The Changing Shape of the Credit Reporting Industry: New Technology, Industry Consolidation and Challenges Presented by Pending Reform of the Real Estate Settlement Procedures Act (RESPA) Are All Reshaping the Business of Credit Reporting

By Grant, Steve | Mortgage Banking, September 2003 | Go to article overview

The Changing Shape of the Credit Reporting Industry: New Technology, Industry Consolidation and Challenges Presented by Pending Reform of the Real Estate Settlement Procedures Act (RESPA) Are All Reshaping the Business of Credit Reporting


Grant, Steve, Mortgage Banking


THE CREDIT REPORTING INDUSTRY HAS CHANGED DRAMATICALLY IN RECENT YEARS.

Not that long ago, it took days to prepare a credit report. First the report would be manually prepared on a typewriter, then sent by courier to the mortgage lender for review. But then technology came on the scene.

In the late 1980s and early 1990s, credit agencies developed technologies to instantly merge credit data from the national repositories into a single, comprehensive report. But even then, order and delivery were achieved by fax and snail mail.

Eventually companies brought dedicated printers and modems into the lender's office to instantly deliver completed reports, saving days in processing time. To further enhance the order and delivery process, progressive companies developed software that allowed the lender to order as well as receive a merged credit report in seconds instead of hours or days. Companies such as Salisbury, Maryland--based Credit Plus Inc. developed the means to interface a lender's loan origination software with its credit reporting plafform, eliminating the need to rekey information.

With the introduction and widespread adoption of automated underwriting came the demise of the residential mortgage credit report (RMCR). Lenders no longer needed the additional information and verifications contained within an RMCR. All that lenders required was a triple-merged in-file with credit scores to make an underwriting decision, ultimately saving valuable time and money.

Today many credit agencies offer credit reporting and other crucial services through a single, comprehensive platform available on the Web. Of all of these changes, several advantages stand out as particularly noteworthy. Topping the list is the speed at which mortgage professionals can now obtain credit information. What used to take days now takes seconds.

The exponential growth of automated services has led to a streamlining of lending operations to a degree not imagined just a few years ago. In the late 1990s, more and more credit information providers began adding items such as flood reports, appraisals and tax return reports to their product and service mix.

This article looks in detail at the changing face of the credit reporting industry--much of it brought about by technological developments. It also examines the roles consolidation and bundling of settlement services under the Real Estate Settlement Procedures Act (RESPA) could play in further transforming the business.

Rapid changes

From eliminating huge paper trails and weeklong lag times to eliminating many traditional jobs, the streamlining of the lending industry has been staggering, You can find evidence of this all around. In June, Howard Beales, director of the Federal Trade Commission's (FTC's) Bureau of Consumer Protection, testified about the Fair Credit Reporting Act (FCRA) before the Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Committee. Beales noted how the modernization of credit reporting has played a key role in providing American consumers rapid access to consumer credit.

While credit reports are much more a part of the front end of loan servicing than a true settlement service, their evolution and regulation weigh heavily on the settlement service industry.

With credit becoming even more important in the successful quest for home financing, consumers are bombarded with advertisements that offer fast, easy access to their credit reports and solutions to their credit woes. In addition to streamlining business operations, technology has helped consumers make significant gains in accessing their credit ratings.

Some products now let mortgage professionals show their clients a glimpse at their credit future and provide assistance with how to improve a troubled score. For example, in the past year my company, Credit Plus, released a product called ScoreWizard[R]. …

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