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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   January 2013

Score High for Fixing Credit Problems

Take a closer look at clients’ credit reports to ensure smoother underwriting

In the past few years, commercial mortgage brokers have learned the importance of sharpening their skill set to tackle issues that probably weren’t even a concern during the peak of the market. One of these issues is the necessity of scrutinizing borrowers’ credit history to see if credit repair is required before presenting a loan for underwriting.

When the market was at its height, it was almost a given that a commercial property’s borrower had an excellent credit history. This assumption has changed since the recession, however. In today’s market, commercial mortgage brokers may come across many borrowers whose credit is less than optimal because the market has turned their lives and businesses upside down. Many people have been forced to exceed the limits of their credit cards, lag behind on mortgage payments, or wind up in foreclosure.

To complicate matters even further, many borrowers simply don’t fully understand how credit reports and scores work, and how financial decisions that don’t seem substantial in themselves can significantly impact their credit status. No matter how many times a commercial mortgage broker advises a client not to do any credit-score inquiries or large purchases when purchasing or refinancing a property, a client may unintentionally cause substantial damage to a pending loan by not heeding this advice. For example, a client who takes several credit cards and exceeds their limits without any thought of the refinances that are about to close may end up in an unfavorable position with the underwriters. This activity can make the borrower’s credit score plummet from higher than 720 to the 500s — leaving the loan officer with nothing but a “declined” stamp on that file.

The good news, however, is that with good credit repair, many credit problems can be solved. Commercial mortgage brokers who are willing to invest the time in learning about the basics of credit repair will have an invaluable tool that sets them apart from the average mortgage professional. Here are a couple of points to consider.

Credit-report functions

Most providers of tri-merge credit reports offer a what-if simulator and a rapid-rescore function. The what-if simulator can help you troubleshoot credit files and see where the clients’ available cash is best used to improve scores. It also updates the status of inaccurate reporting.

For instance, if a client exceeds the limit on some credit cards, the system will allow you to plug in a payoff amount and edit the report to see how much the score improves. In many cases, you may be able to improve a score by as much as 100 points, which can turn that declined file into an approved file within 30 days, and that’s where the rapid-rescore function comes into play.

"Commercial mortgage brokers who are willing to invest the time in learning about the basics of credit repair will have an invaluable tool that sets them apart from the average mortgage professional." 

When you find out that a client needs an improvement of 80 points, troubleshoot the file with the what-if simulator and find the items that will bump the score up. Then you can use the rapid-rescore feature: Ask the borrower to get a letter from, for example, the credit card company that includes the client’s name, account number and an updated status of “paid in full” on the corporate letterhead. Once you receive the letter, you can e-mail or fax it to the agency that pulled the tri-merge report, and within 24 hours to 48 hours, the company will be able to update the file at the bureau level to reflect the improvements. You typically then will be able to receive a new report with the improved scores to submit to underwriting.

Late payments and collections

Another way to improve credit scores is to remove late-payment oversights. If your client had an unforeseen circumstance that led to making a late payment, it typically appears as a 30-day late payment. The client can approach that lender and request the late payment to be removed from the file as a “one-time courtesy.” Remember, that one-time late payment can cost your client as much as 80 points on a report taking a 720 score down to a 640 and leaving the client without any options. Asking for the lender’s one-time courtesy can turn around a file in your client’s favor.

Similarly, collections that are too old to be reported and are time barred can be removed from credit reports with proper documentation or even a dispute letter, both of which will aid your clients in improving their credit scores.

• • •

Although these credit-repair steps may seem like a lot of work and slightly outside the purview of a commercial mortgage broker’s typical work, they are worth the time and effort if you consider the alternative of losing of a good file as a result of a client’s oversight or past credit problems. Providing tips for credit repair not only puts a commercial mortgage broker in the driver’s seat but also affords an opportunity to gain referrals, as borrowers surely will appreciate mortgage brokers who go the extra mile to ensure that their deals are successfully funded.  


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