Scoring boost coming for renters’ credit

Scoring boost coming for renters’ credit

Kenneth R. Harney

June 27, 2014

WASHINGTON – Anybody buying a first home quickly learns how important credit scores are to mortgage lenders. They like them high.

But if you’ve been renting for years and have a stellar record of monthly payments to your landlord, you typically run into a sobering reality when you shop for a mortgage- All your on-time payments show up nowhere in your credit bureau files and do not contribute to your scores.

Ditto for other routine credit payments – your cellphone bills, cable and satellite TV, utilities. You may have perfect payment histories for all these, but nobody knows about them. Why? Because the landlord, phone and cable companies, and many other creditors don’t report your payments to Equifax, Experian or TransUnion, the big three credit bureaus. In the all-voluntary American credit system, they are not required to report anything to anyone.

This is a big deal. At a time when record numbers of first-time buyers are missing in action in the home purchase market – many of them in part because their credit scores don’t make the grade – the non-reporting of key credit records is costly to them and the economy as a whole.

But here’s some good news. Two of the national bureaus – Experian and TransUnion – have begun incorporating verified rental payment data into credit files where it can be included in the computation of consumers’ scores when they apply for a mortgage.

Experian announced last week that it is teaming up with RentTrack, a service that allows tenants nationwide to pay their rents online and have their monthly payments included in Experian credit reports. TransUnion confirmed that it too is working with RentTrack and is introducing a “ResidentCredit” service that encourages rental property managers to report monthly payment information for their tenants.

TransUnion also released a new research study that showed how the inclusion of rental data can raise consumers’ scores. When their monthly payments were reported to the bureau by landlords, nearly 20 percent of renters saw a 10-point increase or more in their score after just one month. Nearly two-thirds of renters saw at least some increase in their scores within a month or remained neutral.

The same study documented that simply transitioning from renter status, where monthly payments are not reported, to homeowner, where mortgage payments show up in credit reports, boosts most consumers’ scores. On average, said TransUnion, people who bought a first home in 2012 saw a 5.2 percent increase in their credit scores during the year. With the advent of Resident Credit, the company said rental managers and landlords will be able to report payment information at no charge, and that TransUnion will, if requested, share the data with other national credit bureaus for inclusion in their records and scores.

RentTrack ( could be especially helpful to tenants, whether they’re in large apartment complexes or off-campus student housing or are renting from Mom-and-Pop landlords. Not only are payments reported directly to two of the three major credit bureaus, but tenants can pay rents using electronic checks rather than paper and can track their credit score progress.

The service costs $1.95 a month, but Matt Briggs, RentTrack CEO and founder, told me that “most [tenants] don’t pay anything because the property manager” or landlord picks up the charge. Renters who are interested simply have to ask their landlord or manager to visit the RentTrack site and sign up.

Other efforts are underway to help first-time buyers and others get monthly payments into their credit profiles. Brannan Johnston, Experian RentBureau managing director, said his company is exploring ways to incorporate utilities and cable payments into standard credit reports. Equifax has created a consumer services database on individuals’ telecommunications, utilities, cable and satellite payments that mortgage lenders can access if borrowers believe these records will improve their chance to qualify., an alternative credit data company, will verify a long list of your payments that aren’t reported to the major bureaus, then create a credit report and score based on these records. You can then present them to a mortgage loan officer and request that the information be considered as part of your application. Under federal credit regulations, the mortgage company is required to do so.

Bottom line- Just because you don’t have lots of traditional credit data on file doesn’t mean you can’t buy your first house. Things are looking up.

Some realty sites describe neighborhoods’ racial and ethnic make up; is that legal?

Some realty sites describe neighborhoods’ racial and ethnic makeup; is that legal?


June 20, 2014

When you shop online for a home, some Web sites let you specify the characteristics of the community where you want to live. Maybe you’re looking for excellent schools, low crime rates, affordable prices and low property taxes.

But should you also be able to search for a home based on the racial or ethnic composition of the neighborhood? Should real estate sites supply detailed information on the percentages of African Americans, Hispanics, Asians, Caucasians and people of mixed race in the immediate area?

Some civil rights advocates cite the Fair Housing Act and say absolutely not- Connecting racial data with home sale transactions is barred by federal law, they argue, whether it’s done by a real estate agent or posted on a Web site.

But companies whose sites offer neighborhood-level racial, ethnic, linguistic and similar demographic details strongly disagree. Much of their data, they say, come from government sources such as the Census Bureau. It’s all public information and already available to anyone who makes an effort to find it, so how could its dissemination in connection with property searches possibly violate federal law?

Controversy over all this bubbled up last week when the head of the National Fair Housing Alliance — an umbrella group that represents more than 200 state and local civil rights organizations — said the alliance is investigating the practices of online search firms that have real estate tie-ins, whether as brokerages or as referral-generating services for realty agents.

