Loan Programs

Expert: Medical Collections Stopping Refi Opportunities

By Brad Finkelstein

PLANO, TX - According to a top producer of government mortgages, few borrowers are able to take advantage of the steep decline in interest rates, not just because of tighter lending standards and declining home values, but because of issues on their credit reports, specifically medical collections.

According to Rodney Anderson, executive director and senior managing partner of Rodney Anderson Lending Services here, 45% of the 1,701 loan applications he received between June and September 2008 had borrowers with at least one medical collection account. "In evaluating these loans, we uncovered a huge injustice against the American public," says Mr. Anderson. "The tragedy is that the collection accounts, even those that have been paid in full, are lowering these individuals' credit scores, often to the point that they either can't qualify for a loan, or will have to pay higher interest rates if they do."

He explains that medical collections are particularly problematic because of four main issues:

• Medical billing is a notoriously error-prone arena
• Many individuals with medical collection accounts never received the bill in question
• Medical collection accounts customarily remain on a credit report for seven years after the individual has settled or paid the account in full
• Medical collection accounts can reduce a credit score by as much as 100 points, sometimes more.

"Based on our extensive research, we can surmise that nearly half of Americans have at least one medical collection debt that's lowering their credit score," says Mr. Anderson, who uses analytical software to evaluate credit reports and determine how borrowers can best improve their own credit scores. In doing so, he found that medical collection accounts are routinely reducing borrowers' credit scores by 60 to 100 points or more. "This is disastrous news for loan applicants, especially since earlier this year Fannie Mae and Freddie Mac started requiring higher credit scores to qualify for loans, and loan servicers of FHA and VA loans have implemented additional credit score-based premiums," he adds.

So he has initiated a petition to create a federal law mandating the permanent removal of a paid or settled medical collection account from the consumer's credit report within 30 days of settlement.

"I've seen many hard working, conscientious individuals who diligently address their monthly obligations, but because they unwittingly incurred a medical collection account, are forced to settle for a mortgage rate that's half a percent higher than if they'd never had that collection account," adds Mr. Anderson. "That half point can translate into thousands of dollars in wasted money, and that's only for a home loan. They can also expect higher rates for auto financing, credit cards and insurance. That's a hard pill to swallow for the many individuals who were never notified of the initial billing and who have since paid the collection account in full. In this market, where interest rates and low home prices present the ideal time for buying, we need to make sure that individuals who deserve credit, get it."

More information on the Credit 911 Medical Relief Bill is available at http://www.rodneyanderson.com/credit/medical_collections.php. Other subprime columns.