Protect yourself against lasting damage from Equifax theft

Protect yourself against lasting damage from Equifax theft

Kenneth R. Harney on Sep 15, 2017

EDITOR’S NOTE- Due to Equifax news, Ken Harney is writing this column for this week and taking off next week’s column instead.

WASHINGTON – The catastrophic theft of 143 million consumers’ personal data from national credit bureau Equifax could cause financial grief for years for homebuyers and mortgage applicants.

The odds are that some of your sensitive information was stolen – possibly your address, Social Security number, driver’s license, credit card numbers – and could now be up for grabs to the highest bidders on a Dark Web site. Equifax and the other two national bureaus, Experian and TransUnion, keep files on approximately 220 million individuals, so roughly two-thirds of consumers are potentially at risk from the breach. Ironically, the so-called “credit invisibles” – the millions of Americans with little or no information in the bureaus’ files – may be the least affected by Equifax’s security lapse.

Homebuyers and mortgage applicants, on the other hand, tend to have significant information on file at the bureaus and could run into complications soon or down the road.

Take this scenario- Say your Equifax file was looted but you’ve done little or nothing to detect fraudulent activity on one or more of your existing credit accounts. You sign a contract to buy a house and apply for a mortgage. The lender pulls your credit and confronts you with the shocking news- Your FICO credit score is too low for you to qualify for the loan because you’ve been running up too much debt on one or more accounts. Your “utilization ratio” on your available credit is too high and that has depressed your score. Or there’s a newly established account on your files that has put you deep in debt, even though you had nothing to do with it.

Turns out financial thieves have been racking up thousands of dollars in debts at your expense and now – smack in the middle of a major lifetime investment – you’re stuck with having to get the file corrected, which takes time and can be a pain. In the meantime, what happens to your purchase contract? Will the sellers bear with you, essentially putting off the transaction indefinitely, and possibly blowing up their own plans to move into another house they’re under contract to close on a specific date? It could all get really messy.

Another scenario- Say your lender already has approved you for a mortgage or a home equity loan. Before the scheduled closing, the loan officer does what has become standard practice in the mortgage industry in recent years – runs another credit check to make sure no new debts have been added since your application. But in the meantime, identity theft criminals have created a new account or run up charges on one or more of your credit cards, knocking your debt-to-income ratio out of sight.

At the very least, whatever rate locks you had could be blown as you scramble to get your files corrected. Or your entire loan transaction could be jeopardized if the process takes too long.

Terry W. Clemans, executive director of the National Consumer Reporting Association, many of whose members provide the merged credit bureau reports used by mortgage companies to evaluate applicants, told me that given the extent of the data theft at Equifax, “there’s bound to be a lot of damage” to all types of credit users, including those seeking to finance, buy and sell houses. He said the theft of drivers licenses is especially worrisome because, combined with the possession of names, addresses, Social Security numbers and other data, license numbers could help cyber thieves “create a more credible fake I.D.” – credible enough to fool lenders into believing they are dealing with the real you.

Clemans said he would advise consumers to “lock down your files” with fraud alerts or credit file freezes. The latter can prevent criminals from creating new, fraudulent accounts in your name by denying access to your credit reports. The former signals potential creditors to take extra steps to verify identity before issuing new credit in your name.

The Federal Trade Commission, which along with the Consumer Financial Protection Bureau, regulates the credit arena, offers defensive guidance at a special new website, The FTC also has helpful information on identify theft counter-measures at Another good site if you’re thinking of doing a freeze is You can also avail yourself of the free, three-bureau credit monitoring service being offered by Equifax at Most important first step- Check your three credit reports free at and see whether anyone already has been tampering with your accounts.

Wells Fargo accused of unwarranted “rate lock” fees

Wells Fargo accused of unwarranted “rate lock” fees

Kenneth R. Harney on Sep 8, 2017

WASHINGTON — Wells Fargo & Co., the controversy-battered big bank, has a new problem — this time directly affecting mortgage applicants. Last week a first-time home buyer filed a class action suit against the company, alleging widespread abuse of a procedure well known to most mortgage borrowers: Interest rate “locks.”

The suit alleges that Wells Fargo engaged in “a systematic effort” to charge unwarranted rate lock extension fees — sometimes costing thousands of dollars per extension — to borrowers who should not have been required to pay them.

The Consumer Financial Protection Bureau is investigating the same practices, according to Wells Fargo’s most recent quarterly filing with the Securities and Exchange Commission. The CFPB generally does not confirm or discuss ongoing investigations and declined to do so for this column.

A Wells Fargo spokesman, Tom Goyda, said the company could not comment on the suit, but added that “we are reviewing the complaint in detail” and that “our current processes are designed to ensure that our rate lock extension fee policy is interpreted and applied consistently.”

Rate locks guarantee interest rates quoted to borrowers for specific time periods, typically ranging from 30 to 90 days, although some can be as short as 15 days or as long as 120. During the covered time period, the lender cannot raise the rate, even if market interest rates have spiked. When a loan is not closed within the lock period, the guarantee expires and the borrower must request an extension.

In Wells Fargo’s case, according to the suit, the company assured clients that they would not have to pay for lock extensions if the delay causing the expiration was the bank’s fault. If the delay was attributable to the borrower, the borrower would have to pay an extension fee, which could be significant if the loan amount was large.

The plaintiff in the new class action, Victor Muniz, says he decided to buy a home in Sandy Valley, Nevada, near his parents, and turned to Wells Fargo for his mortgage. Wells offered a rate lock on the loan commitment, but when the closing was delayed — not by Muniz, according to the suit, but by an appraiser who was out of the country — Wells charged him a fee of $287.50. This was despite assurances to Muniz by a bank employee that he would not be charged anything.

