Did I miss something here? I thought that privacy laws precluded a seller from asking specific questions about a buyer’s credit unless owner financing was included in the transaction.
Now we are being told that bank sellers are requiring FICO scores with offers. And real estate agents are telling buyers that the banks will not consider their offer unless it is provided.
Sounds like a RESPA and Privacy Act violation all rolled into one. But I have been wrong before, and if someone could please tell me why I wrong I’d like to know. How did it happen that a listing agent can have access to confidential information from a buyer?
I’d like some opinions please.
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Richard I've had REO agents ask for everything and the kitchen sink. I'm not 100% sure where everything lies, but I just ask the buyer and let them decide.
Well I have never heard of that type of request. As to the question of legal or not legal I think it is all a matter of negotiation. A seller is not required to accept any offer and the buyer is not 'required' to provide scores. Both parties are free to negotiate their position and come to mutual agreement. I am not a lawyer but I would guess that it is perfectly legal for the seller to require the scores but I could be wrong.
I have never heard of that either, but it seems to me like it wouldnt be allowed, I can see them requiring a full approval.
I love it. I really do. I don't know if it's legal or not, but it sure cuts to the chase. If I were the seller, I'd want the fico's up front, but.........Legal????? That's another whole story.....
GREAT QUESTION!!!!!!!!! Everyone that I have asked this question says "Oh well, that banks are the sellers and they make the rules", or "I do what my seller wants, and those are his terms". BULL CRAP I say. I'm with you Richard......this is a HUGE infringement on Privacy, RESPA, and everything else. Seems that with the REO and Short Sale listings, the banks DO try to set their own rules, but nobody calls them out on it. I will be watching this blog to see what other comments you get.
Steve...
But the agents say they won't present the offer without them, so at that point, it is a requirement! THX
John...
In this case, it is NOT a negotiation. That's a different story. Thanks for the comment.
I think it's acceptable. You send it in the same package as the DNA sample and medical records, right? : )
Hi Richard... What an interesting scenario. I have never come across this one, and honestly hope that I don't. If I was a buyer, I wouldn't provide that to anyone other than my own mortgage company. STOP THE INSANITY!
Richard - As a listing agent for both sale and rental properties, I don't feel grounded without knowing someone's FICO or credit score and looking at their credit reports. I had a client whose delayed sale caused much heartache and expense because of a pre-approval letter that meant nothing. I had spoken to the mortgage lending officer and was assured over and over again that all was well. It took over four months to close this sale and the buyer finding a mortgage broker who went through three different lenders. If I had just been able to see a copy of the credit report from the beginning I would have known that this was a difficult situation and I could have warned my clients that this would be a bumpy ride. They probably still would have gone ahead with the sale, but they wouldn't have gone through needless stress and the expense of planning to buy another home, packing and unpacking, several times as we all would have been informed.
I've never heard of this but it sure sounds like it would be a violation of privacy.
I understand Gail's concern about the pre qual letters without teeth. That can be an issue if the lender is not up front about the overall quality of applicant. I think yhoiu can tell itlike it is without releasing any private information. Another route would be to have buyer sign a release for FICO scores to be released.
I am confused.... ok, so you present an offer with a pre-approval from a lender who has done their homework, one would hope. So, what is that all about? And if it is cash, are they still demanding this? I submit cash offers with POF, so no FICO score needed.
I have not seen this here, yet. Haven't even heard of it, yet. It just smells wrong to me, very very wrong. I will be keeping my eyes on this post to see what others have to say.
Interesting commentary. Several pre-approval letters provided by good solid lenders include the FICO score as a standard inclusion to show that the buyers are well qualified. It seems to work in the buyer's favor. In a multiple offer situation, it's terms and commitment to close that count when there are several strong offers.
This sure does not seem proper, but who knows if it is legal. I also will follow this post to see what others have to say.
If a landlord can ask before renting a property, and a lender can ask before lending funds, why would a seller not be allowed to negotiate those terms/requirements?
It doesn't violate any equal housing opportunity laws and only discriminates against financially unqualified buyers. Buying or selling a house is an investment. Money is on the line. In this environment of uncertainty, we cannot have high demand properties tied up by unqualified buyers.
That's my opinion only and not an interpretation of the laws. The bottom line for me is to compare it to a Landlord and tenant relationship. Or employer/employee. I've had my credit scores checked by employers too.
What an interesting question - looking forward to reading responses. My take is that the privacy infringement is acceptable if if representing the Seller.
This one bothers me. I've always objected to when the seller requires that they preapprove the buyer even if the buyer doesn't use them. I think that is an invasion of privacy and infringement on the client's right to choose who they want to work with. But providing FICO scores? That has to be illegal. I'm wondering if big brother at the bank is working on a database so that they can cut out the realtor completely by getting the buyer direct. Hmmm.
Richard, I am seeing this here as well (SoCAl). However, I am seeing it with retail properties as well. I can't understand why you would think this is illegal. It's not like they are asking for Social Security numbers. Also, they ask for source of down payment. For example, if they are putting 100k down, they want to see paperwork that they have over 100k somewhere so they know if thier loan will cost them around 100k, they have the extra money.
Hi Richard -- And I used to think dealing with new construction contracts were onerous!
I've got a few thoughts on this one.
1. I had this same thing happen the other day. My buyer is making an offer on an REO and the listing agent called the lender to ask was his FICO score was. There was nothing official about it, he just took the lender's word.
2. I believe that it is an infringement on the buyer's privacy unless the seller is considering owner financing.
3. Obviously I understand why the lending bank wants a credit score, but I think the selling banks are using it as some type of backdoor way to have checks and balances on buyers. Time for the conspiracy theory man...
4. In the state of Florida, if a listing agent doesn't present an offer based on a credit score, they are breaking the law. It's your license people.
Banks are above the law and the rules; even the rules they created in the first place. Don't think you can fight this.
I too have been asked by sellers to produce all types of documentation. I am not exactly sure where the line is, but what I do know is that if I dont produce what they are asking for I wont get that property.
It is a blatant violation of the client's confidentiality. It is also blatant discrimination. I don't care what any listing agent says, IT IS! It's a dirty tactic and personally:
I just had a listing agent try to tell us what financing my borrower needed to get the offer accepted. WHOAH!!!! So you know what I did? I agreed. You know what? He will see the very same loan program he advocated against at closing. What is he going to do, reject them? He can't since the buyer performed.
Seems the industry is up to it's old boom shenanigans with dirty tactics. No wonder people perceive the industry to be at or below a used car salesman. Sometime I really do think that the sentiment is warranted.
Athina, it discriminates, period. You can't define discrimination. A buyer who has a 640 FICO score with a real pre-approval is the same as a 720 FICO score with a pre-approval. There is nothing different other than a score. Both are pre-approved and they both walk, talk and smell like a duck. Try telling me the difference other than a score which in this case is irrelevant to obtaining a loan. You can't other than to bring the score up.
Aaron, I do fight it and I win.
Richard- I haven't heard of that, and I'm not speaking from a legal standpoint, although I'd love to hear a legal opinion on this one... but we did have an REO owner ask my agent who was the listing agent to put in the verbage that blah blah bank required offeree to qualify with blah blah bank if seeking a loan. We had a purchaser flat out refuse, she did bring us a letter of credit from HER bank. We presented the offer *as required by law and the bank countered that she must qualify through blah blah bank. Again the buyer refused and we again presented her counter. Blah blah bank accepted her offer and we closed. I agreed with the purchaser with every fiber of my being and was proud she stood her ground, but as an agent for blah blah bank I can not tell other agents to advise their clients to do the same. It's crazy out here.
Are you all settled in at the new office yet?
Does the bank get special treatment because they're a bank? Is there a loophole in there somewhere? I'd say an attorney is needed, in stead of just a title company! But then, they're the bank. They just won't approve the sale. *sigh* What a mess!
I'd seriously have to question it's legality, Richard. Another one we have going on here in NC with REO's is this statement, "Buyer must use seller's attorney." This IS illegal in NC, as it's the buyer who chooses the closing attorney. Now, REO's are making the use their attorneys to close, thus leaving the buyer without any legal representation at the closing table.
Thing is, the bank's know it's illegal and do it anyway. I've always fought this if they client wanted me to. On my last one, we got a letter from the seller's attorney basically saying that "we're closing this deal, we're charging you X, we know we're not supposed to do this, but it doens't matter because the bank is requiring it."
And they get away with it because they won't accept the offer if you don't follow along.
Hmmm . . . and these are the same banks that did the no-doc loans? GEEZ. . . it's a little too much, too late. The pre-approval and a call to the buyers' lender should suffice.
Comment 25 - You are disclosing FICO scores only. There is nothing wrong with this. The reason why you want FICO scores is that you know the buyer will qualify for more loan products with a higher FICO score.
If you don't give that info and the seller rejects your offer, It is not discrimination as there is no law stating that you can not discriminate against the credit challenged! It's not like the seller rejected your client's offer because she was a disabled, black, lesbian of Muslim faith. ;)
"I just had a listing agent try to tell us what financing my borrower needed to get the offer accepted. WHOAH!!!! So you know what I did? I agreed. You know what? He will see the very same loan program he advocated against at closing. What is he going to do, reject them? He can't since the buyer performed."
