Borrowers Wait for Green Light in Mobile Home Loan Rate Shopping

Lenders use a consumer credit report and a numerical credit score to determine whether to make a loan and at what interest rate. The credit score is designed to represent a borrower's overall credit worthiness based on income, debt, repayment history and more. Each time a borrower seeks credit, the lender sends an "inquiry" to the credit bureaus to check credit and calculate the current score.

Until recently, the credit score algorithm assumed that several "inquiries" from lenders in a short period might indicate that a consumer needed money and therefore might be a worse credit risk. This had the unfortunate affect of punishing consumers who actually shop around for the best loan deal.

Fair Isaac, the country's major credit score developer, changed its calculation in 1998 to encourage rate shopping, and the new algorithm has slowly been adopted across the country by the major credit bureaus, but the implementation of this new system for mobile home buyers is uneven at best.

Rate Shopping and the New Credit Scoring

Today, the Fair Issac program does not reduce a consumer's credit score if several inquiries from auto or mortgage lenders are recorded within a 30 day period. In addition, the system looks back 12 months, and any cluster of inquiries from auto or mortgage lenders within a two week period will only be counted as a single inquiry. Therefore, a consumer could go to several auto dealerships in a weekend, get credit checks at each of them, and decide to hold off altogether. The rate shopping weekend would be noted later as a single inquiry. The effect of such an inquiry should be slight when the consumer decides to go ahead with that auto purchase at some future date.

These changes allow consumers to shop around for the best rate and terms for their auto or home loan because the 30 day "rate shopping" period does not count against the score at all. The one year "look back" rule also takes some of the pressure off. Consumers can consider their home or car loan options over several months and the clusters of inquiries may have only a nominal affect on their score.

Implementation Uneven

According to a November, 2001 statement from the National Association for Mortgage Brokers (NAMB), many lenders are still not using the most up-to-date credit scoring models. "Some credit reporting companies and lenders are presently using scoring models that date back to 1994," said Ginny Ferguson, chairman of the NAMB Committee for Credit Scoring. "By continuing to use older versions, the changes that have been made to improve the scoring models are useless for the consumer and the industry as a whole."
In Texas, the largest credit bureaus report that most of their lender customers do use the most current Fair Isaac scoring model, although the older models that do not allow for rate shopping are still in use by some of their clients.

But for consumers shopping for a manufactured home, there is an additional worry. Even if the lenders and bureaus are using the 1998 credit scoring algorithms, they only apply to inquiries from lenders that are classified as "auto" or "mortgage" lenders. There are a small number of lenders dominating the manufactured home loan industry. Most of them use retail installment contracts rather than conventional mortgage contracts for the majority of their lending. This means that the consumer's loan is a "personal" loan on "personal property" rather than a mortgage loan on real property.

Every time a dealer runs the consumer's credit, it may appear to be an inquiry for a personal loan, rather than a mortgage loan or an auto loan. The changes to the credit scoring models do not allow consumers to initiate several inquiries from personal loan companies without damage to the credit score.

According to Fair Isaac, a manufactured home lender could be classified as either a mortgage company, an auto lender, or a personal credit lender by the individual credit organizations using the Fair Isaac system. When asked, the credit bureaus said that information about ways their clients might use the credit scoring system--including the classification of manufactured home lenders--would be up to each individual lender using the system.

Recommendations

Until consumers can actually shop for a manufactured home loan without damage to their credit scores, dealers will retain the upper hand in negotiations. No law currently mandates that lenders use the most current credit scoring models that allow consumers to rate shop for auto and mortgage loans. No law currently requires lenders to consider a manufactured home loan "inquiry" the same as a mortgage inquiry.

At this time, we recommend that consumers get their own credit scores directly from the three Bureaus. Credit scores are readily available on the internet for a small charge or by mail or phone.

TransUnion--http://www.transunion.com/Personal/OrderCreditReport.asp or call 800-888-4213.

Equifax--http://www.equifax.com/personal_solutions/index.html or call 800-685-1111.

Experian--http://www.experian.com/consumer/index.html or call 888-397-3742.

Armed with your own credit score, shop for a manufactured home but do not provide your personal information. Ask the dealer to give you a written quote with the price and the estimated loan terms based on the credit score you provide but without running a credit check.

To correct the problem and ensure that consumers can shop for a manufactured home: