Hingham-based Intellidyn Corp., which has its headquarters in the building pictured above, offers a credit trigger service it calls IntelliAlert. Also being offered by the nation’s three biggest credit reporting agencies, trigger programs generate targeted prospect lists of potential borrowers for mortgage lenders.

Credit triggers, a lead-generating service the nation’s three biggest credit bureaus have recently begun selling to lenders, may be transforming the mortgage origination process into live auction, a trend that has many industry watchers worried. The concerns don’t end there, however, as some local lenders and mortgage trade groups are questioning whether the practice is legal or ethical and have expressed concerns about consumer privacy issues.

Credit triggers – or prospect triggers – are among a slew of options now being offered to lenders for gathering hot leads. With the mortgage market experiencing a slump, lead-generating services are garnering more attention, and credit triggers provide very targeted prospect lists. When lenders request a credit report on a potential borrower, credit bureaus such as Experian, TransUnion and Equifax market that information to other lenders. The resulting leads are consumers who are actively shopping for a home loan.

Loan officers may not become aware that details of their potential customers’ mortgage needs were sold to other lenders until a prospective borrower calls and mentions getting several other offers out of the blue, a scenario that several local lenders have reported has happened them. The results are disconcerting for loan originators. Just when the original loan officer or mortgage broker seemed on the verge of closing the deal, multiple competitors can jump into the fray.

Although the phenomenon is relatively new, the concept is grabbing the attention of trade associations, regulators and lenders, some of which are gearing up to fight the practice and others that are considering incorporating it into their business model.

Is this prospecting or poaching? The debate is just getting started.

Shortly after Eric Nelson, president of Milford-based United Funding Corp., submitted a credit inquiry on one of his potential borrowers, the woman began getting offers from other lenders.

“She had seven or eight different lenders that pulled her credit [information],” said Nelson, who said he might have had to fight a little harder to keep his client satisfied. The unsolicited contact from other loan officers was not welcome in this case, although proponents of credit triggers say some consumers appreciate the additional choices that are presented to them. “[The borrower] was a little perturbed. She was definitely surprised,” said Nelson. “I think ultimately it comes down to how strong your relationship is with your customer.”

Nelson said the credit trigger service is somewhat of a double-edged sword. Although he had a customer who was not happy with the solicitations from other lenders, he admits he did look into the service with an eye toward possibly using it himself. He has decided against buying credit-trigger prospect information for now, but he said he can understand why some lenders are drawn to the service. He said he thinks it is too soon to know how greatly credit triggers will affect the industry, but if more and more companies start using credit triggers, it could mean lenders who don’t will face increasing difficulties in keeping their customers.

“I think if anybody said, ‘No, I’m not worried,’ that would be untrue,” Nelson said.

“You are inserting a competitor into the middle of a sale cycle,” said Jim Jones, founder and president of First Wellesley Consulting Group, a management consulting firm specializing in the financial services and real estate finance fields. “I think that lenders are going to respond differently. Some competitors will love it. They will not see it as breaking the rules or playing dirty. If it becomes widespread, it is going to force prices down even further. You are creating a live auction for each consumer’s business.”

In an already shrinking mortgage market, it could make the industry even more cutthroat, said Jones.

Experian, one of the nation’s three largest credit bureaus, claims to have been the first to introduce the service to the marketplace when it launched its “Prospect Trigger” program in 2004. The other credit bureaus were quick to follow. Last year, a Massachusetts company began offering a similar service.

Hingham-based Intellidyn Corp. offers a trigger service it calls IntelliAlert. Clients of all credit trigger services can set criteria for the types of customers they are seeking, such as credit scores, type of loan and locations. The local company takes it a step further by marrying the credit information with the property information, giving lenders even more information. Not only does the company generate leads for lenders “almost in real time,” but it also has developed a system for determining the best methods of getting a consumer to be receptive to a loan offer, said Peter E. Harvey, president and CEO of Intellidyn.

“We build models that predict whether [a prospect is] more likely to respond to mail, Internet or phone,” he said.

‘Troublesome Practice’
The Massachusetts Bankers Association and the Massachusetts Mortgage Bankers Association recently have expressed concerns about trigger services.

“It’s a troublesome practice,” said Kevin F. Kiley, executive vice president and CEO of the MBA. “I think it violates a certain level of trust between the bank and the customer and the credit bureau.” Kiley said mortgage companies and banks are welcome to compete over customers, but he feels credit triggers go a bit too far. “Doesn’t it undercut the whole notion of people marketing their products and services?” he said.

However, Harvey, who mentioned the trigger service is only a small portion of Intellidyn’s business, said what people are starting to see is the evolution of marketing. He said triggers have existed for quite some time but advances in technology are taking them to new levels and industries, including the mortgage arena.

According to Harvey, banks began using triggers as a way to track customers who were turning to competitors for particular services. For example, if a consumer had an account with one bank but went somewhere else for a mortgage, the bank could be made aware and try to convince the consumer to stay with the bank for all their financial needs.