In my state of California, if you stated that they were getting a conventional loan and not a FHA loan and it turns out that the house didn't go through because the buyer never qualified for conventional and the FHA financing fell through, your buyer and your broker could be sued.
You also violated the Realtor code of ethics to deal honestly and in good faith.
Sorry Satar! I am not a REALTOR and I don't have to do what you as an agent tells me. I represent the buyer. Besides, I wouldn't put a client into a loan I do not believe I can't get him. PERIOD!!
It is discrimination. It is very very clear. High FICO scores does not mean they will get a loan. I've seen 630 fico clients way financially in a better place than some of my 700 FICO clients and got them the loan with no problem. I think you are trying to make excuses for very slimy practices.
"You also violated the Realtor code of ethics to deal honestly and in good faith." Would you not say what you are obviously advocating for here is ethically slimy and not in good faith? What is to prevent you from saying that my 640 & APPROVED CLient is less desirable from a 700 & APPROVED Client. It is biased and your comment now holds little weight.
It is a discrimination suit in the making. Why? You are being biased against someone who has 3.5% to put down vs. 10% DOWN. That is discrimination. It doesn't have to be a based on your childish remark of being black, Muslim or whatever.. It can very well be based on a economic factor.
VERY CHILDISH ANSWER!!
By the way, what "MORE LOAN PRODUCTS" are you dreaming about? Hmm.. Let me see.. Conventional, FHA/ VA, USDA and umm that's right there isn't anymore. WOW!!
I'm with you Richard. In my opinion it is a massive infringement on one's privacy rights for a seller to request or demand to see buyers FICO scores. That's why we have lenders so that these rights can be protected. Lenders serve as intermediaries to protect those rights. It is a part of system of checks and balances. I also agree that bank sellers appear to be violating all of the rules we learn to avoid. Bank sellers demand that buyers be prequalified with certain lenders. It's very discouraging when the buyer has selected a lender and then has to go through this annoying application process twice.
OK Richard - I just re-read the Privacy act of 1974 and RESPA page on HUD's website to see if I missed something here, but I couldn't find anything that would support your claim. Can you cite your source for FICO scores being a violation?
Here are the two websites. Let me know where you think disclosing FICO scores is a violation of the Privacy Act of 1974 and RESPA.
http://www.justice.gov/opcl/1974privacyact-overview.htm
http://www.hud.gov/offices/hsg/ramh/res/resconsu.cfm
Thanks Richard.
I will often recommend the buyer provide their FICO scores as part of the pre approval process and letter to give the seller comfort about their qualification and "seal the deal" Being forthcoming helps the cause and it is usually commented on and welcomed. What privacy? You can find almost anyone and anything on the internet. A FICO score is not a SS number...but you can probably get ahold of those too, you know?
Hi Ted - My responses:
"Sorry Satar! I am not a REALTOR and I don't have to do what you as an agent tells me. I represent the buyer."
In regards to dealing honestly with the public and other real estate agents, in California, you have to do that as well as a licensed agent whether or not you belong to the national association of Realtors:
http://www.dre.ca.gov/pdf_docs/relaw2010.pdf
As far as not doing what I tell you to do, well your offer wouldn't get my recommendation when I present it to the seller because I represent the seller and I wouldn't want your credit challenged buyer wasting our time when I could get a more qualified buyer with a better chance of closing on this transaction.
"Besides, I wouldn't put a client into a loan I do not believe I can't get him. PERIOD!!"
I am sure a loan broker does not intentionally put their client in such a position. However, you have to admit that:
1. Qualified individuals do end up not getting financing even though they were originally qualified for a loan.
2. People with higher FICO scores have more flexibility and options to them than people with low FICO scores.
3. Loans are basically are underwritten based on FICO, DTI and assets (actually in that order) so it is not unreasonable that a seller would want to know the FICO score.
"It is discrimination. It is very very clear."
Pray tell, where is it discrimination? Cite your source as I apparently do not see clearly. ;)
"High FICO scores does not mean they will get a loan. I've seen 630 fico clients way financially in a better place than some of my 700 FICO clients and got them the loan with no problem."
Like I stated before, there are three main qualifications. The number one qualification is FICO. Look at your next rate sheet, notice what qualification is the most displayed. ;)
"I think you are trying to make excuses for very slimy practices."
Slimy would be rejecting your clients because they have a middle eastern name. Rejecting them because they are credit challenged is not slimy. Have you ever been rejected for credit because of your credit? Would you consider the lending institution to be slimy or smart in their decision making process?
"Would you not say what you are obviously advocating for here is ethically slimy and not in good faith?"
No, I would not say that. I can't see where the ethics would be violated nor can I see where I violated my good faith towards getting the most qualified buyer for my client.
"What is to prevent you from saying that my 640 & APPROVED CLient is less desirable from a 700 & APPROVED Client. It is biased and your comment now holds little weight."
I actually am saying that your 640 & approved client is less desirable from a 700 & approved client. If both offers were the same and I had my choice of a buyer, I would choose the 700. And you are right, it is biased but I am in my legal and ethical right to be biased.
"It is a discrimination suit in the making. Why? You are being biased against someone who has 3.5% to put down vs. 10% DOWN. That is discrimination."
Again, I am in my legal and ethical right to be biased. No where does it say that the seller can't discriminate based on their perception of the buyer's financial means and credit worthiness to purchase their asset.
"It doesn't have to be a based on your childish remark of being black, Muslim or whatever.. It can very well be based on a economic factor. "
I forgot to mention your buyer's age as she was elderly. My apologies.
"VERY CHILDISH ANSWER!!"
I call it a poor attempt at humor, you call it childish. Oh well.
"By the way, what "MORE LOAN PRODUCTS" are you dreaming about? Hmm.. Let me see.. Conventional, FHA/ VA, USDA and umm that's right there isn't anymore. WOW!!"
Well it is obvious a low FICO score might only allow the buyer to go FHA. I think the last time I checked BofA's rate sheet they requested a 660 for conventional while the FHA loan was 620. Any mortgage brokers can correct me if I am wrong as I no longer do loans.
Also, a high FICO score might give some flexibility for underwriting guidelines.
I hope my response helps both you and Richard. If not, I would like to see specific examples where it is a violation of the Privacy Act and RESPA. I would also like to see your source where it can be seen as discriminatory based on credit worthiness.
I've never heard of that question but somehow, I think it's better than needing the Buyer pre-qualify with the Bank. Isn't that worse? But banks do that everyday because they have not met an attorney who will take on the action of suing them. I think that's not right, in addition to making sure the Buyer MUST close in a preferred title company.
I do not know of anything that would prohibit the seller from requesting the buyer's FICO scores, but I would hesitate to provide it from a legal, ethical, and liability standpoint.
As a mortgage broker, I have to disclose the FICO scores to the borrowers. However, legally (and ethically!), I am barred from disclosing that information to anyone else. I would not provide that information unless the borrowers authorized it.
If the information was disclosed to the sellers and agents involved, then each party must now take on a great responsibility for safekeeping that information. In addition, they could be opening themselves up to liability if that information is not properly safeguarded.
From the standpoint of the seller, often times this type of request is made by the bank because it's a short sale or the property is in foreclosure. What happens if you disclose one set of FICO scores, but have taken months to finally get an offer accepted on a particular property, and then find out later on that their FICO scores went down and are no longer qualified for a mortgage? Does the buyer get his or her earnest deposit back? Or does s/he lose it because s/he didn't properly disclose his or her information?
If I were the buyer, I would balk at providing my credit report and/or credit scores. From my standpoint, I would simply say "it's none of your business. I have already been pre-approved for a mortgage from my lender of choice, which, under RESPA, is my right. If you can not accept this letter from my lender attesting to my qualification to buy this house, then I can not do business with you" and move on.
I recommend that you think twice before taking on this added responsibility! It may be better (and safer!) to simply walk away from that listing (and any other listing requiring the disclosure of personal financial information) and move on.
Richard - You raise a very good point. I was hoping that an attorney would step up and respond to the legality of this matter. The other thing that is troubling is when the listing states that the buyer MUST get pre-approved by a specific mortgage company that may (or may not) be the owner of record. It's crazy.
Can an agent violate a buyers confidentiality by voluneteering this kind of info? Certainly not.
Can a seller ask this? Why the heck not. If they can do it on an owner carry , why would they not be able to ask it anytime.
What law could possibly prevent a buyer from producing the info? You can't violate your own privacy.
Richard....I haven't heard of this yet...going to check on it today! Have a great day.
Haven't run into this yet-just a request for POF or approval letter to accompany all offers on short sales or foreclosures. Seems reasonable to me-why waste evryone's time negotiating if the buyer cannot perform.
legal or not only a court or regulatory agency could decide and that will not happen unless someone files suit or a formal complaint.
that being said, i used kroll factual data for my tri merged reports. they will provide a consumer report with scores for the buyer. this/these documents i can/will provide to the buyer. whatever they choose to do with them after the fact is outside of my control.
Hi Richard, I haven't heard of this and I only send in pre-approval letters with the offer. I have never been asked about a FICO score. I have to look into this now. Great post Richard as always! :)
Where is it written that the seller cannot request the FICO Scores for a buyer making an offer????
Seems to me that the "privacy" matter is involved when an entity attempts to access the buyer's credit report without permission.
