Two major changes in the mortgage market go into effect this month, and both could help millions more borrowers qualify for a home loan. The changes will also add more risk to the mortgage market.
First, the nation's three major credit rating agencies, Equifax, TransUnion and Experian, will drop tax liens and civil judgments from some consumers' profiles if the information isn't complete. Specifically, the data must include the person's name, address, and either date of birth or Social Security number. A sizeable number of liens and judgments do not include this information and have subsequently caused some misrepresentations and mistakes.
Of about 220 million Americans with a credit profile, approximately 7 percent have liens or civil judgments against them. With these hits to their credit removed, their scores could go up by as much as 20 points, according to a study by credit rating firm Fair Isaac Corp. (FICO).
"It's a significant impact for still a very large number of people," said Thomas Brown, senior vice president of financial services at LexisNexis, who is concerned that the move will add significant risk to the mortgage system.
"If you look at someone that has a tax lien or a civil judgment, they can be anywhere from two to more than five times more risky just because of the presence of that information," he said. "That's very, very significant."