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The dreaded tax filing deadline is fast approaching and this year it also serves as the date that the 3 major repositories will drop the reporting of outstanding tax liens from their credit reporting.
As of April 16th, outstanding tax liens against consumers will no longer appear on a credit report pulled by a lender to make a mortgage loan, or for other purposes, for that matter.
Because these repositories can’t get it right, rather than do what needs to be done to get accurate tax lien data, they decided to discontinue this reporting altogether. This presents just one more risk to mortgage lenders.
Lenders will need to find other ways to determine if an applicant has any outstanding tax liens as this is an important part of the approval process. Isn’t it important to know that a borrower who is about to obtain a $400,000 mortgage has tax liens that might create a financial hardship down the road? I believe so…
The argument is that in many cases the information being reported is not accurate. The tax lien may not be the responsibility of the person getting the loan. Maybe, but how hard would it be to verify that? Wouldn’t it be better to know? That way it can be taken into account in the loan approval or corrected and removed from future reporting.
By continuing to report the tax liens, they could kill two birds with one stone. Consumers applying for loans will learn of any erroneous reporting and they can have these corrected for future reporting. Lenders can work with consumers with errors. But, they could also identify those that have accurate outstanding liens.
Maybe a little more work for both, but a much better outcome.
CFPB did some research and reported that the removal of the tax lien had little effect on the consumer’s credit score. If that is so, then why remove them? Regardless of the credit score, shouldn’t a lender get a completely accurate picture of an applicant’s credit profile? After all, aren’t they the ones taking the risks?
But no, because the repositories can’t, or won’t, do their job completely and correctly, we’ll just drop the questionable debts.
Next will be medical bills. Because we know how confusing they are to most consumers. Who pays what, how much, and when? We can’t expect that these bills will always be paid timely or reported accurately. Why should the consumer suffer? Let the lender figure it out.
With rates and home prices increasing, lenders are starting to expand the credit box to approve more borrowers. They need to be very careful that the applicant’s credit profile is a true depiction of the ability and willingness to repay the debt.
I suggest that someone with a valid outstanding tax lien may not fit the bill.
Knowing that the tax lien may have little effect on the consumer’s credit score, are you prepared to dig a little deeper to get the real picture? Are you comfortable that the credit info you will receive is adequate to approve a consumer?
The game keeps on changing…