All of our offers are accompanied by a detailed Buyer's Financial Statement. We do NOT include the social security number. However, if the buyer approves, we will include the FICO scores, if we know them.
The days are long gone, and thankfully so, where the buyer's financial ability is a mystery until a few days prior to the scheduled closing.
If a buyer wants a house, cooperate. A FICO score is not a state secret.
But the question remains...
If a buyer chooses not to provide the information ....
And the offer is not presented ....
Does the buyer have legal recourse.
And BTW the potential RESPA violation is that these banks are requesting the scores in an effort to sell LOANS, not properties. They will use a high FICO score to underline mortgage brokers that have already done a lot of hard work to get the buyer pre-qualified.
Lenn...
But are you compromising YOUR buyer by tipping off that they can probably pay more than they are offering?
My take on this is this: The banks were getting a lot of heat for requiring buyers to prer-qualify with them which is probably a RESPA violation, and are now getting FICO scores to sell them a loan via the back door.
So I think that all of the mortgage brokers here should be alarmed by this.
Richard,
Very thought provoking article! Your last point about selling them a loan via the back door - this tactic is similar to the other tactic they use - calling the clients about a refinance when they receive a payoff demand. These big banks come to us asking for our business, and on the other end, they try to steal it from us. I try to stay away from the institutions that are known for these tactics. I can't always - gotta do what's right for the client!
I hope we get a comment from a real estate attorney about the legality of requiring FICO scores.
"But the question remains... If a buyer chooses not to provide the information ....
And the offer is not presented .... Does the buyer have legal recourse?"
Don't know. That perhaps is bets left ot legal counsel.
"And BTW the potential RESPA violation is that these banks are requesting the scores in an effort to sell LOANS, not properties. They will use a high FICO score to underline mortgage brokers that have already done a lot of hard work to get the buyer pre-qualified."
I personally didn't address this issue as I don't know if it's happening or not. But, it's a very distinct possibility. They might be attempting to make some money on selling and servicing the new loan to make up for the loss of the sale of the house.
And as Paul said, it's the same as having a different lender call you after you applied for a mortgage somewhere else. How do they know? They get notified by the credit bureaus that a mortgage company pulled your credit. I personally do not engage in this practice.
Also, what happens when you make an offer that takes two or three months to get declined? And the buyer keeps shopping? And the buyer keeps having to have his credit report pulled to get updated credit scores to satisfy these lenders? And his or her credit scores drop because of the repeated pulls?
There are a number of ramifications of having to keep providing your FICO scores to these "sellers" who insist on having to know what they are. Not to mention that you as the agent who also have to take all necessary steps to ensure that information is kept confidential
I maintain it's best to steer clear of these properties for the sake of the buyers - and for your sake.
Richard, very interesting question and some thought provoking answers. I'm curious as to the legalities, but I think Lenn may be correct on this one. If all parties agree, it shouldn't be illegal to provide the score.
Richard, I thought that a seller can set requirements for which offers that they will consider and their agent has to abide by their wishes. If I am the seller, can't I tell my agent that they shouldn't bother me with any offers less than a certain price?
Requiring a FICO score seems to be just something up for negotiations. If you don't like it, move on. I think that a seller can require only cash offers if they wish. Is that discriminatory?
Can you take time to cite the privacy laws that you thought precluded a seller from asking specific questions about a buyer's credit unless owner financing was included in the transaction?
Ted Canto, comment #32. Is it really necessary to end with "VERY CHILDISH ANSWER!!" ? There's no need to make a remark like that. I never heard of a discriminatory lawsuit waiting to happen based on someone going with 3.5% down vs. 10% down. I thought it is perfectly OK to go with an offer based on who is putting more down. If I'm wrong, please show me the law. Adults prove their case with facts, not insults.
Lewis...
I really appreciate your very thoughtful and insightful comments. You should consider incorporating them in a separate post!
No one wants to waste time. Don't know all the details but if your dealing with a high LTV loan I think I would dig into the clients financials not to waste anyone's time.
Lending is getting tighter and tighter. What was approved yesterday is a turn down today. Don't think anything illegal about it.
Remember your making a offer on distressed inventory. Not a house
Tony
Richard. we do have at least one REO agent up here that works with a specific bank that does request FICO scores. I have not had to deal with that individual but the properties do sell so somebody must be abiding by the request. It becomes a matter of desire. If the buyer wants the property and the request is shown to them it becomes their decision as to what they want to do. A FICO score does not indicate potential to buy, just the ability to pay a bill and the better we pay our bills, the higher the score.
Tipping the seller off????
I not only want to "tip the seller off", I want to present my buyer in the strongest financial picture possible.
Just because they are qualified for more, doesn't mean they're going to pay more. Our offer is what they will pay, not what they are qualified to pay, although at a minimum they must be qualified for what the contract offers.
Marginal buyers are not desirable buyers. Strong buyers are better.
Richard, We had an REO that wouldn't accept an offer without the buyers being "prequaled" with their lender "them". lol They also wanted to chose the Title/escrow company (theirs).
Steve
Parking to see where this goes. Having to inform buyers that sellers might request their FICO scores is something that many won't understand, but...
I don't think it violates any laws if it is for every property and offer. But I am sure that banks do not do this everytime. Which possibly could get them in hot water with discriminatory policies. But I doubt that our Attorney General would pursue these types of violations. In short, it required, don't give, if asked again, withdraw the offer. and stop promoting the home. We as Realtors have power too.
The banks want to make sure they have a valid client, which is understandable seeing pre-approval letters aren't always that well backed. I have seen agents scream and kick about not having to do this type of thing and the banks do relent. Every situation is different but yes it would be nice to have a definitive answer here.
Haven't seen this one, but we've required a lender letter that specifically states that the fico scores PULLED by the lender are acceptable for the loan- no need for the score, just a lender letter that indicates that they've been reviewed and are acceptable. Not sure why a non lender wants access to the actual score.
It seems that a seller can ask for anything. Whether the seller get it or not is open to negotiation. If it is a hot property, new on the market with multiple offers, it might be in the buyer's best interest to cooperate. If it is a stale property that has been sitting on the market for months, the buyer probably shouldn't. But it seems to me that if I was representing the buyer, if it is legal, to let the buyer decide what he or she wants to do.
I doubt it is illegal, but I know it is wrong!
Remember, GA banks were one of the first to review a potiential customers credit before accepting them as a depositor.
Many insurance companies now have a minimum credit threshold to accept a customer's business.
There is no relationship between a persons credit score and a persons ability to purchase.
Purchasing and borrowering are not the same.
Some idiot in operations must have thought that this was a great way to throttle down their work load.
My experience with banks is that they can do whatever they want. The whole REO market is the Wild Wild West all over again and the banks care little about any of our ethics codes or anything else that isn't a law ( in some cases even laws doesn't seem to bother them either). REO listing agents often hide behind the 'requirements' of the asset managers that they work for, even thought they know that the requirements aren't ethical or at least push the envelope. Once a house becaomes "an asset" in some portfolio somwhere it stops being treated like a real estate ptroperty and becomes just a thing to be disposed of somehow.
Wow, hot topic here. I think a lot of this stems from untrained LO's who have taken applications, & issued pre-approvals that never had a chance, which in turn has led to RE agents not trusting ANYONE, & training their sellers that they need to have so much more info.
I've got news for you....I have seen a lot of 720-800 FICO borrowers who CANNOT GET A LOAN.
They may be self employed & unable to provide proper proof of income, or have too much debt, etc. So you can take the theory of knowing the FICO score solves all problems & toss it out the window.
In reality, if I was asked to disclose FICO scores to an agent on the other side of a deal without my clients consent, i'd feel guilty of a violation of privacy. We've not run into this one yet.
The seller can ask for FICO scores if they wish... no violations there as far as I can see... it is all about qualifying the buyer... and as we know, the abks are often still asking for the buyer to go through a loan application or speak to a loan officer at the bank for an approval. We have had this happen often, and once the loan officer realizes that the buyer already has his financing under control, the LO backs off and the deal goes through... so I would say it is negotiable, as with almost all things.
It's funny what some of you are posting. "Less desirable" "Weaker buyer vs. stronger buyer".. White wash it how you want, this is discrimination. However, I understand that if you want to buy you may hav eto play, what I and many in this forum consider to be indeed a slimy practice. The latter will convince themselves otherwise, that's fine. As i said before, I have had clients with a 700 FICO and didn't have a nickle in reserves vs. my client with a lower FICO and had at least $30k in the bank. The FICO thing is plain dumb. There are so many variables in this market that justify a viable borrower. Soon we'll be asking for tax returns with an offer too.
As for this belief that lending has become stringent, it has but it is little to do with FICO scores. It has to most to do with the employment history, income, condition of property, title issues, proper disclosure, and licensing. There is plenty of money to lend. That credit crunch doesn't exist anymore. So not a good excuse anymore.
I do know this, not all of the lenders or sellers do impose this requirement, however, I know of several agents in my local business community who impose this on their own as a way to suck up to their clients. Now this my friends is treading on water. You are asking for trouble. Just because you are not doing this does not mean there aren't others doing it in your neck of the woods and yes maybe some of us in this post are.
