Twist and I don’t often march in step with Realtors(R) [1] and brokers,[2] looking for all the world like "The Spirit of ‘76", but we’ll make an exception today. An official with the The National Association of Mortgage Brokers warns that this scam has "very serious privacy, identity-theft, and bait-and-switch issues",[2] and you can stop it with a simple phone call.
It turns out that when you request a mortgage, and the loan officer checks your credit with any of the three main American credit reference agencies, the agency will, if it can, immediately put your name and selected information on a trigger list. Here’s what the current Wikipedia article has to say about it.
"In the United States, when a person applies for a mortgage loan, the lender makes a credit inquiry about the potential borrower from the national credit bureaus, Equifax, Experian and TransUnion. Unless the borrower is opted out, the credit bureaus put the applicants onto a ‘trigger list’ of ‘leads’ about persons who are interested in new loans. These lists are sold to numerous lenders all over the United States, and soon after the application the applicant starts receiving offers from the opposite coast of the country. The trigger lists contain a significant amount of personal financial information. [footnote to [1] in original] Among the buyers of trigger lists are ‘lead generators’ which resell filtered information to borrowers, e.g., of people who live in a certain area and have a certain credit score.
While the Federal Trade Commission considers the market of "trigger lists" to be a legal business, many people and organizations (such as the National Association of Mortgage Brokers) consider this a serious breach of privacy and lobby for putting this practice under regulatory controls.
As of now, American consumers may opt-out from ‘trigger lists’ by calling 888-567-8688."
Opting out of this "service" from the credit bureaus before you take on the biggest load of debt you’re ever likely to see sure sounds like a no-brainer to us!
All that being said, we feel a strong dose of Doomish caution is in order. One possible reason the agents and brokers may have for objecting to trigger lists is that you might get a better deal from their competitors. Lenders alerted by a trigger list may attack your mortgage business like jackals, and credit card companies could descend like vultures on your new mailbox, but keep a wary eye on the lion who may have just made a killing in the first place. If you have not researched your buy and your mortgage deal and gotten independent advice from your own lawyer, financial planner etc. (this last added after I read comment #3 below, thanks Old Mike), you may be the prey. And without those trigger list folk to "help" with competitive offers, you’re on your own.
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Notes and References
[1]: "Home Mortgage Applications ‘Trigger’ Sales of Private Financial Information", by Kenneth R. Harney, Realty Times, September 11, 2006. The emphasis in all the quotes is mine.
"The concept works like this: When you inquire about or apply for a home mortgage, the loan officer typically does a quick check on your credit — tapping into the online files of Equifax, Experian and TransUnion, the three national credit bureaus.
What the loan officer usually doesn’t know, however, is that the credit inquiry — along with the applicant’s key financial data — is immediately passed on to competing lenders around the country who’ll pay the credit bureaus for fresh ‘leads’ about who’s interested in getting a new mortgage.
The leads, known in the industry as ‘trigger lists,’ are in competing lenders’ hands within 12 to 24 hours of your inquiry or application. Lenders can then phone you and offer mortgage quotes that sound better than the one you just got locally, but that may turn into bait-and-switch deals weeks later.
…
Home buyers who don’t want to receive trigger promotions or have their personal data hawked on the Internet can op out of all such offers — for five years or permanently — by going to or by telephoning 888-567-8688."
[2]: "Mortgage Brokers Protest ‘Trigger Lists’", Realtor Magazine (NAR), September 19, 2006.
"The National Association of Mortgage Brokers is protesting the practice of selling names of people shopping for a mortgage. ‘There are very serious privacy, identity-theft, and bait-and-switch issues involved here,’ says Roy DeLoach, executive vice president of the 27,000-member organization."
[3]: "NAR Meets with other Trades to Discuss Prescreening and Trigger Lists", NAR: The Washington Report: A Weekly Report on Legislative and Regulatory Issues, October 2, 2006.
