Under new rules, there are now three main kinds of disclosure notices mortgage lenders send to home loan applicants. These are the:
- Credit Score Disclosure Notice
- Risk-Based Pricing Notice
- Adverse Action Notice
The first two notices are new requirements under a new credit reporting law that became effective last January 1, 2011 while the third notice has been part of the Fair Credit Reporting Act and the Equal Credit Opportunity Act.
All in all, there are five new notice forms described under new regulations from the Federal Reserve Board and the Federal Trade Commission. Two notice forms are about the pricing of the home loans while the three other notice forms are about credit scores.
You don’t receive all these notices, however. You only receive one notice, depending on whether your loan application is approved or rejected, together with your mortgage lender’s approval letter.
f your home loan application is approved, your mortgage lender will send you either a Risk-Based Pricing Notice or a Credit Score Disclosure Notice. Essentially, these notices tell you that your credit score was among factors used in determining whether you can be granted a home loan or not.
If you receive the Credit Score Disclosure Notice, you’ll see your FICO credit score on top of the page. This ranges from 300 to 850. The key factors that affected your score are also explained, namely:
- Total amount of delinquent balances
- Number of delinquent accounts
- Time that passed since latest credit account opening
- Length of time accounts have been started
If you receive the Risk-Based Pricing Notice, you won’t see your FICO score. Instead, you’ll see explanations why you didn’t get the most favorable mortgage terms in comparison to other borrowers with much better credit records. This notice also instructs you on how to request for a free copy of your credit report and how to correct mistakes on your credit report.
On the other hand, if your home loan application is rejected, your mortgage lender will send you an Adverse Action notice. Approved applicants also receive this if an undesirable change occurs in their mortgage terms after getting an approval. Likewise, existing borrowers receive this type of notice from mortgage lenders if there are unfavorable changes in their loan terms.
Your rejection notice will also include the reasons why your home loan application was disapproved, and most likely, the reasons are:
- missed payments
- short credit history
- high loan balances
- high number of recent credit inquiries