involving a residential mortgage loan, that agency [the CRA] may not, based in whole or in part on that request, furnish a consumer report to another person under this subsection unless that other person—

    • Has submitted documentation to that agency certifying that such other person has, the authorization of the consumer to whom the consumer report relates.
    • Has originated a current residential mortgage loan of the consumer to whom the consumer report relates.
    • Is the servicer of a current residential mortgage loan of the consumer to whom the consumer report relates.
    • Is an insured depository institution or credit union; and holds a current account for the consumer to whom the consumer report relates.

Here is how these exemptions might work. If Joe, a Prospective Homebuyer, applies with ABC Mortgage Company for preapproval and has a credit card or depository account at Bank of America, Wells Fargo, or Chase, those guys can buy Joe’s trigger lead that includes creditworthiness. However, if Joe applies at Wells Fargo, unless you qualify for one of the exemptions, you, as a third-party originator (TPO), cannot buy Joe’s trigger lead. But BoA and Chase can pursue Joe, assuming they have “accounts. The vague term accounts would include depository, credit accounts, and maybe even investments.

Such legislation will effectively debar TPOs from the trigger lead market, making it less costly and more convenient for banks to buy the leads. Banks have brilliant minds at work, constantly engineering ways to limit competition and exploit new and existing markets. TPOs must be on their toes.

Another Loophole

15 USC §1681a. Definitions
(d) Consumer Report.-
(1) In the term “consumer report” means any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer’s eligibility for (A) credit or insurance to be used primarily for personal, family, or household purposes.

Another example of the limited effectiveness of bills like S 3502, the trigger lead limitation is placed on “furnishing a consumer report” to a third party. For a trigger lead to have value, there is no absolute need to furnish a consumer report as that term is described by the FCRA to a third party. It would be nice to know the consumer’s exact credit score, but the fact that someone has inquired about mortgage financing on a given day is also valuable. S 3502 does little to restrict the CRA from disseminating data about consumer habits or interests. The Fair Credit Reporting Act or some novel legislation must address these types of nuanced data brokering issues.

Posturing

As illustrated, these bills lack the substance to curtail these nasty intrusions effectively. Now, these legislators and lobbyists will tell you that it is a step in the right direction that beats a stick in the eye. That is true. But is there any good reason the banks should gain an advantage over the mortgage companies because of a tenuous claim to an interest or relationship with the consumer? I have an account with Chase. I hate them so far. I opened the account to get a cash promotion. Once I meet the terms, it’s hasta luego, baby.

The banks are a powerful lobby in Congress, but you can make your voice heard. Give your Congressperson or Senator an earful about kissing up to the banks. Ask for substantive legislation that allows consumers more rights over how their data is used. A level playing field ultimately improves consumer credit opportunities.

From U.S. Senator Jack Reed’s Website (S 3502 sponsor)

U.S. Senate Passes Reed’s Homebuyers Privacy Protection Act

WASHINGTON, DC – In an effort to give prospective homebuyers more control over their personal information, the U.S. Senate approved the Homebuyers Privacy Protection Act (S. 3502) to dramatically reduce spam calls, texts, and emails from irresponsible players in the mortgage industry.

Authored by U.S. Senators Jack Reed (D-RI) and Bill Hagerty (R-TN), the bipartisan bill would crackdown on the misuse of mortgage “trigger leads” – which occur when a consumer’s credit inquiry “triggers” the sale of their information to third-party lenders and businesses. When a mortgage lender runs a credit check during the process to buy a home, it appears on the consumer’s credit report. The major credit reporting bureaus (including Equifax, Experian and TransUnion) may then sell that information to other lenders or brokers, which then use it to contact consumers unprompted, often in a predatory manner, to solicit business.

According to the National Association of Mortgage Brokers (NAMB) president Jim Nabors: “It is not unusual for bank customers to receive 100+ misleading texts, phone calls and emails within the first 24 hours of applying for a mortgage and the passage of this bill will go a long way in relieving this burden to homebuyers.”

Prospective homebuyers who are bombarded by these kinds of solicitations typically have no idea their information was sold without their consent.

The Homebuyers Privacy Protection Act would limit the ability of credit reporting bureaus to sell trigger leads to mortgage brokers and lenders when the bureaus learn that a consumer has applied for a mortgage. This legislation would prohibit trigger leads, with very limited exceptions for institutions that a consumer currently knows and trusts.

“Buying a home is already a complex and stressful process. Consumers should not get needlessly ‘spammed’ with unsolicited, predatory offers just because they take a necessary step in the homebuying process,” said Senator Reed, a senior member of the Banking, Housing, and Urban Affairs Committee. “The Homebuyers Privacy Protection Act will put consumers back in the driver’s seat and help cut down on the spam. It will help reduce predatory practices and provide much needed relief from unwanted industry calls, texts, and emails.”

This bill would prohibit credit reporting bureaus from selling a trigger lead unless a mortgage broker or lender certifies to the bureau that they already has a deep financial relationship with the consumer, such as an existing mortgage loan or a deposit account. Trigger leads would also be permitted if a consumer affirmatively opts in to receiving them.