A good point to make is this and I say this all the time, especially for the REO agents in the room, the dust will settle, the market will come back to normal and REO's will be a thing of the past (Please God hurry this up!) and agents. Loan Officers, Title co. and clients will remember your name. That will be your time of reckoning. Make most of your money now and hopefully for you it will be enough to retire with. Again, and we sit around and wonder why the bad reputation.
As for Tim #53.. It is childish to consider discrimination soley based on Ethnic or religious lines. You can indeed be discriminated against your financial situation. To me, it was a childish comment. I call it as I see it, what can I say I'm from New York, that's the way it goes. To you obviously not. So be it.
So. Cal.. 90% of the MLS agent notes ask for FINANCING, FICO AND PROOF OF FUNDS.... I never had any buyer say NO to it. I ask the lender to incorporate the FICO into the approval letter. Make it a great day!!!
I have not yet seen this requirement in my market area, will have to wait and see!
I'm in So. Cal. also. As a listing agent I ask for Fico scores. As a buyer's agent, I provide them if authorized. Never had anyone complain.
I have to agree that this is border line practice. In Texas we have a financing addendum that says my buyer has X amount of days to secure financing and that should suffice the seller enough to give the buyer that much time. Credit reports are the buyers concern and his alone in my opinion.
Great topic of conversation. Seems everyone has a different opinion. My guess it is mostly a trust issue.
Mary Lou Cherry
A simple question and what great discussions. This blog and it's comments has been very informative. In situations like this, I usually side with the side of the transaction I represent.
Recently, I represented a buyer with a credit score close to 800, who was unable to get a loan. Go figure.
FICO scores are only one part of the equation! I've got a few friends that are retired with plenty of money in the bank along with high FICO's that can not get a LOAN!! A high FICO does not mean that much in the lending environment that we are currently in!
Let's cut to the chase. The bank owns the property, they can request a Fico score. The buyer can choose to comply or not. The bank can choose to accept an offer or not. The problem arises (at least in North Carolina) of the agent refusing to present the offer. Agents here "must present all offers." Of course, "proving" the agent did not present is the obstacle.
Could someone quote the law and state what law this violates? Name , number, section, paragraph?
I guess I'm assuming it's legal...almost all of our listings ask for first page of credit report, showing the FICO scores. I would think if it were illegal...someone would have shut that down.
My concern about this is what happens to the information. Can the banks 'sell' it to credit card companies (or even their own)? But I don't think it's illegal. And for those who say agents must present all offers, that is unless the seller says otherwise, which is what's happening here.
Many of the banks demand that the buyer be pre approved with one of their own mortgage reps before they will look at an offer. Why not just ask for a copy of thier bank records. Imagine negotiating with a seller who know exactly how much the buyer makes and how much they have in the bank. That makes for a pretty one sided deal!
I've had this happen only with REO's until yesterday, when I spoke with the listing agent for a traditional sale who tells me the seller wants any buyer to preapprove with "her lender". I understand that we influence what our buyers and sellers "require" but I let her know that this buyer, who has gone through many (not sure how many) preapprovals with REO lenders and has had his credit score pulled so many times that this score is down. The last lender pulled his credit (with his permission, again) while the listing agent continued to accept offers and then the lender kept insisting on more information, then they insisted that to get a closing cost concession, he would need to use the REO's lender. Is that over the line? If it's not it's really close. The buyer walked from the offer (7 days later) with a very bad taste and still no acceptance. How much information is too much? I guess it's up to the individual to decide but often hindsight is 20/20. By the way, this is the same buyer that 2 days before a closing on his REO (December 2009), we were notified by the title company that the seller had not really completed the foreclosure so he couldn't have the home. A whole other country heard from.
I'm not a lender, but I wanted to point something out: I've been told my multiple lenders in the past 3 months that the FICO score is NOT the number one factor in determining a loan anymore, it's DTI.
While FICO is still important, it's NOT the main thing. As long as someone has a "decent" score and it doesn't mess up their DTI, they can still get a loan. That said, they will likely still have a higher interest rate and all that jazz.... maybe some lenders are still relying on FICO more than DTI...?
Maybe requirements for licensing lenders should be tightened if there is concern that some lenders are just handing out pre-qual letters... but shouldn't a pre-qual letter be a pre-qual letter?
I don't know... I definitely think that a seller requiring the buyer to use their services as a lender is either illegal in most states or should be. :) As for requiring FICO, maybe I'm wrong! Attorney please... ?!?
I haven't seen this yet, but if I was working with a buyer and had a signed agreement to represent them, I would be hesitant to have them supply a FICO score. I can see liabilities involving this. Can they request it, sure they can. I think this one will in up in the courts if this becomes common practice.
I don't think a seller should be allowed to request this. I don't see how this detailed information is their business. The only thing a seller should need to know is if the buyer can get the loan or not. Like someone said, your score is not a guarantee you will get the loan. It sounds like banks are making up rules as they go.
Richard,
My understanding is that the purpose of the FICO scoring system was originally designed to eliminate Lender prejudice so that everyone is considered based upon the same scoring model. I personally don't think its a violation of RESPA or the Privacy Act, rather a good way to determine if the buyer is qualified and not to solely rely upon a Lender letter, if you provide that with your offer. My gut reaction is that I'd ask my client whether he wants to disclose his scores or not. If not, then tell the listing agent that he doesn't want to disclose that information and the offer should be considered on its own merit.
Question: did the Listing agent state that the seller required that scores be disclosed with any offer in the remarks section of the listing in the MLS? If so, then showing the home with that disclosure up front should be obvious to the buyer and he should know that would be required. If, on the other hand, you showed the listing, wrote an offer then the listing agent tells you that the seller requires that you must disclose the FICO scores then I ask for the listing agent to provide that request in writing from the seller and let the buyer decide since I assume you represent him in the above scenario.
By the way, it's common practice in our area that a Lender pre-approval letter be presented with any offer. Unfortunately, a lot of Banks (builders too!) request/require that the Buyer get pre-approved through their mortgage contact as well before they will consider the offer or pay closing costs. Now THAT should be a violation but it's done all the time. They also require that a certain settlement company be used. Is that common practice in your area?
I have not seen this in my market,,,yet. Professionally, I would consider my Clients FICO score confidential. (legal? that's another question) I can understand a FULL approval, but nothing more.
The other question I have is this: What does a high FICO have to do with a person's ability to purchase property? (or anything else for that matter?) You can have a high FICO & still not get a loan. Does debt to income ring a bell??
I remember a couple of years ago when the banks were lobbying Congress to let them in the real estate business,,,,,seems to me like they got their wish.......
Every discrimination is not illegal discrimination (Ted Canto). LOL. It is perfectly acceptable to discriminate on the basis of how much money someone has or their reputation among lenders (which is what the credit score is supposed to reflect -- but arguably doesn't do well). I agree and don't think it's good for the market to discriminate in that way, so I do appreciate your outrage.
If the practice of forcing someone to get a pre-qualification through a particular lender isn't illegal (and it is not in California) why wouldn't getting the FICO scores be permissible? To get pre-qualified they run your credit, look at your paystubs and asset statements. When the same bank that is doing the pre-qual "owns/services" the property, that information is being shared anyway.
They've been asking for this info on regular sales in the LA County area for years. Or at least every serious buyer's agent has been sending it over with offers. Further north, it is not the practice. It is upsetting when it starts to force its way into a market, but all the answers I get about it, is that it is permissible. Has anyone heard different?
I don't like my client being forced to do it to get a property, but on the flip side it can let you know if a transaction is at risk.
I have sold quite a few REO properties. Some banks do require that the buyer make application for their loan with a specific lender. Of course, that way, the selling bank is assured that the loan can be closed. Personally, I feel it is unfair to do this as it could keep the selling bank from accepting an offer from a buyer who is qualified, but may be a little shaky on credit. However, you have to see if from the selling bank's perspective as well. They do not want to wait another 30 to 60 days to find out that this deal will not close. It costs them money! They are already "in the tank" with a bad loan that most likely will not be paid in full on their books, but just trying to salvage some of their assets in the sale. I also feel that it protects me from having a deal not close and some buying clients chose a lender that I am not familiar with and as some of the other agents above commented...the pre-approval letter is not worth the paper it is written on. I have had a few deals go south due to bad pre-approvals from bad lenders, so I do understand the selling bank's stance.
So, I feel it is legal, but could be somewhat unethical due to the fact it could keep a buyer from competiting with another buyer fairly when multiple offers are placed on a foreclosed property. This is something that I explain to my buying clients and tell them that I also feel that it is somewhat unfair, but in the end it is the only protection these selling banks have from accepting bad contracts. Or as the only saying goes "It is what it is."
I have agents who are selling homes in my area that say that my client must submit a financial information sheet with all offers. So, what is the difference? Everyone is being cautious now.
It IS against the law
And it only takes ONE person to get smart and start legal proceedings
But I can understand the position
A pre-approval or pre - qual letter is not worth the paper it is written on
Thats why, as a lender, I fully approve my buyers BEFORE HAND. And you should to. Sure it may take an extra time in the beginning, but it will save time at the end and you know whether or not your client is truly serious
I completely understand requiring it on an owner carry as the seller is essentially the lender. I can also understand why a seller in general would want to ask for it although I'm not so sure that it's worth the hassle even if it is legal to ask. As others have mentioned, FICO is just one of the components lenders use in their determination so a high FICO doesn't necessarily mean they'll receive financing and depending on where they are buying, there are still programs available for people with lower FICO scores. My point is that a seller should leave this to professionals as they're not trained to make proper decision based on the data.
