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An e-loan rebel discloses secret mortgage ratings


CALL IT THE mortgage credit score standoff of 2000. Call it David vs. Goliath.

But whatever you call it, the final result now appears likely to be the same: A plucky Internet mortgage lender that has defied long-standing industry practice by providing consumers their heretofore-secret credit scores -- free -- is on the verge of being cut off from its supply of scores.

Since Feb. 22, E-Loan Inc., a major Internet mortgage originator, has provided more than 10,000 mortgage shoppers nationwide with a peek at their current credit scores.

The scores themselves look straightforward on the surface: If you score high -- in the 700s or above -- you are rated a good credit risk, and many lenders will quote you lower interest rates and fees on a home mortgage.

If your score is below the mid-600s, you're considered a somewhat higher risk to default on the loan, and you'll most likely pay more. If you're in the 500s or lower, you are "subprime"; you're definitely going to pay a higher interest rate and your lender is going to watch you like a hawk.

Fair, Isaac & Co. Inc., the developer of the ubiquitous "FICO" score that nearly all mortgage companies use to underwrite loans to home buyers, has impressive statistical evidence that its scores accurately predict the relative likelihood of future defaults. Its software models are based on statistical analyses of millions of consumer credit histories, and highlight factors that foreshadow payment default, and those associated with timely payments.

Fair, Isaac licenses its models to the three big national credit reporting agencies -- Equifax, Experian, and Trans Union. When you apply for credit, your loan officer typically orders your credit reports plus your FICO scores, through one or more of the agencies. Though the scores were never designed to be the main factor governing whether a consumer gets a loan or at what rate, industry executives confirm that the scores often fill that role, especially when underwriting is done electronically.

In many cases, your FICO score is your mortgage destiny. Yet most homebuyers and mortgage applicants do not know their scores, and cannot get anyone to tell them, unless they're rejected for a loan.

Fair, Isaac Senior Vice President Cheri St. John says the firm doesn't want applicants to receive their scores because "we feel the scores alone, without additional information, aren't useful to consumers ... and could actually be harmful." Besides, argues St. John, your score is constantly changing -- it can vary from day to day depending on what's in your credit file.

Rather than a score, she says, consumers trying to interpret or improve their credit picture need "counsel from the lender." How your lender sees you in totality -- your income, job stability, the house you're buying plus your credit history -- is what really matters, not your credit score.

Fair, Isaac keeps scores out of consumers' hands through contractual agreements with the three national credit agencies. They may not provide FICO scores to lenders or brokers who they know are passing them to applicants or other third parties.

E-Loan defied that rule six weeks ago, and has been swamped by visitors to its Web site (www.eloan.com) ever since. To get a score, visitors must set up an account--dubbed "My E-Loan"--but do not have to apply for an actual mortgage. "The consumer response has been incredibly positive," says Janina Pawlowski, E-Loan's chairwoman and co-founder. Besides the 10,000-plus new E-Loan accounts, "we've had people constantly telling us, 'way to go!', 'we're behind you all the way,' and 'why should scores be kept secret when they're so important?'"

Fair, Isaac's policy "goes against the whole idea of the Internet, where you have free access to the information that's important to you, and you use that information to accomplish what you want," says Pawlowski.

But E-Loans' arguments haven't swayed Fair, Isaac. St. John could not provide a specific date when E-Loan's ability to provide scores to Web site visitors would be cut off by the three big credit agencies, but she indicated that she has "every expectation" that it will occur very soon.

Where will that leave consumers who still want to know their scores? Try this: When you apply for a loan, ask your mortgage broker or loan officer to order all three of your FICO scores -- one from each major credit agency. Then, with your credit report in hand, discuss with your lender what factors appear to have influenced your scores.

That may be a technical breach of the rules for your lender. But at least you'll know your score--and get some free counseling to boot.

Kenneth R. Harney is a syndicated columnist. Send letters care of the Washington Post Writers Group, 1150 15th St. N.W., Washington D.C. 20071.

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