Did Mortgage Note Request Leads to Credit Downgrade?

Did a request for information involving a mortgage note lead to a credit score downgrade for a Bank of America client?

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Barry Ritholtz is reporting this morning that a Bank of America customer attempted to research who owned his mortgage and got a major surprise—a 40 point drop in his credit score.

According to the report on TheBigPicture.com, the customer in question held a jumbo mortgage, made timely payments, and banked with Bank of America.

If this story proves out, it may turn into a major headache for BofA.

Before we unpack the implications, two quick points.

To begin with, the story is based on one case—involving a single self-reporting source. A single case—no matter how compelling or potentially illustrative of a broader point—isn't yet a trend.( Idiosyncratic events can always cloud individual cases). Second, it may take some time to "prove the negative"; namely, that no other credit events adversely affected the clients credit score during the time period in question.

That said, Ritholtz is a very smart guy who understands this subject particularly well. It's a very good bet that he did his homework on this one. In baseball, a tie goes to the runner—and the journalist who uncovers a story gets the benefit of the doubt when it comes to asking more questions and doing further research.

The potential impact of any story, especially early in the news cycle, is difficult to gauge.

However, if this story turns out to be representative of a broader trend, it could become a public relations nightmare for any bank that engaged in similar conduct.

Here's why: The complexities of the causes and effects of the housing bubble—and, subsequently, the subprime mortgage and credit crises—are notoriously difficult to explain and comprehend.

This story is not. A thirty second water cooler conversation conveys the impact with perfect clarity.

("Let me see if I've got this straight: You tried to find out if your bank still owned your mortgage—and the bank dinged your credit score? Seriously? They can do that?)

If you doubt the power of simplicity to amplify a scandal think about this: Politicians often survive years of allegations involving complex financial impropriety—but a truly lurid sex scandal can bring down a Senator virtually overnight.

Everyone understands sex.

And most people have a keen interest in their own credit scores—even if they're not following intricacies of the MERS story.

Ritholtz calls the account "astonishing"—and goes on to observe "Looks like a job for Elizabeth Warren."

It's too soon to say where this story may lead—much research still needs to be done—but if this story proves out, it may be a very unpleasant one for Bank of America.

Or any other bank that acted similarly.


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