The alliance has played a leading role in recent years battling discrimination in housing and mortgage finance. Its complaints and litigation have resulted in significant settlements in some cases. Shanna L. Smith, president and chief executive of the alliance, told me in an interview that her group is “concerned” about Web sites that connect real estate offerings with data packages including racial and ethnic characteristics.

In 2009, lawyers for the alliance threatened Movoto, a realty brokerage site, with federal fair housing complaints to the Justice Department and the Department of Housing and Urban Development. The lawyers warned Movoto that the provision of racial statistics for the neighborhood surrounding a property listing “may have the effect of steering prospective home buyers away . . . and undermining the promotion of racial integration, one of the purposes of the Fair Housing Act.”

Supplying such information, the lawyers said, also violated the code of ethics of the National Association of Realtors, which prohibits the volunteering of “information regarding the racial, religious or ethnic composition of any neighborhood.”

Movoto subsequently agreed to remove pie-chart breakdowns of neighborhood racial characteristics that could be displayed in connection with individual listings. However, a check last week revealed that Movoto continues to provide community-level racial, linguistic and other data, including “unmarried partner households” and “birthplace for foreign-born population.”

In an e-mail, Randy Nelson, a spokesman for Movoto, said the firm has denied any violations of the Fair Housing Act and “stands firmly against housing discrimination.”

Smith said the alliance also is studying NeighborhoodScout, a demographics-laden site run by Location Inc. NeighborhoodScout offers searches on more than 360 characteristics at the micro-market level, including income trends, home appreciation rates, crime and schools, along with race, ethnicities of residents, languages spoken, age and marital status.

Andrew Schiller, chief executive of Location Inc., said critics misunderstand his site’s business model. Though the firm is a licensed real estate broker, “we don’t practice real estate — you can’t buy a house on the site,” he noted. Portions of NeighborhoodScout’s data are free, but for certain “advanced search” content such as “race and ethnicity,” home shoppers must subscribe- $39.99 for a month, $29.99 per month for three months, $15.99 per month for a year.

NeighborhoodScout also functions as a referral conduit to 134,000 local realty agents. When a shopper referred to an agent purchases a house, the agent shares a portion of the commission with the Web site. Buyers may qualify for rebates from Location Inc.’s commission split.

In an interview, Schiller said that the site helps shoppers search for ethnically and linguistically diverse neighborhoods and that most of the data that critics object to come from the census. “We are showing public data to the public,” he said.

All of which raises the core question- In a hyper-wired era where consumers can access just about any data they want online, should real estate search sites enable them to select home locations on racial or ethnic grounds?

There’s no definitive legal answer right now. But fair housing advocates appear likely to push for one sometime soon.

Equity making a rebound

Equity making a rebound

Kenneth R. Harney

June 13, 2014

WASHINGTON – If you’re like most homeowners, it’s your biggest asset. You can’t track it online or check monthly statements sent to you by a bank, but it’s crucially important for your personal financial well-being and your retirement planning.

It’s your home equity – the difference between the market value of your house and whatever debt you’ve got on it. Equity for most of us is a big deal and, based on data released last week by the Federal Reserve, Americans’ home-equity holdings are booming.

That’s great news for most owners – though not all – and for the economy as a whole. The more equity we have, the more likely we are to spend money on goods and services that create more jobs – the so-called “wealth effect.”

Now consider these brain-bending big numbers- Thanks to rising prices and substantial continuing pay-downs of mortgage debt, owners’ combined equity holdings increased by $795 billion during the three months between the end of last December and March 31 of this year. Homeowners’ equity holdings at the end of the first quarter totaled $10.8 trillion, the highest amount since late 2007 – but still well below the bubble-era record of $13.4 trillion reached in early 2006.

The ongoing boom is also pulling thousands of owners across the country out of real estate purgatory – they’ve been stuck in negative equity positions but are now transitioning to positive. According to new estimates from mortgage and housing analytics firm CoreLogic, the owners of 312,000 houses moved out of negative territory during the first three months of 2014. If prices rise by just 5 percent in the year ahead, say researchers, another 1.2 million owners could do the same.

Now for the sobering side of the home-equity story- Despite the boom in housing wealth underway, many owners are still not able to join the party. About 6.3 million of them remain underwater on their loans. The average amount of negative equity they’re carrying is often significant – they owe an average 33 percent more than their house could command in a sale today. That gives you an idea of the widespread pain still being felt in the wake of the bust and recession.

The impact is especially severe for owners who bought with little or nothing down and then loaded on additional debt with second mortgages. The average negative equity balance for owners with two mortgages is about $75,000, according to CoreLogic. For households with one mortgage, the average negative equity is around $52,000.

Also on the sobering side, millions of owners continue to have less equity than they’ll need if they want to sell or even refinance. At the end of March, 10 million owners had less than 20 percent equity in their properties and 1.6 million of them had less than 5 percent. Given real estate transaction costs, most people with less than 5 percent equity would have to bring money to the table to pay off the debt on their house when they sell.