I'm not an attorney, but I don't believe asking for the FICO is any form of discrimination per se. If it's discriminatory, then how could lenders use it in their determination of making the loan?
As far as RESPA, here's a link to the act if anyone is bored and wants something to read: http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm
Ever since I spent months in escrow purgatory, I often suggest to my sellers that they request FICOs.
I represented the seller on a short sale; we had been through 2 escrows already with buyers whose loans blew up. The home required a conventional loan. The mortgage broker sent me a preapproval on the buyer. But it fell out in underwriting because the buyer's FICO was below 720. The mortgage broker said she knew this upfront, had called underwriting and was told the buyer would qualify. On what planet?
MInt.. In our industry, discrimination is not illegal but it will get your license yanked, I am sure you have been educated on that when you was getting your license. So is it against the rules/ law.. Will it get you in jail, no. That wasn't my point.
As your comment about forcing a buyer to use a lender is not against the law in California, is not true. It may be true that on a state level there is no law against it but it is a blatant violation of RESPA. It is. Do people get away with it, yes they do. This is pretty common knowledge. However, not that many people challenge it. The builders are the primary violators of this.
Hello to all my SoCal agents who experience this on a daily basis! ;)
GUYS - REMEMBER, THEY ARE ASKING FOR FICO NUMBERS ONLY!!!! There is no privacy issues or RESPA issues nor is it discrimination as you can legally discriminate against people with credit issues.
To Answer Richard's questions:
"But the question remains... If a buyer chooses not to provide the information .... And the offer is not presented .... Does the buyer have legal recourse?"
Richard, if the seller makes a statement OR if they agree with the listing broker on asking for FICO scores with every offer, then there is nothing wrong. The same goes with sellers who state that I shouldn't present offer below x amount to them.
Where a listing broker violates their responsibility to the principal is where the principal has no knowledge of the listing broker's demands and the listing broker does not show all offers on the property to the seller.
However, in either situation, the buyer has no legal recourse with the seller. In the latter example, the buyer has recourse with the DRE (department of Real Estate) in the state of California.
"And BTW the potential RESPA violation is that these banks are requesting the scores in an effort to sell LOANS, not properties. They will use a high FICO score to underline mortgage brokers that have already done a lot of hard work to get the buyer pre-qualified."
You can't do anything with FICO scores so your theory is incorrect. Remember, they are not asking for credit reports or detailed credit information. They are simply asking for FICO scores. So you reply with 660, 700, 720. It's that simple! No private information is disclosed. It is not unethical, it doesn't violate RESPA nor does it violate the Privacy Act of 1974.
Comment 68 - Tim. No worries. I don't take anything personal nor do I care what you call me. I only deal with logic and facts (and some poor attempts at humor). It is perfectly fine to discriminate against a person based on their credit and credit rating. Being credit challenged is not a protective class. So until you can prove otherwise, you have no grounds to make these comments.
Hot Topic. I personally do not believe a FICO score should be disclosed. If the buyer is working with a reputable lender, that pre-approval letter, naming the property in question, should be all that is required. In our area in NC, that seems to be acceptable, at least on all the buyers I've represented.
It does bother me with an REO when the bank names the closing attorney. I have refused and their closing attorneys have backed down. But it was a struggle. In NC the buyer has the right to choose his closing attorney...its the law.
Great post!
Richard - I want to address your comment:
"My take on this is this: The banks were getting a lot of heat for requiring buyers to prer-qualify with them which is probably a RESPA violation, and are now getting FICO scores to sell them a loan via the back door."
It's perfectly fine to have a buyer be approved by a seller chosen loan broker. Where the line gets crossed is if the seller's loan broker then solicites the buyer for their loan business. Looking at the buyer's credit and financial information (with buyer's permission) and then telling the seller that the buyer is qualified to make an offer on the house is fine. Telling the buyer that I can get you a rate of 5% or you are qualified for a loan product that has a 30yr fixed at 4.5% is crossing the line.
Great blog. I didn't know agents were unaware of this topic.
Of course it's legal. Duh!
Understand what privacy laws address. Consider Individual A and Business B. Privacy laws (and requirements vary--in health care, it's HIPAA, for instance) require that Business B keep certain information about Individual A private unless Individual A authorizes the release. That can include financial information. That can include medical information. And so on. The privacy law applies to what Business B can do with the information it has obtained from Individual A.
So we have a situation where Business B asks Individual A to provide (or authorize the provision of) a FICO score. Nothing wrong with that at all. Individual A can say yes or no. Individual A may also want to find out what Business B's policy is on the release of that information, but that's up to Individual A.
The question of whether a FICO score is relevant is another matter. My personal opinion: Of course it is. It's not perfect, of course. Nothing is. But it's generally a pretty good reflection of a person's credit history and credit behavior. But whether it's relevant or not, so what? A seller--whether a bank or an individual--can base a sales decision on any number of factors, relevant or not. It's only when you get into the factors that are banned--race, religion, national origin, age, sex, etc.--that you run into legal problems.
I see no problem at all.
Let's take this in another direction.
Private seller REQUIRES FICO scores. Buyer of one ethnicity has a 750, buyer of another ethnicity has a 760. Buyer uses the score as "legal" way to racially discriminate.
That is why the bottom-line the benchmark has always been the ability to obtain a loan, and not the "best" ability to obtain an loan.
As an agent that works with sellers more than buyers, I've actually thought about suggesting to my sellers that they require the buyer to get pre-qualified with our preferred lender. Here's why:
I've had short sale listings fall through because of buyer issues that should have been addressed at the point they made loan application and not when the deal is getting ready to close. For example, an FHA buyer not able to come up with the closing costs or not realizing they have to have 10% down not 5%. This caused the seller to lose opportunities to sell to qualified buyers.
The reason I haven't suggested yet is because I think it's a turn off and I don't want to lose buyers because of it. I haven't ran into the FICO score situation but I do understand why the bank would want the buyer to get pre-qualified through them first. They are not forcing the buyer to use them.
I call it the Wild West of Real Estate. The banks do not believe laws are for them. They often won't even fill out the required disclosures.
I represent a lot of buyers in the entry level market in Orange County and my clients have to submit FICO or their offers will not even be looked at. The listing agents put in the MLS that the offers will not be given to the bank unless it is a "complete" package. In addition, they normally require gettting a pre-approval with their lender of choice. I can't imagine that these requirements are legal, but if your client wants a home they have to play by these new "rules."
Right now, most of my buyers are first timers and the target market for them consists mainly of Short Sales. Most of the listings will now state that in order for your offer package to be considered for presentation, it must include FICO scores, cross qualifying etc. I have had buyers who are pre-approved with a major direct lender, and due to privacy, the lender will not supply the FICO. Interestingly though, on short sale and REO properties where that very same entity is the lender, they require the FICO score on their package submission. Very challenging for both buyers and their agents.
Richard, so far we have not run into that in our area.
I think they are going too far, on the other hand that is not a legal opinion. I understand sellers want us buyers to be qualified and some prequal letters are little better than toilet paper.
It is very common to see requests for FICO scores in the MLS private remarks here in Southern California, especially for REOs, but it is happening for regular sales as well.
Lenn Harley was right on in #57, when she wrote, "Just because they are qualified for more, doesn't mean they're going to pay more. Our offer is what they will pay, not what they are qualified to pay, although at a minimum they must be qualified for what the contract offers."
Since my buyers often use lenders that I know, and I know that their prequalification letters are solid, I would prefer that the seller have the same confidence in my lenders that I have. Like Jeff Coon wrote in #66, we are at a point of "RE agents not trusting ANYONE". Preapproval letters need to be credible.
A bigger problem may that REO banks are requiring buyers to be approved by their own lending branch.
I think we may be seeing this more and more. Look for it on the short sale side as well.
That's private, confidential information. They're not going to get it from me.
It is not illegal at this time, but it is a negotiaging point that the seller should not be aware of, IMO!
If we go back in time, critical years as mentioned above... 1968, 1974, these things were not illegal, but they are now!
Your own moral compass should guide you, not if it is legal at this time or not!
In this situation, buyers agent or not, I tell the buyer what is expected of them, but they need to weigh this themselves. "How bad do you want this home, do you want to compromise a little of your financial situation?" I would advise them to "Walk" and we will find another home, there are plenty right now.
On another note: People are saying the "Pre-Qual" and "Pre-Approval" are not worth the paper they are written on, well isnt the FICO score just a small part of what make the "Pre-Approval" in the first place. I don't like when my lender puts down a figure on the pre-approval letter, that is way above the amount we are offering (that is surely, giving too much information away!!!) - different topic though.
How am I, a listing agent or the seller going to determine based on FICO if a person is able to get a loan?
Just because you are suppling the credit report you are not handing over the ss# or private info... any seller should be able to ask for anything they want... In the end when the buyer is not qualified and can't fund the deal... who is stuck...the seller... and 30-60-90 days down the road they may well not be able to sell for the orginial sales price again... if a buyer is qualified there should never be reason ... if you are getting a loan, be prepared to prove the obvious... that you are credit worthy to the seller... other wise pay cash
The only 2 people who get the buyers FICO scores, are the loan officer and the buyer.
