Credit Reporting Has Come a Long Way in Aiding the Mortgage Process
Remember when you received a manually prepared credit report via courier for your review? Or, if you joined the mortgage industry in the late 1980s and early `90s, recall when technologies emerged where you could instantly integrate credit data from the national repositories into a single, comprehensive report? Of course, the caveat was that it was still ordered and delivered by fax and/or snail mail. Today, only a decade and a half later, lenders can receive reports via the Internet in a matter of minutes. Credit reporting sure has come a long way, in a short period of time. Exactly how far along has the credit reporting industry come and what are some of the momentous advances? While the earliest forms of credit can be traced to the mortgages of England as early as 1190 when interest was originally created to protect creditors, mortgage lending came to America with English settlers. The boom in the desire for landownership created a growing need for mortgages. On a five-year mortgage, a borrower would be required to pay a 50 percent down payment. This process continued until the Great Depression. However, as banks began to close, neither lenders nor borrowers had money to continue business and the entire system collapsed with thousands of foreclosures. Consumer credit takes hold Mortgage lending paved the way for modern-day consumer credit, which was just finding its footing in the early 1900s. Western Union first developed the concept of "buy now, pay later" in 1914, and companies such as General Petroleum Corporation and Ford Motor Company quickly fell into line. Among the many sanctions during World War II, there was also a ban on the use of credit. After the war ended and business picked up again, credit became widely accepted for transaction purposes. As more and more consumers relied on credit unions and companies that allowed purchases on credit such as General Electric or Sears, auto manufacturers began to keep records on clients' credit histories - thus the first credit report. As the use of credit increased, there became a need for consolidation of these credit reports, and three major credit reporting systems blossomed: Equifax, Experian and TransUnion. These companies still maintain the status quo for credit scoring. While initial reports were delivered via courier, eventually (late 1980s/early `90s) they were sent via fax and regular mail. Not long after (circa 1989), remote software, dedicated printers and modems were brought into lenders' offices to instantly deliver completed reports - saving days in processing time. Evolution of technological advancements In 1989, software was developed that allowed lenders to order as well as receive a merged report in seconds versus hours or days. Additionally, companies such as Credit Plus, created technology that allowed a lender's loan origination software to interface with its credit reporting platform. Through this advancement, the need to re-key information was eliminated. The ultimate savings in time and money came with the demise of the Residential Mortgage Credit Report (RMCR) wherein underwriting decisions could be made by lenders accessing a triple merged in-file with credit scores. Today, through a single, comprehensive Web platform, lenders can access credit reporting and other crucial services. Hands down the two greatest strengths with modern credit reporting technology are speed and accuracy. With current technology, lenders can obtain information in mere seconds versus days allowing them to process more loans. A technology that is allowing mortgage professionals to almost instantaneously access credit scores are Web site plug-ins. Through this tool, lenders can add credit reporting to their Web site wherein the potential borrower can apply for a mortgage online. Once an application is completed, the credit report score is immediately sent to the lender enabling it to make a decision quickly. Another advancement is wireless technology. Brokers and lenders can receive instant and secure access to consumer credit information delivered to the palm of their hand. From remote locations any day of the week, lenders can obtain a detailed summary of consumer's payment history and current debt. Through this device, they can also accurately pre-qualify a candidate for a loan. Accuracy improves Another benefit that has come with technology is accuracy. Through automated decisioning, errors have nearly been eliminated in the loan application process offering considerable cost savings in time and paperwork. And, technology has been developed that allows mortgage professionals to accurately predict a consumer's credit future. There have also been tools created that can offer recommendations for the potential borrower to increase their credit score. This has had a major impact on mortgage lending. Today an estimated 5% of loans can now be closed because of recommendations implemented. And within that 5%, it can also mean that the person qualifies for a better mortgage rate than before the score recommendations were implemented. Abiding with government regulations Technology has also stepped up and is assisting lenders in complying with regulation. In 2003, the Fair and Accurate Credit Transactions (FACT) Act went into effect requiring lenders and credit agencies to send the consumer a letter every time a credit report is pulled. Credit services, such as Credit Plus, are automatically delivering documents to its customers. When a customer requests a credit report, technology has been developed where a disclosure is immediately generated and displayed on letterhead that appears as if it is being sent from the actual lender or credit reporting agency. Beyond credit reports While lenders can now instantaneously access credit reports, the process to obtain appraisals and title insurance is also relatively quick. Through Mortgage Loan Reports (MLRs), lenders can identify mortgage-secured liens shown on the borrower's credit report. This is key to a truly automated equity report, allowing a loan to close in just hours instead of days. And, that's not all, when pulling a credit report, some agencies can also provide flood reports, automated valuation models, tax return verification reports and offer appraisals and title insurance. All of these services can be pulled through technology available on the Internet. These additional services offered with credit reporting and new integrated systems are streamlining functions for lenders and helping consumers receive approval on loans faster. Much of the modern-day credit reporting technology has been built for speed, accuracy and simplicity. While expectations of credit reports might change in the future, there is a solid technological foundation in credit reporting and we have entered a phase where these tools can quickly adjust to meet the changing needs of financial experts.