Is it legal for a seller to require FICO scores from an offeree?

By
Real Estate Agent with Better Homes and Gardens Real Estate Metro Brokers
http://actvra.in/4F5

Privacy and RESPAN v. REO sellersDid 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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Topic:
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Rainmaker
159,856
Satar Naghshineh
Satar - Amiri Property and Financial Services Corp.

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.

 

January 20, 2010 11:48 PM
Rainer
4,713
Deep River

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.

 

January 21, 2010 09:12 PM
Rainmaker
159,856
Satar Naghshineh
Satar - Amiri Property and Financial Services Corp.

"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.

January 21, 2010 10:06 PM
Rainmaker
107,496
Dana Devine
Charles Rutenberg Realty

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

January 31, 2010 12:23 PM
Rainer
280,230
Pete X-GRI, CDPE
Orange County, CA Investment to Luxury Property-
The bank lobbyist group can make exceptions for themselves as they see fit, some of the time.
February 03, 2013 11:04 PM
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