IF the seller wants them, they may ask the buyer, who can deny them. Under no scenario is it acceptable, legal, or ethical for the loan officer to provide the scores to the seller, the seller's agent, or to the buyer's agent.
As for is it a basis for discrimination, a seller can find any reason to choose one buyer over another. But if buyer A is offering $10,000 more than buyer B, in 2010, I can't imagine many putting White above Green.
As for how lenders use scores, Jerry L. Van Blaricom (King Realty Team), the reason FICO scoring came about was, after the Community Reinvestment Act (CRA)became law, lenders needed a non biased, number based system of evaluating borrowers. The credit agencies devised their FICO models, and now, at the end of the loan, we ask the HMDA (Hum-Da) questions - are you Latino or non latino, are you male or female, are you White/ African American / Native American/ Pacific Islander/ Asian other? When the lender, or broker gets auditted, they review the loan files, and look at if we take everyone who got a loan, with nearly identical files, and then if there is a group of turned down loans that have the identical credit scores/ debt to income ratio/ job history/ character, then were all those denied credit minorities?
Back pre CRA, banks had maps that they'd draw red lines around the minority neighborhoods, and wouldn't lend to anyone in there, and if you were black they'd not lend you money under any scenario. Which forced minorities to borrow from only FHA sources, at higher rates than conforming loans that they could qualify for, or at places places that preyed on them.
I guess the last comment is the answer. I sure they find ways to get around this.
Socal, I'm asked to provide FICO scores on most Prequal/Preapproval letters I do. Quite often I'm also asked to provide source of funds and the DU approval. I always black out any personal or confidential information and of course have written permission from the borrower.
On another note, I'm not sure how a seller could get in trouble for "discrimination" for accepting an offer from the strongest buyer with the best chance to close, versus a borrower with little down and low FICO's.
Great Post Lenn and I agree: I think the reason banks are asking for credit scores is to confirm that credit was pulled. I don't blame them given there are Realtors who aren't bright enough to make sure they have a pre-qualified buyer before showing them homes.
All pre-qualification letters should state that the buyer's assets, income, credit and Debt to Income ratios were verified. Credit report should be a tri merg report because I have seen one report look good and the other have problems.
Just this morning called a buyer's bank to confirm credit, assets, income, and DTI was verified as the pre-qualification letter I got was crap. Guess what? Nothing was done. The bank just pooped out a letter for him. I don't blame anybody who wants to check, double check and triple check that a buyer qualifies for financing. Representing Buyers Ocala Florida
(Where is it writtenthat the seller cannot request the FICO Scores for a buyer making an offer????
Seems to me that the "privacy" matter is involved when an entity attempts to access the buyer's credit report without permission.
All of our offers are accompanied by a detailed Buyer's Financial Statement. We do NOT include the social security number. However, if the buyer approves, we will include the FICO scores, if we know them.
The days are long gone, and thankfully so, where the buyer's financial ability is a mystery until a few days prior to the scheduled closing.
If a buyer wants a house, cooperate. A FICO score is not a state secret. )
Are you asking if it's illegal today? Or was it illegal yesterday. Doesn't really matter because who knows whata will be "legal" tomorrow. With the pace things are changing, there's no way to keep up. I've been reading and reading the responses and, even doing this for a living, people here don't seem to know. Regulations have made a mockery of this business.
Great post! This is a tough question to answer because it leaves room for interpretation. FICO scores are not considered public information, which could be considered an illegal request on behalf of the seller. However, FICO scores alone are not critical confidential information, such as account numbers, social security numbers, etc. Personally I feel it's more like asking women their age or weight...
When you really think about it... it's a reflection of how much the banks trust loan officers in the ability to close deals.
Legal? Don't know...
FICO scores have become a part of everyday life as it is so it certainly does not surprise me.
I haven't read everyone's comments, but I ran into an agent that had a home listed (not foreclosure) and she wanted a prequal letter before allowing us to show the home? I think with the lending industry being in the position it's in we need to prepare for anything.
Richard * your post was included in our weekly Association News Group!!!!
This is not a legal issue whatsoever! As a matter of fact I concur with Lenn Harley. The stronger the Buyers financial position, the better price and/or terms I can negotiate with the seller. If you had a buyer client with a 750Fico score, 20% down payment, and a letter of approval from a lender why in the world would you not want to disclose that information to the seller. In today's market a Great FICO score and Cash is King. I thought everyone knew that by now?????????????????
This is one of those things that you play their game and at the same time report to your local attorney general as well as the FTC. The reality is until someone make waves that this is happening it will continue to happen but from the level of comments swinging one way to the other who knows but it does not hurt to make certain that some govt agencies are aware of this happening
It is not against the law for a seller to request the FICO score as one factor in determining which buyer represents the strongest offer. It DOES, however, violate financial privacy laws for the mortgage lender to disclose the FICO score without the express consent of the buyer.
Haven't had this problem in my area, and hope we don't.
Wow, and we wonder why the general public perception of our industry isnt great. This post and the majority of these comments with the exception of a very few have me baffled. Here we are putting ourselves out there as knowledgeable of our field and I see agents writing comments that show me that they clearly dont have a clue about respa or privacy. I'm not just talking about this post either, I have seen it concerning other subjects that we should probably know a little something about as that is why we are getting paid.
I suggest everyone consult an attorney and go back to class before they say or do something that could cost them a lot of money or their license.
Just my two cents!!!
"Let's take this in another direction."
OK... ;)
"Private seller REQUIRES FICO scores. Buyer of one ethnicity has a 750, buyer of another ethnicity has a 760. Buyer uses the score as "legal" way to racially discriminate. That is why the bottom-line the benchmark has always been the ability to obtain a loan, and not the "best" ability to obtain an loan."
The flaw in your logic is that you assume that the Fair Isaac Model takes ethnicity into consideration when it incorporates the data from the credit bureau into it's model and the FICO number result would be different based on the ethnicity of the client. Although I am not privy to the way the model works, I cannot fathom how the data given by the reporting bureau will include race. For example, you take two people, a black man and a Chinese Man. They both have the same credit information (i.e. they bought the same car, financed it the same way, made their payments in the same manner, etc.) and use TransUnion's data to process the FICO score, I would assume that the number/result would be the same. There is not a penalty or benefit for being Chinese or Black. We all are subject to the same criteria when it comes to a FICO score. So that we resolved the FICO numbers being the same, there is no way that the seller can use a FICO score to racially discriminate. The only thing I can think of is age. Since Date of Birth is submitted and available on a credit report, I wonder if that data contributes to the score. I personally think it should as the ability to repay long term loans will be greatly reduced as the age of the individual increases.
The next thing to address is which buyer the seller used. If you can prove that the Chinese man was better qualified, was willing to pay more yet the seller chose the black guy because she hates Chinese people, then you have a case. However, it is not related to the FICO score.
Most pre-approval letters don't mean squat and FICO scores are not a perfect indicator either. I remember a lender describing lending as a 3 legged stoool with Assests, Income and Credit representing the legs. By the time the market collapased too many deals were done based only on the credit leg of the stool. It will take more than good credit today to obtain a mortrgage. Stiil, if my client is the Seller, it's an idea with legs - one more detail that might make a difference. If the Buyer is my client, not so much and, if I'm a Dual Agent, God help me!
Richard, the answer to your question is yes, it is legal for a seller to require disclosure of credit information on a prospective buyer BUT there are numerous Federal laws which come into play. I seriously doubt that sellers, even REO sellers, are fully compliant with the relevent regulations.
First, the protections for the buyer are contained in the Fair Credit Reporting Act, not RESPA or the Privacy Act. Any seller requesting ANY data on a prospective buyer that is derived from a Credit Reporting Agency MUST comply with several sections within FCRA.
Second, the Seller must establish permissable purpose. FCRA Section 604 (a)(3)(F)(i) states that a person may obtain a credit report on a prospective buyer for "the legitimate business need for the information... in a connection with a business transaction that is initiated by the consumer". This establishes "Permissable Purpose" as required by law.
Definition of a Consumer Report (aka credit report): "The term "consumer report" means any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for... any other purpose authorized under section 604" [FCRA Section 603(d)(1)(C)].
The above definition means that FICO scores alone constitute a Consumer Report under the law.
Now the fun begins.
Once that credit report is obtained, ALL of the disclosure requirements, reporting requirements, and record keeping come into play. There are MANY requirements. One that may be of primary concern is the requirement that if the purchase offer is denied, the seller who obtained a consumer report as part of the decision to accept or deny the offer must notify the buyer within 60 days, using the proper Federally mandated format, that the buyer's credit history was used in part to deny the transaction.
The seller must provide the consumer with a means to obtain any CRA data at no charge.
Another consideration is that if FICO scores are routinely transmitted from buyer to seller by a Realtor as part of the purchase offer, the Realtor is now acting as a Credit Reporting Agency with all of the Federal regulations that go along with such a practice. Note that the definition of a CRA is somewhat "loose" in the FCRA, but in practive the Federal Trade Commission probably would not define a Realtor as acting as a CRA... but who wants to screw around with the FTC?