The Homebuyers Privacy Protection Act is supported by a broad coalition of consumer advocacy groups and financial trades, including the Mortgage Bankers Association, the Independent Community Bankers of America, the American Bankers Association, the National Association of Mortgage Brokers, the Broker Action Coalition, the National Consumer Law Center (on behalf of its low-income clients), the Center for Responsible Lending, the Consumer Federation of America, and others.

Now that the bill has passed the U.S. Senate, it must be cleared by the U.S. House of Representatives. Identical bipartisan legislation (H.R. 7297) introduced by Congressman John Rose (R-TN) is pending in the House.

Letter of Support from Various Stakeholders

Dear Chairmen Brown and McHenry and Ranking Members Scott and Waters:

The undersigned groups, representing a diverse set of housing and financial services stakeholders and advocates, are writing to express our strong support for the bicameral, bipartisan Homebuyers Privacy Protection Act of 2024, as introduced by Senators Jack Reed (D-RI) and Bill Hagerty (R-TN) and Representatives John Rose (R-TN) and Ritchie Torres (D-NY). This important consumer protection legislation, S. 3502, and H.R. 7297 (respectively), if enacted, would curb the abusive use of mortgage credit “triggers leads” in all but a limited set of circumstances. We urge you to support this carefully crafted proposal and to schedule the two bills for markup before your respective committees as soon as possible.

Trigger leads occur when a consumer applies for a mortgage (both purchase and refinance loans) and the requisite inquiry to a credit reporting agency (“CRA”) by a lender notifies the CRA that the consumer is interested in home financing. This trigger lead is then sold to data brokers (including other lenders) without the consumer’s knowledge or approval. Consumers may then be contacted (by phone, text, or mail) by the other parties that have purchased the trigger leads.

Under the Fair Credit Reporting Act (FCRA), CRAs are permitted by law to resell consumer information to prospective creditors without the consumer’s permission if the prospective creditor is prepared to make that consumer a “firm offer of credit.” The offer of credit must include a notification to the consumer informing them of the right to “opt out” of receiving future prescreened offers of credit or other solicitations, but these opt-out disclosures are not required in cases of phone solicitations and offers.

Entities that have no relationship with the consumer are buying trigger leads as soon as a customer applies for a mortgage – and then bombarding the applicant with hundreds of confusing calls that seek to lure them away from their chosen lenders. Naturally, consumers often call to complain to the mortgage lender they have chosen, accusing that company of selling their data.

Under current law, the burden is on the consumer to opt-out – for five years beginning five business days after the date the consumer notifies the CRA of that election – and thus negate the ability for the CRAs to sell individual information as a trigger lead.

S. 3502 and H.R. 7297, if enacted, would allow for trigger leads to be permissible under FCRA only in limited circumstances during a real estate transaction. For example, a CRA would not be able to furnish a trigger lead to a third party unless the third party has certified to the CRA that it has “originated the current residential mortgage loan of the consumer,” “is the servicer of the current residential mortgage loan of the consumer,” “or is an insured depository institution or insured credit union and holds a current account for the consumer” (or the consumer explicitly consents to such solicitations from other lenders).

In short, the Homebuyers Privacy Protection Act would stop the abusive use of trigger leads – while narrowly preserving them for legitimate uses such as existing customer relationships. Again, we urge you to support this bipartisan solution for consumers and promptly consider it for markup within your respective committees. We look forward to our work together on this important issue.
Sincerely,

American Bankers Association
America’s Credit Unions
AmeriHome Mortgage
Broker Action Coalition
Center for Responsible Lending
Community Home Lenders of America
CONSUMER ACTION
Consumer Federation of America
Equity Prime Mortgage
Freedom Mortgage
Guild Mortgage
Housing Policy Council
Independent Community Bankers of America
Leading Builders of America
Mortgage Bankers Association
National Association of Home Builders
National Association of Mortgage Brokers
NATIONAL ASSOCIATION OF REALTORS®
National Consumer Law Center (on behalf of its low-income clients)
National Housing Conference
Rocket Mortgage
Union Home Mortgage
USPIRG

Contact your elected officials and express support for introducing this or better legislation to reasonably restrict the use of trigger leads.

 

 

Tip of the Week – Conforming Pricing (FHLMC Has Nearly Identical Policies)

From FNMA

To qualify for LLPA waivers, a loan must meet three initiative-wide requirements, as well as requirements specific to the type of mortgage loan being sold (MH, energy efficiency, shared equity, high needs rural, or Native American or agricultural worker).

The Duty to Serve LLPA waiver Special Feature Code (SFC) will automatically be applied to eligible loans in Desktop Underwriter® (DU®).

All Duty to Serve-eligible loans must meet the following requirements:

  • The total annual qualifying income must be ≤ 100% of the Area Median Income (AMI) for the property’s location.
  • Lenders must refer to the AMIs that Fannie Mae uses in Desktop Underwriter® or our AMI lookup tool and may not rely on other published versions (such as AMIs posted on huduser.org).
  • The property must be an owner-occupied principal residence.
  • The loan must be a purchase money transaction or a limited cash-out refinance (LCOR) transaction.

Note that LLPA waivers are also available for loans for first-time homebuyers with income at or below applicable area median income (120% for high-cost areas) limits.