Nearly a year after the catastrophic Equifax hack exposed 147 million Americans’ personal and financial data to cybercriminals, consumers are about to get a break — something especially useful for home buyers and owners.
Starting Sept. 21, credit-file “security” freezes will no longer cost you money. For years, you had to pay fees that varied from state to state to enact freezes, which nail down your credit files, rendering them inaccessible not only to crooks but to just about everybody else unless you unfreeze them. In the wake of the Equifax debacle, consumers spent an estimated $1.4 billion on freeze fees, according to researchers.
Congressional legislation this year removed that cost barrier and set some new guidelines for the credit bureaus and consumers, thereby opening the door to much wider use of the tool. This should be good news for home buyers and owners because, on average, they tend to have greater assets and larger numbers of credit accounts to protect than others.
But there’s a real estate-related issue here that hasn’t gotten a lot of attention: Heavier use of credit freezes could create more complications and delays when people with frozen files apply for mortgages. Some lenders say dealing with applicants who keep their files in deep freezes — and want to keep them frozen during as much of the mortgage process as possible — can be challenging.
“It’s a big problem” if consumers don’t understand what lenders, loan processors and investors need in terms of access to their credit files from the application stage through closing, says Joe Metzler, senior loan officer for Mortgages Unlimited in West St. Paul, Minn. When Metzler tells applicants that he needs them to unfreeze their credit files “at least a couple of times” during the process, sometimes they “freak out about it,” he says. And when they don’t lift their freezes in a timely manner, their loan closings may be postponed.
John Meussner, executive loan officer for Mason-McDuffie Mortgage in San Ramon, Calif., says that when a credit file is frozen, “it does lead to some procedural headaches. Applicants should know that if they have their credit frozen, they will need to act quickly in [contacting] the credit bureaus . . . and that the failure to act quickly could lead to delays in their loan processing.”
The biggest issue, says Andrew Marquis, senior loan officer at Guaranteed Rate in Lexington, Mass.: Home buyers freeze their files and then “for whatever reason, they don’t know how to lift it.”
Here’s a quick overview of how the changes coming Sept. 21 might affect mortgage transactions: For consumers, the law spells out how the freeze/unfreeze procedures are supposed to work. To initiate a freeze, you’ll need to contact each of the three national credit bureaus — Equifax, Experian and TransUnion — specifying how long it should stay in effect. If you contact the bureaus by telephone or email, they’ll each have up to one business day to place the freeze. If you make your request by mail, they’ll have three business days to comply.
You’ll be assigned a PIN number for use whenever you want to unfreeze your file or later refreeze it. Say you apply for a mortgage or prequalification letter to buy a home. Your loan officer will need you to unfreeze your files at the three bureaus to pull your credit reports and scores. Once that’s done, you can opt to leave the files unfrozen or immediately refreeze them by contacting each of the credit bureaus.
You’ll need to unfreeze your files at least once more during the process: Within several days of your scheduled closing, your lender will do what’s called an LQI (Loan Quality Initiative) credit pull to make sure there have been no changes in your report, including inquiries, new accounts, balances or alerts.
In some cases, if your loan officer is a broker for a third-party investor, that investor’s underwriters may want to see a fresh credit report at some point during the loan process, necessitating a third request to unfreeze your files, according to Steve Stamets of the Mortgage Link, in Rockville, Md. It can all get complicated, especially when there are co-borrowers or married couples seeking the loan, each with their own file freezes.
Bottom line: If you opt for free freezes and plan to get a mortgage, play it smart: Be ready to unfreeze your credit files at least twice during the process, or simply unfreeze for the duration.
Ken Harney’s email address is firstname.lastname@example.org.