This is very dangerous ground. Banks and lenders in theory already have in place all of the compliance proceedures to ensure that they do not violate FCRA (and also ECOA) when requesting credit data on prospective buyers. Private sellers do not, and Realtors who inadvertantly act as CRAs probably do not as well.
I've spent nearly 20 years working with credit data on behalf of lenders. FCRA, ECOA, and newer laws such as FACTA and G-L-B are complex. It is easy to violate them once non-lender start playing around with credit derived data. There is NO SAFE HARBOR. You screw up once... you're done. If I had an hour or two I could post more of the specific regulations.
After reading some of the comments above, I think a clarification is in order.
First, one poster states that sellers are requesting "FICO scores only" with the insinuation that provision of FICO scores are not a Consumer Report as defined by law. The poster is incorrect. Any infomation derived from a CRA, no matter how minor, that is used for determining eligibility for a business transaction initiated by the consumer constitues a Consumer Report (aka credit report). Back in 1998. a company which offered credit card protection sough an opinion from the Federal Trade Commission to specify if obtaining a list of credit cards consituted a Consumer Report. The FTC responded that any information obtained from a Consumer Reporting Agency (aka credit bureau) consitutes a credit report.
http://www.ftc.gov/os/statutes/fcra/buchman.shtm
Second, other posters state they routinely provide FICO scores as a component of the purchase offer for purposes of demonstrating a buyer's eligibility or capacity to complete a transaction. Such practices are very close to the definition of a Consumer Reporting Agency. Most people think that sensitive credit data is limited to account history, account numbers, and so forth. The law defines Consumer Report data much more broadly. In fact, public records, if provided by a CRA, consititute a Consumer Report when used to evaluate a buyer's eligibility. Here is one of several staff opinion letters from the Federal Trade Commission defining the broad scope of a Consumer Report:
http://www.ftc.gov/os/statutes/fcra/sum.shtm
The issue of providing credit scores along with a pruchse offer to demonstrate eligibility or capacity is something Realtors should look at very closely. While Permissable Purpose may be met under FCRA Section 604 with written authorization or "any business transaction initiated by the consumer", the real concern to Realtors are all of the disclosure and reporting requirements that go along with the practice.
If you are one of the Realtors who provide FICO sscores from buyers to sellers, are you issuing the proper credit disclosures? Are you in compliance with the required notices of ECOA and FCRA consumer rights? How are you storing such records... are those FICO scores under lock and key? Who has access? Have you trained your employees properly? Are you in compliance with Red Flags?
One step you might take is to contact a trusted loan officer for some training on FCRA, ECOA, FACTA, and G-L-B to ensure you are not violating one or more Federal laws. Many mortgage broker associations provide training in credit data laws... you might look into taking a class.
Be aware and be careful.
Deep River - Comment 127 - First Off, thank you for taking the time to find the right set of federal laws that addresses this issue. Out of all the responses, yours was the best (in my opinion).
I want to address your premise that FICO scores are information derived from a Consumer Reporting Agency, therefore are subject to the laws and guidelines in place to dissipate and disclose information.
I disagree with your stance. The Consumer Reporting Agency transfers data to the Fair Isaac Corporation. Based on the data provided, the Fair Isaac Corporation then issues a FICO score. The fair Isaac Corporation does not divulge any data given to it by the consumer reporting agency and is using their own proprietary mathematical system to assign a three digit number. Therefore, the FICO score does not fall under the Fair Credit Reporting Act in my opinion. I actually read all 86 pages! Had to keep going back and forth between the sections. In fact no mention is made about the Fair Isaac Corporation nor did I consider this corporation to be a Consumer reporting agency. An example of why I think my stance is correct is that by law, a Consumer Reporting Agency must give a free credit report once a year to anyone they have information on. However, none of those reports will have a FICO score nor is the Fair Isaac Corporation obligated to give a free FICO report (or any report!) to the general public.
I also disagree with your stance that a real estate agent can be defined as a consumer reporting agengy. The key word in the definition was "for monetary fees" in the following 603(f):
The term “consumer reporting agency” means any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.
So I doubt any licensed agent will fall under that definition.
Finally I read the entire reference to the request for credit card information and it has nothing to do with FICO scores. In this instance, the Federal Trade Commission was correct as the data pertaining to the number and type of credit cards is in the actual report itself, therefore falls in the guidelines set forth.
Again, thank you for contributing to the conversation.
An interesting topic. This comes up routinely in So. Cal. As a listing agent, I don't require FICO scores. However, if they are provided, along with proof of funds and desk top underwriting, I am better able to advise my clients on the likelihood of a loan closing.
As far as I can tell if you don't treat everyone exactly the same,with every transaction, that would be discrimination. So with your office procedure say, you must get FICO scores with every offer. So as far as I've been schooled, it would be discriminatory. I have had buyers volunteer scores when they are in the 800's to show they are not loosers, etc. (their words).
Satar: Execellent analysis all around and in keeping focused on facts rather than emotion, good topic in general, The request is not an "illegal or unethical" request.
Thanks Gary - Comment 132 - It's hard to compete against Lenn Harley. But somehow I was able to beat her to this blog and fill in the gaps of the discussion. ;)
I also thank Richard for allowing me to Hijack his blog and for allowing me to form a dissenting opinion. It's blogs like this that exalts my love for Activerain. Where else can you go to learn about real estate practices and debate and discuss them? For those who think this is illegal, unethical or discriminatory, now you know the facts and can better serve your clients when you are on the listing side of a transaction.
Activerain should re-feature this blog on a monthly basis.
Satar...
Dissenting opinions and lively discussion are ALWAYS welcomed on my posts!
I have written many AR posts, but this one BY FAR had the best comments. All polite, well thought out, and contributing to the conversation.
I wish to thank you and all of the others that took the time to present some great debate. It really is what AR and social networking is all about!
Thanks Richard. This is the first Non-short Sale related blog I devoted so much time too! Re-reading RESPA, The Privacy Act of 1974 and The Fair Credit Reporting Act and reading several pages of The Federal Trade Commission was no picnic!
The real question is what is your current opinion of providing FICO scores now that all information was presented and debated? ;)
This is definitely bookmarked for later reference material, if needed. Thanks
The goal is to sell real estate not hold onto it while buyers frantically seek financing at the last minute, because someone didn't do their job properly. I think I have become a better agent on behalf of my clients by making sure that the buyer has satisfied the minimum criteria for procuring financing. My savvy buyers are pre-approved by at least one major direct lender.
I am both a listing and buyer's agent. As a listing agent, I request a complete offer package to include: Pre-approval from a direct lender, FICOS, recent source of funds and depending on the seller, cross-qualification of the borrower. As a buyer's agent, I get these items from my buyer and their signature on the buyer-broker agreement during our initial talks. This is before I put them in my car. I educate my buyers on what is required of them for the successful purchase of a property and they appreciate it.
I treat my business seriously. My clients are acquiring or disposing of properties worth in the hundreds of thousands, if not, millions of dollars. Who am I to be so trusting of others when dealing with someone's valuable assets. If the buyer is creditworthy, they should be ready and willing to prove it.
The minute I hear excuses for items missing in the offer package, the red flag goes up. If a buyer is not willing to verify their assets to substantiate the down payment or their FICO, human nature makes me assume the worst. So I'm usually not surprised when I find out the FICOs left out of the package, are in the "high" 500s. (Ohhh but don't worry, I heard a buyers agent say, I have a lender that has a special program for them.) Hmmm. Or the pre-qualification letters I get from mortgage brokers that says this buyer is qualified for a government program that ran out of funds months before the date of the letter. I could go on and on. Needless to say, it is important to receive and review a buyer's complete package and then call the buyer's lender to clarify any ambiguities.
I understand a request for buyer's FICOs and any other documentation to substantiate the buyer's offer. My buyers are ready for this scenario and can quickly make acceptable offers while others are still debating on what to do.
Satar, I love your response to my comments - well argued, sir! It's refreshing to come across another FCRA aficinado.
You are correct that mechanically speaking a FICO score is calculated by Fair-Isaac using their proprietary algorithims and are not necessarily data resident in a credit file in the same way as account histories. Your support of your argument by noting that Fair-Isaac may not be a CRA since it is not required to issue a free credit report annually under FACTA is insightful. In the interest of spirited discussion, I'll offer a counter opinion.
FICO Scores as a Consumer Report:
The FCRA language defining a Consumer Report is very broad:
The term "consumer report" means any written, oral, or other communication
of any information by a consumer reporting agency bearing on a
consumer's credit worthiness, credit standing, credit capacity, character, general
reputation, personal characteristics, or mode of living which is used or expected
to be used or collected in whole or in part for the purpose of serving as a factor in
establishing the consumer's eligibility... in connection with a business transaction
that is initiated by the consumer [FCRA Sec 603(d)(1) and Sec 604(a)(3)(F)(i)
Again, the above establishes a seller's and a listing Realtor's permissable purpose to obtain FICO scores (as welll as financial data) to determine capacity of a buyer to complete a purchase offer, but it is broad enough to include any data (such as FICO scores) transmitted from a CRA to an end-user (ie seller).
If the FICO scores provided to the seller are obtained by the buyer directly form FICO or another non-CRA source, then there is no concern. However, it is reasonable to assume that the scores are drawn from the buyer's tri-merge credit report as issued by one of the credit report compiliers (who are all CRAs) and used as part of the loan pre-qual or pre-approval. Thus the scores would fall under the definition of a Consumer Report. If a purchase offer were turned down by the seller, then the seller would be required to issue an Adverse Action letter if the FICO scores were used to determine eligibility of the offer.
