CONFIDENTIALITY VS. COMPLIANCE: SECURITY FREEZES CREATE A PRECARIOUS BALANCE
State legislatures have been busy lately, passing laws protecting citizens from identity theft and unwanted invasions of their privacy. While these laws provide citizens with powerful tools to combat these problems and protect their credit ratings, they also make it more difficult, and potentially more costly, for lenders to underwrite loans.
The Pros
Most states now have laws permitting consumers to place security freezes on their credit report. A security freeze enables consumers to block potential creditors from viewing their credit reports while the security freeze is in place. This is beneficial for consumers who believe they have been victimized by identity theft because it prevents identity thieves from accessing the credit reports and opening new credit accounts.
The Cons
While security freezes provide protection for consumers, they also create unique problems for lenders. For example, it might take substantially longer for a lender to obtain an accurate and up-to-date credit report on an applicant, thereby delaying the underwriting process. Another concern is whether the consumer is a legitimate victim of identity theft, or whether they have fraudulently implemented the security freeze.
What You Need to Know
To help alleviate some of the burden on lenders, most states will permit lenders to treat an application for credit as incomplete if applicants have a security freeze on their credit reports. Most laws also provide a procedure for temporarily lifting a security freeze or permitting access to a particular creditor.
There are typically no disclosures which lenders are required to provide to applicants—only credit reporting agencies are generally required to provide any disclosures. Lenders should check the laws in each state in which they do business to ensure they are following the proper procedures when dealing with an applicant’s security freeze.
Wolters Kluwer Financial Services will continue monitoring these, and other, privacy laws to ensure that you aren’t frozen out of any new developments.
FORTY-YEAR AMORTIZATIONS RAISE QUESTIONS FOR LENDERS
Forty-year amortization mortgages used to be the sole province of sub-prime lenders. However, Fannie Mae and Freddie Mac recently began buying 40-year amortization mortgages as well. For example, Fannie Mae will purchase fixed rate and adjustable rate 40-year mortgages. In addition, Fannie Mae offers 3/1, 5/1, 7/1, and 10/1 ARMs with 40-year amortization periods. Freddie Mac has also introduced a 40-year fixed rate program.
While these developments are great news for consumers, lenders may be left wondering whether they need special loan documents for 40-year amortization periods and, if so, when those documents will be available.
Standard Forms Acceptable
According to an announcement by Fannie Mae, lenders will be able to use their current forms to write 40-year mortgages.
Fannie Mae “Announcement 5-04” explains that lenders “must use the most current version of…security instruments and riders as required.” In addition, the announcement states that lenders “must use the most current version of the appropriate Fannie Mae (or Fannie Mae/Freddie Mac) Fixed-Rate or Adjustable Rate Note.”
SECURING CUSTOMER DATA AND YOUR BUSINESS
Many high-profile data security breaches and corresponding multi-million dollar fines have been at the forefront of the media and consumers’ minds.
As an industry with a high risk of data security breaches, we must equally protect data from outside and inside threats. Such measures require implementing the strongest security methodologies available and performing ongoing surveillance and system enhancements.
At the MBA Annual Convention & Expo leading mortgage lenders and technology providers—including Art Tyszka, Senior Product Manager, Wolters Kluwer Financial Services | VMP Mortgage Solutions—discussed how to protect customer data and other sensitive business information.
For more information on how Wolters Kluwer Financial Services is positioned to help you protect your business and customer data, contact your Account Representative today.