"Here is how the process works. A buyer makes an application for a mortgage. The loan officer begins the process of opening the application by making a credit inquiry. The credit bureau notes the inquiry and usually within 24 hours generates a list of recent mortgage applicants. This process is called ‘prescreening’ and is used for a number scenarios including credit card offers. The credit bureau sells the list to lead generators or other interested parties. The parties then contact the mortgage applicant and make some kind of offer or counter-offer based upon little more than what is presented in the prescreened list.
In a number of cases, this practice leads to a variety of negative scenarios for real estate agents, brokers, mortgage originators, other real estate professionals and their clients. In some cases, the client erroneously thinks the original mortgage company has sold their information often leading to tension at a minimum. In others, the client is presented with unrealistic terms and either wastes time with the second mortgage company, goes through the process with the second company only to find the terms change, goes through with the deal and pays more than they would have with the original company or sees the deal fall apart because the new company can’t provide the credit at the originally presented terms or at all. While a bad outcome is not necessarily the case, the practice has become frustrating to a number of real estate professionals who see deals jeopardized and clients hurt by the practice."
Good infro, there is always someone desperate enough to scam the public and as housing gets tighter it brings out even more scams.
Like i preach, lets hope all this shakes out and a housing depression doesn’t happen, the implications are enormous.
I don’t know how altruistic the motives of the “real estate professionals” may be in this case- but I hope they are successful in a battle against a practice that intrudes on the privacy of consumers.
Is it accurate that under current practice and law the consumer can opt out of recieving the alternative information or having their personal data shared? If so then its just a disclosure issue, right? While I love my privacy and hate junk mail and spam, I question efforts by realtor groups to assure that the entire process is under their control and direction. Lets see they want to advise the parties(sometimes both buyer and seller) and “recommend” the inspectors, appraisers, “prefered lenders”, title companies and home warranty policies?. Do we also need undercoating from them? It would be interesting to see how often mortgage fraud schemes involved any advisor outside the “recommened” circle. Can realtor’s have financial interests in affiliate mortgage brokers? Are they prohibited from recommending their own affiliate? How is that affiliate relationship disclosed to consumers? Do the agents also advise consumers on all the forms used primarily to insulate the broker and agents from liability? Check out “your” local realtor’s reaction when you tell them you want the family lawyer involved. I have found its a great test. In most states where I have purchased or sold real estate legal representation of the client is welcomed by every competent realtor. The reaction of agents at least 4 times in the Phoenix area has been just the opposite, with one agent saying that you “just cannot do a deal here” if you involve a lawyer. The first time this happened I was astonished. When it happened repeatedly I became concerned. The AAR form contract on the “Buyers Attachment” states in bold letters: “Remember, you are urged to consult with an attorney, inspectors, and experts of your choice in any area of interest or concern in the transaction.” Make it your choice, not the realtors. I prefer my consumer advocates a bit less worried about “deals jepardized”.
Old Mike -
Thanks for sharing that. I’ve added text to the last paragraph to emphasize the need for obtaining independent advice.
Old Mike -
It really is a jungle out there. Twist’s sidebar find [1] from earlier today includes this telling quote (my emphasis).
That’s pretty heavy stuff. Be careful out there, guys!
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[1]: “The Real Reason to Avoid Homebuilders”, by Michael Church, SeekingAlpha, November 15, 2006.
Would this be fair? When you swipe your insurance card at the pharmacy, you insurance provider immediately sells your name to alternative providers of prescriptions drugs. The alternative vendor may be the pharmacist across the street, it may be an out-of-state vendor, it may be a consolidator operating out of a warehouse in Bangalore or it may be the big nemesis WalMart. How do we know where your client’s name ends up?
The alternative vendor who doesn’t have to carry the cost of bricks and mortar or the cost of the salaries in that market (Boston or Chattanooga) or the cost of conducting business in that market (taxes and state regulations) can justifiably offer the product at a lower cost. Or, they could be dumping product to acquire market share by driving out smaller competitors. Or, they could underbid the cost by selling an inferior product. In the case of a prescription drug, it may not be discernable to the consumer until their health starts to fail. In the case of a purchaser of a home, it may not be apparent until they are at the closing table and they’re confronted with a bait and switch.
