Honey, I Shrunk The Credit Score
Steven Marks knew he was wasting thousands of dollars every month paying the mortgage on a home he bought during the housing bubble that will never be worth that much again.
But he'd read plenty of horror stories about people having serious trouble modifying their mortgages due to bank confusion and misbehavior, so before he started looking for debt relief on his Reno, Nev. home, Marks sent a simple request to Bank of America: Could they tell him who owned his mortgage? And could they document it?
Marks didn't get the type of response he was expecting. After initially declining to tell him who owned his loan, Bank of America provided a form letter with the name of the current investor a few weeks later. But they also appear to have lowered his credit score, the preeminent measure of creditworthiness that will principally determine his ability to obtain loans in the future.
"I just asked to see my note, and they dinged my credit score. My insurance premiums have already gone up," Marks told HuffPost. "I went to see a lawyer, we're trying to figure out what my options are. After this, we're thinking about some forced mediation. Why keep paying if my credit score gets battered anyway?"
Marks asked the bank for documentation through a "Where's The Note?" website created by the Service Employees International Union and the African American grassroots-advocacy group Color of Change. Amid reports of widespread fraud in the foreclosure process, resulting in everything from illegal fees to improper evictions, the site's stated purpose is to offer borrowers legal leverage to challenge bank wrongdoing.
"To protect myself and my family, I need to know who owns my mortgage," the "Where's The Note?" request template reads. "Furthermore, in light of the recent allegations of foreclosure fraud, I demand to see the original mortgage note proving ownership over my home loan. If you fail to produce a mortgage note proving that you have a right to collect my mortgage payments, I will be forced to consider all options available to me to ensure that my family and my home are protected."
Marks, whose situation was first described by finance blogger Barry Ritholtz, wasn't used to financial instability. He said he's never missed a payment on his home, or even sent one in late. Right before sending a letter to Bank of America, he'd checked his credit score -- a near-perfect 780. He continued to pay on his mortgage after sending the request, only to find that his score had dropped 40 points to 740.
"That is astonishing," Ritholtz wrote.
A bank spokesman said it may have interpreted borrower language as a dispute, but would fix any problems created in its borrowers' credit reports.
"Certain wording used in the letters brought to the bank's attention may have been interpreted in some cases as raising a possible dispute. The bank is taking steps to clarify the handling of these requests, and when and if a dispute coding should be placed on the account," the spokesman said. "In any case, once a possible dispute has been researched and the findings result in the removal of the dispute coding, it should no longer be reflected in the customer's credit profile. Bank of America will review files that may have been impacted and make any necessary corrections in credit reporting."
SEIU spokesman John VanDeventer said the union has received more than 100 complaints similar to Marks' since the launch of "Where's the Note?" While Wells Fargo and GMAC have been the subject of a few complaints, he said, the overwhelming majority have come in regards to the activities of Bank of America.
Another of those complainants, Leigh Dasinger from Milbrook, Ala., received a form letter nearly identical to the response Marks received. The similarities in the document, which Dasinger provided to HuffPost, suggest that the bank is deploying an automated process to handle the requests.
Bank of America doesn't own either Marks' mortgage or Dasinger's -- it owns the right to "service" their loans. In good times, a loan servicer collects payments and forwards them to the investors who own the loan, skimming a little bit off the top for their services. In bad times, BofA and other servicers charge late fees, negotiate new terms with troubled borrowers and, frequently, foreclose.
Servicers report borrowers' payment history to the so-called "Big Three" credit-reporting bureaus -- Experian, TransUnion, and Equifax -- who plug that data into algorithms for determining credit-worthiness. Borrowers can raise disputes over items on their credit reports, which, apparently, is what the bank told the bureaus Marks and Dasinger were doing.
"Further as a member of the credit granting community, Bank of America, like most creditors, relies on the accuracy and validity of the information obtained from the various reporting agencies," the bank said in both its letter to Marks and its letter to Dasinger. "Therefore, we will not remove the negative credit reporting from your credit file."
HuffPost asked several credit and servicing experts to review the letter.
"When you dispute information to a creditor like BofA ... they're supposed to say 'account disputed by consumer.' But they're not disputing the information on the credit report, they're asking, 'Who owns my mortgage?'" said credit-reporting expert Evan Hendricks, editor of the newsletter Privacy Times. "Bank of America responds wrongly to this by interpreting it as something that has to do with credit reporting, and something to do with the way they're reporting a consumer's information to credit-reporting agencies."
It appears that the credit-score trouble can only affect borrowers in good standing on their mortgages. For a borrower like Marks who had never missed a payment, reclassifying his mortgage from an account in good standing to a disputed account removed good information from his credit report. As a result, his credit score dropped.
"They're treating these letters as credit-reporting disputes, but the request is not actually a dispute," said National Consumer Law Center Attorney Chi Chi Wu. "If it's retaliation -- threatening to damage someone's credit report for making a good-faith request -- that certainly raises questions about the legality of the practice under several consumer-protection laws."
Targeting a borrower's credit score could be classified as retaliation, according to Wu and other consumer lawyers, and it's illegal for banks to retaliate against borrowers for exercising their rights under many consumer-protection laws, including the Truth In Lending Act. Both TILA and the Real Estate Settlement Procedures Act require banks to tell borrowers who owns their mortgage.
In fact, banks are required to notify borrowers whenever their mortgage is sold to another bank or investor, but as banks went into mortgage mayhem over the past decade, this obligation was routinely lost in the shuffle, along with other paperwork requirements -- some mere technicalities, others that lead to banks throwing the wrong people out of their homes. Bank of America has been cited for forging documents in the foreclosure process, and for improperly breaking into the homes of its borrowers.
It's not clear whether BofA is intentionally attempting to intimidate borrowers, or whether this is a mistake created by a high-volume business that is not above cutting corners in order to reduce costs.
"They tend to really automate everything they can so they don't have to use staffing resources on disputes," says Wu. "Whether it's a screwup or something more malevolent, it's definitely a problem on Bank of America's end."