Equity holdings are closely linked to market segments – higher-cost houses are less likely to be in negative equity positions than lower-cost homes – and geography. According to CoreLogic, only about 3 percent of homes costing more than $500,000 have negative equity. By contrast, 17 percent of homes costing less than $200,000 are in negative positions.

Not surprisingly, areas of the country that performed worst during the bust – where easy-money financing was most common during the boom – continue to have high rates of negative equity, even well into the housing rebound. But there’s one dazzling exception- California. In some inland counties during the recession, toxic financing contributed to home value losses of 50 percent and higher. Yet today, thanks to the most vigorous marketplace rebound of any state, just above 11 percent of California homes are in negative equity. Compare that with 29 percent in Nevada, 27 percent in Florida, 20 percent in Arizona.

Where are average equity levels highest? Texas, where home prices remained modest and affordable during the boom, is at the top. Just 3.3 percent of Texas homes have debt exceeding their resale values. Rounding out the top five, Montana, Alaska, North Dakota and Hawaii all have less than 5 percent negative equity on average. The District of Columbia, a high-cost market that has seen significant home-price appreciation in the past several years, ranks sixth best in the country with a 5.1 percent negative equity rate.

Owners caught in tax-code limbo

Owners caught in tax-code limbo

Kenneth R. Harney

Jun 6, 2014

WASHINGTON – Is partisan warfare on Capitol Hill over taxation of medical devices crushing thousands of homeowners’ plans to do short sales this year?

Medical devices? What connection could heart pacemakers, dentures and LASIK eye surgery machines possibly have with short sales?

More than you’d probably guess. Just talk to Geoffrey Brencher, a high school teacher in Weston, Conn. For the past nine months, Brencher and his wife have been negotiating a short sale on their home, which has an underwater mortgage – the loan balance exceeds the property value.

The Brenchers recently received final approval from their bank to proceed with the sale provided the closing can occur no later than June 27. As part of the deal, the couple would get $75,000 of their mortgage debt canceled by the lender.

But here’s the complication- If they close and accept the debt cancellation, there is a serious risk under current federal law that the Brenchers could face a $20,000-plus income tax demand from the IRS. That’s because the Mortgage Forgiveness Debt Relief Act expired last Dec. 31 and its reauthorization is stuck in political quicksand in Congress.

First enacted in 2007, the law allows qualified owners who receive debt cancellations from lenders through short sales, foreclosures and loan modifications to be exempt from the federal tax code’s standard requirement- Any amount of debt that is forgiven by a creditor generally is treated as ordinary income to the borrower, taxable at regular rates. During the housing bust and its aftermath, the mortgage debt forgiveness exemption has proved invaluable to large numbers of owners who ended up – often through no fault of their own – with underwater mortgages.

With the expiration of the debt forgiveness statute, owners who do short sales during 2014 cannot be certain that they will avoid taxation on their forgiven mortgage debt. In the absence of a reauthorization by Congress retroactive to Jan. 1, there is a real possibility that short sellers in most parts of the country will face hefty income tax hits next year. (California residents are exempted on short sales because of an IRS interpretation of state law.)

Brencher, whose wife is expecting a baby in the coming months, faces a difficult choice. If he doesn’t close on the short sale, he loses an opportunity to relieve his family of significant debt. But if he sells and Congress doesn’t extend the law, he’ll be hit with “a tax bill that in no way can I afford,” he says.

The expiration of the law already is having impacts in the broader housing market. According to data from the National Association of Realtors, short sales have plunged from roughly 10 percent to 12 percent of home transactions in recent years to between 4 percent and 5 percent this spring. Some potential short sellers are opting for bankruptcy rather than taking a chance the law won’t be renewed. Kelli Meeks, an attorney in Ann Arbor, Mich., says three of her clients have given up on congressional action and filed for Chapter 7 bankruptcy. Six others are pondering what to do.

So what’s the holdup on Capitol Hill? In the Senate, the Finance Committee approved reauthorization of the mortgage debt law as part of a larger “extenders” package of tax benefits for a variety of special interests from wind energy to research and development credits.

But action stopped on the Senate floor when Majority Leader Harry Reid, D-Nev., refused to allow an amendment that would have killed a controversial 2.3 percent excise tax on medical devices that is a funding source for the Affordable Care Act. Republican critics of the health care law believe that an amendment eliminating the tax could pass the Senate, but Reid is steadfast in refusing to allow any votes before the November elections that could impact Obamacare.

In the House, Ways and Means Committee Chairman Dave Camp, R-Mich., is taking a go-slow approach on all tax law reauthorizations. There is no scheduled date for consideration of mortgage forgiveness.

All of which leaves the Brenchers – and many other owners around the country – in tax-code limbo. Congress may yet retroactively extend the debt forgiveness law late this summer or in a post-election lame duck session. Or even next spring. Tax analysts and lobbyists say that there is strong support for renewing mortgage forgiveness relief, and that the odds are better than even that it will happen.

Then again, with a fractious Congress, there’s just no guarantee.