The mortgage business has obviously shrunk due to an uncertain economy, high interest rates, bank volatility and the media constantly predicting eminent recession. The reduced number of loan opportunities has resulted in some bad practices by some lenders. When a borrower seeks a loan and their selected lender (often a mortgage broker) acquires the required credit report, the credit agencies can sell the borrower’s information (in the form of a lead) to other lenders. The borrower immediately is inundated with calls and/or emails suggesting that they should switch lenders as the caller can acquire them a “better” transaction, usually couched as being able to acquire a lower interest rate, less fees or quicker closing time.
Your original lender has likely reviewed documentation, counseled the borrower regarding various loan options and maybe devoted time to pursuing credit improvement for the borrower. In spite of all these previous efforts and preparations, the new lender contact after having merely viewed a credit report, indicates that they can do a better job and provide a better loan. common sense tells us that this is most unlikely.
Beyond the fact that the lender/caller has a very limited amount of borrower information and has no idea of the borrower’s specific needs, this form of “poaching” is very unprofessional. Despite the fact that the lender/caller can unlikely provide a better transaction, a borrower should be cautious in relying upon any such desperate lender source.
Any offer made via this method is merely a pre-screened offer of credit, much like the pre-approved credit card offers that are subject to final approval. While most honest lenders abhor this practice, the regulating agency’s position seems to be that this promotes competition and is thus good for the consumer. Whereas the agencies suggest the borrower profits from more information and an introduction to other “possible” loan options, most loan professionals view this action as predatory and promoting false promises that ultimately leads to mistrust of all mortgage lenders. The regulators clearly have no idea of how much counseling is required to effectively serve each unique borrower’s specific loan needs.
To combat this intrusion upon borrowers, honest lenders are using “soft-pull” credit reports for initial qualifying purposes. In other words, borrowers are asked to acquire initial credit information via one of the FREE credit acquisition internet sites such as Credit Karma, Sesame or Annual Credit Report. The credit repositories Experian and Transunion also offer free credit reports. One’s credit score is not affected by these soft-pull credit reports. While these are not eligible for use with the borrower’s actual loan submission, the information allows for initial file setup without acquiring a hard-pull credit report and setting in motion triggering lead contacts.
As you prepare to purchase a home and acquire home financing, greater protection can be acquired by registering at optoutprescreen.com. Unfortunately, it can take 2-3 weeks for this protective service to be fully operational. One can re-enter the system at any time but registering early in the loan process is recommended. If you have questions, please call us for more information.