Play this game with any other provider of professional services that requires some but not extensive face-to-face contact…your accountant, your lawyer, your financial planner, event aspects of your medical care.
Mortgages are now being sold as a commodity. And yes, Old Mike spells out the risks of affiliated business arrangements accurately.
I do support a borrower being fully informed of his options, I do support competitive forces, I do support reducing costs but I’m not sure that this is what is happening here. The fact of the matter is that borrower will use an internet-based lender for a difference of 1/8th on the rate. They simply don’t value the independent advice or the knowledge of the local marketplace. Your local providers of mortgage services, like your independent bookstore, your music store, your video rental store, your hardware store, may soon no longer be found on Main Street, USA. It’s been a great ride.
Anecdotal story. On Monday, an originator I work with told me that he gotten a call from a Realtor/Selling Agent castigating him for giving advice to our borrower. The borrower is purchasing a new build condominium contingent upon selling his current home. The borrower received an offer on his current home for an amount less than the asking price. The borrower, prudent man, felt strongly that after the sale of his current home and purchase of the condominium, he wanted his credit card debt paid down and no less than $10,000 in the bank. Otherwise, he would not follow through on the purchase of the condo. The originator suggested to the borrower that he contact the Selling Agent to see if the builder would renegotiate the price of the condominium. The Selling Agent, a frick’n Buyer-Broker who ostensibly represents the buyer’s interests, was up in arms and told the originator that in this market new builds were not experiencing any price declines. [Yeah, right.] Push comes to shove, the Listing Agent affiliated with the Builder agreed to reduce her commission. The records will show no price reductions as the Listing Agent/Builder still has an additional 5 units to sell.
Would this borrower have received this advice had the mortgage been offered through an affiliate of the Realtor’s office? Somehow I doubt it. (Will this Selling Agent and Builder blackball us? Possibly? Funny, they always seek us out when they need us to rescue a deal originated elsewhere. The longer-term problem is that these referral sources will steer solid buyers to their affiliates and send us the marginal borrowers that are more labor-intensive and costlier to place. The borrower feels screwed.)
Helena, great posts and I personally fully agree with you about a local presence and a real live local person to do business with. In the Midwest I used small to medium size independant banks or credit unions whenever possible and even if it cost a little bit more, 10 basis points isn’t much to sleep better, which I don’t do with “gottcha.com” or 1-800-bye-cash. Eventually the bank can make it back for you with better CD rates anyway. And the big boys, as John will tell you, have all been chasing the sub-prime rabbit like over- amped afgan hounds(pretty but not the brightest bred). Smaller, locals actually appreciate good credit borrowers. Occasionally the big boys will have a good person, but then they make them a vice-president/branch manager and move them 100 miles away. I don’t know, having never used one, but I suspect local, stand alone mortgage brokers who have been in business for a long time are similar to smaller local bankers. Don’t worry about the realtor complaints, long term your strong ethics pays dividends and it at least keeps you out of court. Finally, I suspect “affiliate referrals” are a much bigger problem than any form of predatory “dumping”, the market is way to large and diverse for the latter strategy to ever work (some econmists say it never works if entry is reasonably easy). So I guess you will support the new “Affiliate Lender Disclosure and Regulation Act” I’m working on. I’ll have to hire John to start my car now. Good luck.
Old Mike -
About that sub-prime / Alt-A / Jumbo rabbit. Stay tuned. OFHEO just raised the door in the lock, and a lot of that stuff will flow right back to F&F, at least until 01Jan2008. Check out tomorrow’s post.
http://www.optoutprescreen.com
I opted out for five years and my junk mail and credit score have both benefited.
Jason -the mortgage guy
John, I await your morrows post with gin soaked breath, the wifey being out of town you see. Wait, let me guess, the quasi-public F& F, with their new found congressional chair-persons, are about to look like the Italian army. As the last great American leader warned us, they believe: “if if moves, tax it, if it still moves, regulate it, when it stops, subsidize it.”
John-
I can’t take credit where credit is due. The above link (as well as a bunch of others) come from the hardworking and usually anonymous L- whose assistance is always much appreciated!