Proposed Credit Law Changes Will Increase Mortgage Rates

The proposed Fair Credit Reporting Improvement Act of 2014 proposes to shorten the time that adverse credit information appears on individual credit profiles, which will lead to higher mortgage interest rates. Here is why:

Currently, adverse credit information will remain on credit reports for a period of up to seven years; under the proposed law, that period would be shortened to four years, and if a non-performing credit account is paid or settled, that account would be removed from the credit profile in approximately 45-days.

What this will do is encourage borrowers to default on loans, because there will be no consequences for not paying creditors back in full. Once the derogatory information is removed, presto, the potential borrower will look like a good credit risk. While the current credit scoring model is not perfect, it rightfully factors in the non-payment of debts, and is a model in which lenders can reasonably assess a potential borrower’s willingness and ability to repay debts.

Creditors will have no choice but to raise rates for high credit score borrowers (who currently receive better rates) to accommodate for the increased risk posed by the deadbeats who would now appear to be good credit risks. While legislators may mean well, surprisingly, this law does not appear to have been well though out.

If you are an Indiana resident searching for a mortgage, visit www.firstindianamortgage.com for a free, no obligation rate quote.

The proposed Fair Credit Reporting Improvement Act of 2014 proposes to shorten the time that adverse credit information appears on individual credit profiles, which will lead to higher mortgage interest rates. Here is why: Currently, adverse credit information will remain on credit reports for a period of up to seven years; under the proposed law, […]