Housing Bubble

MBA warns of fall in homeownership rates if FCRA changed

June 13, 2003

Washington, D.C. – In testimony presented before the Subcommittee on Financial Institutions and Consumer Credit of the House Committee on Financial Services, John A. Courson, chairman of the Mortgage Bankers Association of America (MBA), called on Congress to maintain the national uniform standard of credit reporting for consumers, lenders and the economy by reauthorizing and making permanent the preemptions of the Fair Credit Reporting Act (FCRA).

FCRA was enacted in 1970 for the purpose of regulating the use and distribution of consumer credit information. In 1996, Congress amended FCRA to include seven federal preemptions to provide accuracy, consistency and uniformity among the users of consumer information, those who report consumer information and credit bureaus that collect and distribute consumer credit information. The federal preemptions also provided for consumer protections and created a national uniform standard that facilitated the availability of credit on a national rather than local level.

Courson’s testimony credited FCRA with playing an important role in the recent successes of American homeownership, by creating a structure that produces reliable consumer information that is used to lower the cost of homeownership, offer the dream of homeownership to underserved markets and produce innovative mortgage products. According to Courson, FCRA’s national uniform standard is important for consumers and the mortgage industry because it gives rise to the following beneficial circumstances:

It enables Americans to move to new states and purchase homes with relative ease;
It lowers the cost of credit to consumers as lenders compete for customers on a national level;
It speeds the consumer’s access to credit as lenders underwrite loans using automated systems that provide a quick and reliable response to a mortgage application;
It permits lenders to evaluate risk more accurately through analysis of consumer credit data, thereby enabling mortgage bankers to extend credit to Americans who, under traditional evaluation models, were considered too great a risk; and
It allows for greater innovation in mortgage products as lenders take a successful program or product in one state and implement it in another state, allowing additional consumers to benefit from it.

In his testimony, Courson also stated that if Congress were to permit states to legislate in areas that are pre-empted in FCRA, it would have dramatic effects for both industry and consumers. These effects would include:

The cost of credit for consumers will increase as lenders, who currently operate under a national standard, face higher costs to discover and comply with new state laws;
Consumers will have fewer lenders among which to choose as varying state laws give rise to regional barriers that will make it difficult for lenders to operate nationwide;
Innovation in mortgage products will slow as disparate state laws decrease the amount of uniform consumer information, which is necessary for advancements in technology and;
Consumers will face a longer wait for credit as automated underwriting systems are reprogrammed to comply with inconsistent state laws.

“Should Congress decide to dismantle this well-operating structure, it will negatively affect the availability, cost and variety of mortgage products in this country and could give rise to a devastating result—a decline in homeownership rates,” Courson concluded. “The mortgage banking industry believes that FCRA and the preemptions within it have proven to be a financial success for consumers and the economy, and should be extended and made permanent.”

Source: Mortgage Bankers Association of America