Though Muniz’s extension fee was relatively modest, consumer agencies around the country have received complaints about Wells Fargo’s rate lock extension practices, where fees sometimes exceeded $1,000 and ranged as high as $4,500. “We ended up paying a rate lock extension of $4,500 purely because our rate was great and the cost of not getting that rate was far worse,” the suit quotes a complainant to one unnamed consumer agency. Another consumer complained about being charged $500 extra even though “I did not cause any delay.”

A whistleblower letter from a former Wells Fargo employee sent to congressional committees in the House and Senate estimated that the company’s practices have led to overcharges in the Los Angeles area alone amounting to “millions of dollars.” The suit quotes a former Wells Fargo branch officer as having told ProPublica, the nonprofit investigative news group, that Wells Fargo’s approach to rate lock expirations amounted to “just stealing from people.”

Muniz’s suit claims the rate lock policy was overseen by regional and area managers, who routinely turned down local branch requests to exempt clients who had not caused any delay to processing from having to pay the extra fees. One former bank official quoted in the suit said that “99 percent of the time our requests [were] denied” at the regional level. If a borrower refused to pay the fee, “we just canceled the loan,” the former employee said.

Muniz’s suit, filed in U.S. District Court in San Francisco, claims violations of the Real Estate Settlement Procedures Act (RESPA), which prohibits receipt of unearned fees in mortgage transactions, among other statutes. The proposed class of victims could involve thousands of borrowers.

The takeaway here: Whatever the ultimate judgment by the courts in Muniz’s litigation, when you are obtaining a rate lock on a mortgage, focus on the details. Ask whether the lender has specific policies on fees for rate lock extensions. If they require you to pay money for all extensions — even when the lender screws up the process — is that fair to you as a consumer?

Appraisal-free home sales draw mixed reviews

Appraisal-free home sales draw mixed reviews

Kenneth R. Harney on Sep 1, 2017

WASHINGTON – Would you welcome the option to buy a house but not have to pay hundreds of dollars for an appraisal?

Are you kidding? Sign me up, you might say. Who doesn’t want to save $500 or $700 for someone to confirm that the price you and the home seller agreed to makes sense? Appraisals are mainly for lenders, right?

If an appraisal-free home purchase sounds intriguing, you might be interested in ground-breaking new policy changes by the two largest sources of home financing – Fannie Mae and Freddie Mac. Both government-chartered companies are now willing to waive their decades-old appraisal mandates for certain home purchases, provided their automated valuation models – loaded with previous appraisal and current market data – flash a green light.

You as a buyer won’t have to do a thing; the entire process will be handled between your mortgage lender and either Fannie or Freddie. Your lender will submit your loan file for underwriting analysis by the companies’ proprietary online systems with a property value estimate but no appraisal. If an underwriting model determines that there is sufficient information available on the house, you’ll get a choice- Do you want to do a traditional appraisal, at your cost, or go with Fannie’s or Freddie’s in-house valuation, which will cost you nothing?

Simple as that. If you opt for no appraisal, you’ll know immediately whether your contract price is acceptable for the mortgage amount you’re seeking. That’s impossible with the traditional approach where you have to wait for the appraiser to bless the deal, which sometimes doesn’t happen because the appraisal comes in lower than the contract price.

Eligible properties for Fannie Mae’s version of the program include single family homes, second homes and condos. Cooperatives, multi-unit and manufactured homes aren’t allowed. You’ll need to have at least 20 percent equity going in – so this is not an option for people buying with skimpy down payments.

Freddie’s program is slightly more restrictive. It is limited to single family, single-unit houses that are used as the borrower’s principal residence – no second homes. Houses valued at more than $1 million are not eligible. It requires a 20 percent equity stake. Freddie won’t go appraisal-free if the lender knows of “adverse physical property conditions,” whether noted in the sales contract, an inspection or the seller’s disclosures. Foreclosed homes are barred as well.

Not surprisingly, opinions on the two giant companies’ departure from strict dependence on traditional appraisals vary widely. Appraisers think the idea stinks. In a statement for this column, the country’s largest appraisal group, Chicago-based Appraisal Institute, predicted that eliminating humans from the process – even a little to start – will be dangerous for lenders, Fannie and Freddie and the public. The group warned that the changes could “result in a race to the bottom” in terms of loan quality, “and create more risk for taxpayers.”

Carl S. Schneider, an appraiser in Tulsa, Oklahoma, said appraisers function as the lender’s and consumer’s essential “eyes and ears,” and no computer program “can replace” them. They inspect interiors, which computers cannot do. “Buyers may want to avoid the cost of an appraisal,” he added, “and that is their prerogative.” But he foresees trouble ahead when investors in Fannie’s and Freddie’s mortgage bonds discover “loans were made to unscrupulous borrowers and the collateral is crap.”

Real estate brokers generally see the companies’ limited moves as worthwhile, particularly given recent frequent delays in delivery of appraisals, higher fees to buyers because of surcharges by appraisal management companies and few appraisers available – or willing – to perform home valuations in some markets. A new survey of members by the National Association of Realtors found that appraisal issues were involved in 17 percent of all delayed home sale closings, second only to problems in obtaining mortgages.

Anthony Lamacchia, broker-owner of Lamacchia Realty in Waltham, Massachusetts, told me he thinks appraisal-free loans are “a good thing,” provided buyers have made significant down payments. But he worries that if Fannie and Freddie waive appraisals at lower equity levels “it will lead to what happened in the bust.”

One of the mortgage industry’s most prominent leaders supports the companies’ new tech-driven initiatives, but has some words of caution for home buyers. David Stevens, president and CEO of the Mortgage Bankers Association, says automated valuations might satisfy a lender’s purposes but they “may not necessarily be the best assessment” of “the right price to pay for a property.”

Good point to remember.