ATR, QM and the Risk of Helping Consumers With Credit Issues “With QM and ATR enforced, lenders must now take all precautions to be sure that they are writing quality, transparent and performing loans.” By Chad Kusner s an owner of a credit service organization since 2007, I have focused my efforts on serving the mortgage and real estate industries. After 10 years as an originator, I recognized the opportunity to bring legitimate credit repair services to an underserved industry and ethical care to over deceived consumers. As I write this, our company has served more than 9,000 clients and continues to grow. As we move into a new era in mortgage lending, there is more regulation and oversight than ever before. The thought of taking DNA samples for applicants does not seem far-fetched any longer. The new qualified mortgage (QM) and ability-to-repay (ATR) rules not only restrict the criteria of new loans, they increase the potential liability of the originating lender for loans that do not meet QM criteria. With the increase in compliance, the question of what to do with consumers who have challenged or poor credit has moved to the forefront. In the past, there was an indifference to credit repair. Some saw the value in having a good source for referring their clients to credit repair. Some loan officers referred clients as a polite way to turn them down and others saw little or no use for credit repair at all. With QM and ATR enforced, lenders must now take all precautions to be sure that they are writing quality, transparent and performing loans. My organization has seen a wide range of reactions in regards to protocols on using credit repair organizations. Some lenders have sent us e-mails thanking us for our great work and optimism for a productive year. Some companies have modified their meth-
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ods of referring clients to us. A few lenders have placed moratoriums on referring any applicant for credit services. In the most extreme case, I spoke to a lender that banned the use of any credit simulation tools at all, even the ones provided by their credit reporting reseller like. I think it is important that before making any decision on what to do with the credit repair conundrum, you consider the following: l What percentage of your new opportunities have credit issues? l Have you researched the range of credit repair services to determine if there is actual value? l What percentage of your applicants are purchase clients? l What percentage of your applicants are interested in rent to own and land contracts? l Are you looking to differentiate yourself with your network of real estate agents and provide additional value? l How educated is your staff on credit reporting and consumer law? l How much time do you want your originators spending on applicants who cannot qualify at initial application? When I was originating, our average cost per closed loan was $850. Today, some of our clients have quoted numbers topping $1,700 per closed unit. With increasing costs and profits being limited, it is crucial to maximize every qualified opportunity. The reality is that credit repair is not something to be scared of in the world of QM. In fact, the right CRO partner can be an important resource to any lender if they operate in a manner that is fitting and compliant to all guidelines. I strongly recommend interviewing up to four credit repair companies. Find a
partner that you are confident will prove themselves to be an asset to your organization. By using the following tips, you can be sure that the applicants you refer come back as strong performing closeable transactions and receive ethical treatment during the process: 1. First and foremost, are they compliant with the Credit Repair Organizations Act (CROA)? 2. Are they members of National Association of Credit Services Organizations (NACSO), the trade association for the credit repair industry? 3. Are they brick and mortar or do they work from their home? 4. What are their credentials and what qualifies them to be a Credit Repair Organization (CRO)? 5. What is their prescreen process? How do they determine if applicants need repair and do they have standards by which they would turn down a file? 6. What is their repair process and or method? 7. Do they process all of their own work or do they outsource their disputing? 8. How will you know when a client is ready to reapply for their loan? 9. What consumer protections do they provide their clients (warranty or guarantee)? Carefully selecting the right credit services partner is critical to mitigating the risks involved with utilizing credit repair. We must be mindful that there are still bad actors out there. By having a strong reputable credit servicer, you can accomplish multiple goals. First, you can increase your applicant to closed loan ratio. This reduces cost per conversion and increases profitability. Qualified CROs will only enroll those who have been through an economic event and are not currently in financial distress.
Bankruptcy, loss of job, divorce and medical events can wreak havoc to the most responsible consumer’s credit report. From a relationship perspective, you can provide added value to your real estate agent networks. The right CRO can help bolster the services you offer and provide a conduit of credit information to them. Redirecting credit questions to your CRO partner saves you time and allows you to focus on new transactions. This most definitely will increase the number of your referrals. Also, considering the complexity of credit reporting and consumer law. Your originators can quickly find their time monopolized by researching information, chasing documentation and writing letters. This redirects the time and attention needed to stay focused on new origination. As a loan officer of 10 years and CRO owner for seven, I still know only enough to be dangerous. I leave the heavy lifting to the experts in my organization. Last, what you may not know is that the credit repair industry itself is evolving. The once fraud ridden “letter jamming scam” is quickly become a consumer advocacy focused service that is proving invaluable to its agents the consumers that use the services. As we embark on this new era of mortgage lending, I hope that I have given some food for thought on the credit repair enigma. We look forward to facing the challenges together, now and in the future. Chad Kusner is president of Credit Repair Resources LLC. Chad is an accredited by the State of Ohio Department of Commerce and Ohio Supreme Court as a credit educator. Chad is also an Executive Director of NACSO, the National Association of Credit Services Organizations. He may be reached by email at chad@crr760.com.