Like it or not, when you apply for a mortgage or refinance an existing loan, Equifax will be part of the process.
That’s because, of the three major credit reporting agencies, only Equifax has a division, Equifax Mortgage Solutions, which provides lenders with what is called a merged credit report. These reports, which borrowers pay for, compile information provided by Equifax and the other two major credit reporting agencies, Experian and TransUnion.
As with many other things about the credit industry, you do not have a choice as to who provides your information. Mortgage lenders need to know your credit rating when considering granting you a loan, and while other credit reporting companies may provide a merged report, Equifax is a major source of reference for this information.
Crime Trade Shop Holdenerener The Mortgage Solutions unit generated $ 142 million in operating revenue last year, up 15% from 2015. This unit accounted for 11.5% of Equifax’s operating revenue. last year.
Given that corporate failures have recently allowed hackers to steal personal information from more than 145.5 million consumers, Equifax’s dominance in this area is unfortunate.
Even more disturbing is an agreement between Freddie Mac, the huge mortgage finance company, and Equifax that gave the distressed credit reporting agency even tighter control over the company to provide credit information.
Here is the background. Freddie Mac and the other government-sponsored mortgage finance company, Fannie Mae, have automated underwriting systems designed to make their loan guarantee or purchase processes efficient and fast. Mortgage lenders rely heavily on them.
The solvency of a borrower is a crucial element of the information flowing through these systems. While Equifax and the other major credit reporting agencies dominate, a group of about 40 other companies also provides credit information to lenders. In addition to providing merged solvency reports like Equifax, these companies often provide more detailed information, including verification of a borrower’s employment, and prior payments to utilities, telephone companies and homeowners.
The fact that these independent companies may still operate in a world dominated by Equifax may indicate that they provide superior customer service, for example by quickly correcting errors or outdated information in a report. Equifax can provide the same information, but its customer service is not so brilliant. The Internet is replete with consumer complaints about the company, and since the data breach, many consumers have said they have been unable to reach the company.
This is what has just little or no competition. That’s why it’s disturbing that Freddie Mac has decided to allow Equifax to ban dozens of rival credit reporting companies from part of its automated system.
Freddie Mac recently developed Loan Quality Advisor, a new part of this system. According to the company’s website, this was a “risk assessment and eligibility tool that assesses loan data to help lenders determine if a loan qualifies for sale at home. Freddie Mac “.
Naturally, a borrower’s credit history goes into this system. But Freddie Mac has given Equifax access control status, essentially allowing it to prohibit a range of competing companies from providing credit information during the process.
This change hurts competitors by assuring them that what might be their business is going to Equifax. But it can also hurt some borrowers. Because of the more efficient services that other companies often provide, preventing them from participating could make it more difficult for borrowers with errors on their credit history to correct them in time to get a mortgage.
(Fannie Mae has taken a different approach with its automated loan underwriting system, which is more open in structure, allowing independent suppliers of credit information to participate at multiple levels)
Interestingly, an internal email from Freddie Mac indicates that Equifax has made the decision to keep independent companies, known as technical affiliates, out of the system.
“Equifax has chosen not to make the necessary adjustments to accommodate T.A.s,” wrote a Freddie Mac Vendor Technology Integration Unit Leader. Because Equifax “chose not to add functionality to its support,” she added, “we have not been able to support the project.”
I asked Equifax why there were so many competitors, most of them smaller, away from the Freddie Mac system. Wyatt Jefferies, a spokesperson, did not respond directly, saying only that Equifax “operated under the current guidelines of the Fair Credit Reporting Act” with all independent companies.
In the light of the recent data breach at Equifax and the deep consumer discomfort about the company’s practices, I thought Freddie Mac might rethink his giving Equifax what amounts to the status of the nation’s most favored.
It’s not. Chad Wandler, a spokesman for Freddie Mac, said access to a vast network of credit reporting providers “has not been cited as a priority for customers who use our quality control tools like Loan Quality Advisor “. continue to listen to our customers to provide them with the features they need. ”
Naturally, this is not going well with independent credit companies.
“What we’re talking about here is providing the consumer with a different point of service than you get from offices,” said Terry Clemans, executive director of the National Consumer Reporting Association, a credit reporting organization. agencies, employment control services and tenant control companies. “But Equifax chose not to let these companies compete, and Freddie Mac put them in this position to allow it.”
Given that Freddie Mac belongs to taxpayers, lawmakers might be interested in his dealings with Equifax. Last week, Sen. Sherrod Brown, Ohio Democrat, asked the Treasury Department to ban Equifax from being eligible for government contracts, saying the company did not deserve to earn taxpayer money . (On Thursday, the Internal Revenue Service, a Treasury unit, said it had suspended a $ 7.2 million deal it granted to Equifax last month.)
In the middle of all this, it should be noted that Equifax imposes higher costs than competitors for some of its credit reporting services. In an email sent by Equifax in September 2016 about a price increase in the company, one employee stated that he was charging his competitors, who had to buy the information, two to three times the combined costs billed by Experian and TransUnion.
Mr. Jefferies, the spokesperson for Equifax, declined to comment on the agency’s prices. But he said in a statement that the company’s price adjustments “reflect the investments we make to make sure we provide customers with cutting-edge innovation and technology.”
Unlike its competitors, Equifax also charges more for a type of credit report used by housing advisors who work with struggling consumers to get their finances back on track.
There are two types of credit reports – a “hard blow” and a “low blow”. A lender asks for a loan seeking to give credit to a consumer. On the other hand, loan advisors use a gentle method to determine the creditworthiness of a consumer.
Most credit reporting companies charge the same for both types of reports. Not Equifax. It charges twice as much for gentle traction as for hard traction, said housing consultants.
“The housing council’s role in helping people obtain and maintain credit is really crucial,” said Bruce Dorpalen, executive director of the National Housing Resource Center in Philadelphia. “Penalizing them by charging extra for a credit report puts people at a disadvantage when they need help the most.”
Mr. Jefferies of Equifax declined to comment on this practice.
Let’s go by show of hands. How many think that Equifax should have even more control and influence over the credit industry than it already has?