Realtor Acting as a Consumer Reporting Agency:
I admit that my argument that a Realtor may be acting as a CRA is not as clear - the argument is an indirect one. Certainly the definition of a CRA implies an entity that regularly collects fees in return for providing consumer reports. My supposition extended the defintion by suggesting that Realtors that make a regular practice of offering or requiring buyer FICO scores as a factor of eligibility to complete the purchase transaction, in return for a commission, might be considered as acting as a credit reaporting agency. The key factor comes in this part of the definition of a CRA:
...regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information...
The "evaluation" part could be met by a Realtor simply by stating to a seller "Buyer A is better than Buyer B because A has better scores". But I wish to emphasize that my argument rests on the condition that even if a Realtor regularly collects/provides FICO scores and evaulates them, the Federal Trade Commission would have to define the payment of commission on the sale the same as a direct fee. I doubt that the FTC would do so... but it is a possibility.
To those who may think I am relying overly much on details in the defintions, please be aware that the Feds most definitely look at the detail of the language in the legislation. I've written to them for rulings and clarification on several occasions in my past career (and they were most helpful), and you would be surprised to see how interpretation can hinge on a single word or phrase. If interested, peruse some of the published staff opinion letters here: http://www.ftc.gov/ftc/opinions.shtm
Lastly, bear in mind the above is an opinion based on some 20 years of working with credit data and credit derived offers and not a reliable legal analysis.
Further note:
Anyone who is concerned about my supposition that use of FICO scores in evaluating a buyer's eligibility for a purchase constitues a Consumer Report, and wishes to cover himself/herself with the proper Adverse Action notice required under FCRA Section 615, be assured that compliance is simple.
The law requires any "person" (not necessarily a lender) to issue a notice of a consumer if data dervied from a CRA was used inwhole or inpart in denying the consumer's transaction.
Specifically, FCRA Section 615 states:
Duties of users taking adverse actions on the basis of information contained in consumer. If any person takes any adverse action with respect to any consumer that is based in whole or in part on any information contained in a consumer report, the person shall
(1) provide oral, written, or electronic notice of the adverse action to the consumer;
(2) provide to the consumer orally, in writing, or electronically
(A) the name, address, and telephone number of the consumer reporting
agency (including a toll-free telephone number established by the agency
if the agency compiles and maintains files on consumers on a nationwidebasis)
that furnished the report to the person; and
(B) a statement that the consumer reporting agency did not make the decision
to take the adverse action and is unable to provide the consumer the specific reasons
why the adverse action was taken; and
(3) provide to the consumer an oral, written, or electronic notice of the consumer's right
(A) to obtain, under section 612 [§ 1681j], a free copy of a consumer report on
the consumer from the consumer reporting agency referred to in paragraph
(2), which notice shall include an indication of the 60-day period under
that section for obtaining such a copy; and
(B) to dispute, under section 611 [§ 1681i], with a consumer reporting agency
the accuracy or completeness of any information in a consumer report furnished by the agency.
Compliance is simple. Every credit report obtained by a ender for use in determining a consumer's eligibility for a loan contains a Credit Score Disclosure that must be issued to the consumer at time of application. Use a copy of this with the buyer's purchase offer. If the seller turns down the purchase offer due in part or in whole to the buyer's credit scores, the Adverse Action requirement can be met by including a copy of the Credit Score Disclosure in the written purchase refusal letter along with a paragraph for 2(B) and 3(A) and 3(B) above. The Credit Score Dislosure already contains 2(A). If you want to have a perfect Adverse Action letter, just ask for a blank copy from your favorite loan originator.
Note that although the law permits denial to be made orally, it is better to have a copy of a written communication on hand just in case.
Banks are becoming more and more demanding of the consumers. It's funny that they went from no demands what so ever to requiring the world to buy a run down shack.
Hi Deep River - Without you, we would not know what laws we might be violating. So again, thank you for bringing it to our attention.
In regards to FICO scores as a Consumer Report:
I'll stand behind my argument. I do not have the experience and background as you. Nor do I have the legal capacity to make a legal conclusion. I therefore, cannot accept or deny the argument.
I did find some great reading. These two links tell me that FICO does not apply to the FCRA:
http://www.bankrate.com/dls/news/mtg/20000508.asp
It talks about ammending the Fair Credit Reporting Act to disclose FICO scores. If you have to ammend something, then it means that it is not currently regulated? right?
http://www.creditscoring.com/pages/updates2004.htm
Look under 12/21/04
Realtor Acting as a Consumer Reporting Agency:
"The key factor comes in this part of the definition of a CRA: ...regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information..."
A real estate agent does not assemble (gather information) or evaluate consumer credit information. So my argument is two fold:
1. An agent does not gather or assemble information from a on a consumer. Neither does an agent evaluate information as the information (FICO scores) have already been created.
2. The agent's broker gets paid by brokering a real estate transaction, not for gathering, assembling or evaluating information.
So in conclusion, I agree to disagree until we can get some answers from either a lawyer or from the big players. Maybe we should ask Fair Isaac Corporation, The FCRA or the Federal Trade Commission? I'll do that and see what responses I get.
Robert - I found this that I thought might be of interest to you:
http://www.myfico.com/CreditEducation/FactsFallacies.aspx
Fallacy: Credit scoring is unfair to minorities.
Fact: Scoring considers only credit-related information. Factors like gender, race, nationality and marital status are not included. In fact, the Equal Credit Opportunity Act (ECOA) prohibits lenders from considering this type of information when issuing credit. Independent research has been done to make sure that credit scoring is not unfair to minorities or people with little credit history. Scoring has proven to be an accurate and consistent measure of repayment for all people who have some credit history. In other words, at a given score, non-minority and minority applicants are equally likely to pay as agreed.
Fallacy: Credit scoring infringes on my privacy.
Fact: Credit scoring evaluates the same information lenders already look at - the credit bureau report, credit application and/or your bank file. A score is simply a numeric summary of that information. Lenders using scoring sometimes ask for less information - fewer questions on the application form, for example.
Satar-
Good answers. Your reasoning is sound - and it's obvious you have carefully studied the regs.
I agree that strong opposing arguments can be made on whether a FICO score alone constitutes a Consumer Report as currently defined under the law. Your point that the Congress is considering amending the FCRA on scoring is a telling one... but I'm not completely persuaded. In the final anlaysis, one would have to write to the Federal Trade Commission for an official staff legal opinion.
As for asking Fair-Isaac... I wouldn't bother. Fair-Isaac is in a marketshare battle right now with the Big 3 CRAs (particularly Experian) over the market for consumer credit monitoring services. Back in February 2009, Experian actually terminated its relationship with Fair-Isaac (I believe they came to an agreement afterwards) in which Experian would no longer provide data for Fair-Isaac's "MyFICO" monitoring service. This follows a lawsuit filed by Fair-Isaac against the Big 3 back in 2006 over VantageScore, a competing scoring model developed by Experian/Equifax/TransUnion. It's likely that any response from Fair-Isaac will be prejudiced against the CRAs. If you're truly interested, the FTC is your Huckleberry for the right answer.
Regarding a real estate sales agent... I would argue that any statements about a buyer's expected ability to close a sale based in part on FICO scores constitutes a credit evaluation. I base this on past experience working with credit data for captive auto finance companies. In developing a prospect mailing list, data was leased from one of the CRAs. Although only FICO scores were passed (along with NACSZ of course) to the end user, all the rules about "Joint Users" of credit applied to my firm since our software screened prospects for offers based on FICO. In other words, some prospects received offer A; others received offer B depending on FICO score alone. A ruling to us from the FTC at the time (late 90s) stated that the segmentation by FICO score constituted a "credit evaluation".
However, there isn't a direct correlation between fee income and use of FICO data by Realtors, as I have previously stated (and you've correctly argued). I make the argument as a note of caution. Should the practice of supplying FICO scores to sellers by Realtors become widespread, the FTC is likely to take a closer look at it.
"If you're truly interested, the FTC is your Huckleberry for the right answer."
I'll ask and see what they say. You bring up great points and it would be nice to see an official answer.
"Should the practice of supplying FICO scores to sellers by Realtors become widespread, the FTC is likely to take a closer look at it."
It's widespread in Southern California. Not only in the REO market, but in the short sale and retail market as well. They are also asking for proof of funds for downpayment. I wonder how much longer it will take to be widespread as it makes sense to ask for these items.
It was a real pleasure having the opportunity to discuss with you this subject. I will ask and see what the response is. I will post my results on this blog.
By the way, I notice you are new to Activerain. I highly suggest you pay the monthly fee and join. God knows we need more intelligent, professional people here like you. Also, if you blog about what you love, you'll get people contacting you. I get a lot of leads from Activerain because I consider myself an expert in short sales and I am able to debate best practices and go up against the agents on here who claim to know short sales. Besides leads, I have met a lot of great members both online and offline who have made me a better person.
if the loan officer provided a underwriting conditional commitment, this is the commitment from the u/w that with conditions this buyer/borrower is approved....not pre-approved not pre-qualified