Bankruptcies, Liens, and Judgments Are Important Data!
Lenders have historically put significant weight on the presence of public records on an applicant's credit report. And with good reason. A recent study showed that consumers with liens or judgments as part of their credit history are twice as likely to default on a loan as those with no outstanding liens or judgments.
In 2016, the bureaus were sued multiple times because of incorrect public record data being included on their credit reports. This happens because there are 10,000-20,000 "jurisdictions" of municipal authorities. Some of these records are sealed and the parties involved are not disclosed until it goes unpaid. The defendant then must file an action in the civil courts. Even in 2018, smaller courts still don't electronically publish information. In addition, public records are frequently logged with only one identifier, so it's not hard to get them "mixed up" with people who have the same name.
These variables make the public record database an inconsistent source, which is why the bureaus basically threw up their hands and said: "we're out of here!"
The bureaus decided to remove all the civil liens and judgments on consumer credit files unless three out of four (name, address, social, and date of birth) identifiers were included in the information AND the debt was re-validated every 90 days.
The first "purge" happened in July of 2017 and affected an estimated 12 million consumer credit files.
(Fortunately, this does not affect bankruptcy data being reported on credit files. Bankruptcies typically contain proper identifiers so they are accurately reported).
On April 16th, 2018 the bureaus did a final purge of an estimated 5.5 million consumer public records. This has made it even more likely to miss a lien or civil judgment by just reviewing the person's credit report.
While we all want the credit bureaus to return accurate and complete information, removing these public records from credit reports has left gaps that could be detrimental to lenders.
Public records may show up in title work, derailing the loan right before it closes. If the loan doesn't close, all the resources and man-hours that went into the process are down the tubes, which is costly for the lender. Over time, these lost loans can produce a real drain on the lending institution's productivity and profitability.
There are new reports that return public record data. These "gap" reports provide lenders with the missing public record information that has traditionally been used in making lending decisions.
Data Facts offers such a report, which is named the Bankruptcy, Lien, and Judgment (BLJ) report. It pulls the data from the same jurisdictions the bureaus used with an additional layer of security. The report filters by complete name, full address, date of birth, and social security number. These reports can be ordered along with the loan applicant's credit report, so lenders can identify public records earlier in the process, as they have always done.
Many lenders have proactively implemented new reports showing public record information into their lending process. The mortgage industry is expecting these new reports to become a growing trend in mortgage lending services as lenders don't want to wait until the title company uncovers civil liens and judgments. Lenders should consider implementing a bankruptcy, lien, and judgment report to reduce the chances of missing a public record on a borrower.