Solano Real Estate Scene: Jim Porter
Article By: Jim Porter – December 6, 2024
Thankfully, the Department of Financial Protection and Innovation, or DFPI, formerly known as the Department of Business Oversight, and the Consumer Finance Protection Bureau, or CFPB, have brand new rules about medical bills and collection agency reporting.
The CFPB stated that “medical bills have little to no predictive value when it comes to repaying other loans.” I have been underwriting risk and reviewing credit reports for 40 years and I could not agree more with this CFPB statement.
The new rules on medical bill collections will save hardworking Americans, of all financial sizes, from the low-income, first-time homebuyers to the buyers that make $30,000 to $40,000 per month, $100 million over the next few years in mortgage rates, loan fees and PMI costs.
Now, once a medical collection is paid off or settled, it will be deleted from the credit bureaus. Open and paid-off collections can have a devastating effect on a FICO score, and mortgage rates and PMI factors are based on FICO scores. I have written about this before, but I will say it again, the difference between a good FICO score of 680 and a great FICO of 760 is a lot of money. The rich are getting richer and the poor are getting poorer, and the one thing the rich have in common is high FICO scores.
Unfortunately, luck is a bigger factor than it should be because tiny collection accounts reported to the credit bureaus can cost a consumer 30 to 40 FICO score points. People are often surprised when we tell them about a collection.
I am on a mission from God this week, fighting like heck to get a $68 paid-off collection deleted for a first-time homebuyer to help him, his wife and three little kids increase his FICO from 670 to over 680, which according to our “What if FICO score simulator,” will easily occur if the buyer and I can convince the collection agency to issue something called a deletion letter removing the reported paid-off account from the credit bureaus.
This $68 was two months’ worth of renter’s insurance premium to one of the largest insurance companies in America. I am not going to name it because the local agent did not send this to collections. The company computer using AI did this, and the agent had no idea this had even happened. I have seen this exact same type of collection reported on another credit report earlier this year and that collection was less than $100, too.
This feels new to me because I do not remember seeing this in the past. FICO is proprietary and top secret. It is impossible to know anything for sure about this artificial intelligence and automated underwriting and risk scoring system known as FICO, but I am 94.779% sure that a $68 paid-off collection account has the same negative FICO score impact as a $68,000 paid-off reported collection. This is not fair, and I believe it is bad for the insurance company because the punishment does not fit the crime. Bad reviews will begin to grow and maybe even legal action down the road.
When we first called CCS in Massachusetts and I talked to a very polite young woman named Faith, she said they could not delete the account as a courtesy. I was thrilled this morning when the buyer found out that the $68 was unearned renter’s insurance premium for October and November 2022 because this policy had already been replaced by another renter’s insurance policy that was paid up and in force effective Sept. 1, 2022.
The $68 should have never been sent to collections. He paid it off last year because of the collection agency and insurance company threats. He was confused about what this $68 was all about and was busy working and taking care of his family. This was just bad luck that just might cost him the house he is in contract to buy using his California Dream for All voucher that he won in the Dream for All lottery.
Speaking of luck, this buyer was on the waiting list for five months for the Dream for All voucher and was only notified that he was a winner in October. Now, all we need to do is get a deletion letter fast before the seller cancels the purchase agreement. Their offer to purchase was accepted on Nov. 13, with a pre-approval letter from a loan officer in Southern California. The Realtor brought the buyer to me, when the other loan officer gave up.
Jim Porter, NMLS No. 276412, is the branch manager of Solano Mortgage, NMLS No. 1515497, a division of American Pacific Mortgage Corporation, NMLS No. 1850, licensed in California by the Department of Financial Protection and Innovation under the CRMLA / Equal Housing Opportunity. Jim can be reached at 707-449-4777.
