Mortgage Concepts: When is the credit exception notice used?

Mortgage Concepts is a recurring video series covering best practices and compliance education for California mortgage loan originators. This video discusses circumstances that require the issuances of the credit exception notice. For course credit toward renewing your NMLS license, visit firsttuesday.us.

Mortgage lenders have an alternative to the risk-based pricing notice, when it is required: the credit exception notice. The credit exception notice is acceptable if the loan requested is secured by a one-to-four unit residential property. [12 CFR §1022.74(d)(1)(i)]

The notice must contain:

• a statement that a consumer report is a record of the consumer’s credit history and includes information about whether the consumer pays his or her obligations on time and how much the consumer owes to creditors;
• a statement that a credit score is a number that takes into account information in a consumer report and that a credit score can change over time to reflect changes in the consumer’s credit history;
• a statement that the consumer’s credit score can affect whether the consumer can obtain credit and what the cost of that credit will be;
• the credit score disclosure and the Notice to Home Loan Applicant;
• the distribution of credit scores among consumers who are scored under the same scoring model that is used to generate the consumer’s credit score using the same scale as that of the credit score that is provided to the consumer;
• a statement that the consumer is encouraged to verify the accuracy of the information contained in the consumer report and has the right to dispute any inaccurate information in the report;
• a statement that federal law gives the consumer the right to obtain copies of his or her consumer reports directly from the consumer reporting agencies, including a free report from each of the nationwide consumer reporting agencies once during any 12-month period;
• contact information for the centralized source from which consumers may obtain their free annual consumer reports; and
• a statement directing consumers to the CFPB website to obtain more information about consumer reports. [12 CFR §1022.74(d)(1)(ii)]

The distribution of credit scores required is to be presented with clear and readily understandable graphics, or a clear and readily understandable statement informing the consumer how his or her credit score compares to the scores of other consumers. The regulations suggest a bar graph form containing a minimum of six bars that illustrates the percentage of consumers with credit scores within the range of scores reflected in each bar. Consumer reporting agencies selling credit scores can provide this information with the consumer credit report. As long as the graphic or statement contains all the information described in this paragraph, the lender  may use the consumer reporting agency’s report to comply with this requirement. [12 CFR §1022.74(d)(1)(ii)(E)]

The credit score exception notice is to be provided in writing, and segregated from other disclosures or information provided to the consumer. [12 CFR §1022.74(d)(2)]