“Before, [triggers] was a retention vehicle. Now it is a prospect vehicle,” said Harvey. “It’s turning [loan origination] into a bidding process. Everyone just simply has to work harder.”

Jan A. Miller, president of Boston-based Wainwright Bank & Trust Co. and chairman of the MBA, said he only became aware of credit triggers last week. Talking with other bankers, he began hearing stories about how the use of triggers is making its way onto the local lending scene. He said he has heard of at least one case where restrictions on contacting consumers on the National Do Not Call Registry by phone was violated by a broker looking to make a sale. He also has heard concerns from colleagues who view triggers as attempts to snatch customers away at the last possible moment.

“For some reason it just doesn’t strike me as being ethical,” Miller said. “On the surface it just doesn’t seem right.”

Miller said lenders are concerned about their reputations. If a potential borrower begins receiving solicitations right after applying for a loan, it could wrongfully be concluded that the lender was authorizing use of the consumer’s information.

“From my standpoint there are privacy issues here. It just doesn’t sit right with me,” said Miller. “On the other end it is a great service. I just don’t agree with it. You could come at it and say this is good. I think the potential negatives outweigh any of the positives. With the whole identity theft issue in that environment, I’m not sure we should be supporting this.”

David Cotney, senior deputy commissioner for the Massachusetts Division of Banks, sent Banker & Tradesman a written statement regarding the regulatory agency’s view on credit triggers. “We have always strongly advised consumers to comparison shop for mortgage loans to ensure they get the best deal possible. Today, with the Internet, the opportunity to compare rates, terms, and conditions has never been greater,” wrote Cotney. “However, we do not think that it adds value to this process to inundate a consumer with competing offers that may or may not be in their best interest fairly late in the game. The mortgage process can be stressful enough.

“Moreover, an expectation of privacy may exist when a consumer is working with an individual lender – an expectation that information about a pending transaction is not being sold to multiple companies. We have just learned of this service and are reviewing the myriad of state and federal laws that could be implicated. We will also be reviewing the matter with appropriate federal regulators.”

Laws and Loopholes
The Massachusetts Mortgage Bankers Association is questioning whether the use of credit triggers to generate mortgage leads violates the state’s Regulation of Trade statue, Chapter 93A, which deals with consumer protection issues. However, Section 2 of that law, which is cited by MMBA and relates specifically to unfair competition and practices, notes that interpretation will be guided by the Federal Trade Commission. The FTC, which oversees the credit bureaus, has opined that use of credit triggers is permitted so long as certain standards are met.

“The Fair Credit Reporting Act allows that sort of thing,” said Joel Winston, associate director of the FTC’s Privacy and Identity Protection division. “In general, the credit bureaus are allowed to sell to creditors prescreened lists with certain criteria, one of which could be recent inquiries on the report, assuming they meet all the requirement of the FCRA for prescreened offers.”

Under the FCRA, companies are required to make a “firm offer” to every potential borrower whose information they receive. They cannot pick and chose from among the leads they receive through a trigger service, Winston said.

Consumers can opt out of the trigger program if they chose by contacting the three major credit bureaus.

Michele Bodda, director of credit marketing for Experian’s Consumer Informational Solutions business unit, said before information about a consumer is given out, it is filtered through the credit industry’s Do Not Mail list and the Direct Marketing Association’s Do Not Mail list, as well as the National Do Not Call Registry. And not every lender is allowed to use a trigger service. Companies are thoroughly screened, including an on-site visit to the office, and are required to meet a number of requirements set by Experian before being allowed to use the service, she said.

She said a trigger service is a more effective way of marketing, allowing a potential lender to know a consumer is definitely shopping for a mortgage. It is intended to benefit the consumer, who receives many choices and can compare offers. She said Experian’s model for prospect triggers acknowledges “the importance of helping to facilitate consumer choice at the most appropriate time.”

Although Bodda said she has heard some lenders voice concerns about credit triggers, she said the mortgage industry in general has been the fastest group to adopt the practice. Credit triggers also are being used more frequently in related fields such as the auto loan industry. While the practice is growing, it is still in its infancy. Currently there are “significantly less than 100” lenders using Experian’s Prospect Trigger program, Bodda said.

She describes the process as prescreening taken to the next level.

“Prescreening has been around forever; the process has sped up,” she said. “We can output inquiries within 24 to 48 hours.”

The timing is critical to allow users of the service to present their offers before the loan that triggered the process closes, she said.

Some mortgage professionals have expressed frustration that they have little option but to use one of the three big credit reporting agencies to assess a borrower’s ability to repay a loan. Since all three agencies now offer credit trigger programs, there is almost no way for lenders to be sure a prospective customer is not receiving loan offers from competitors.

“It’s uncomfortable doing business with people selling [information about your customers],” said John Messuri, president of Winchester-based Mortgage Options of America, adding, “It’s certainly like a monopoly” with all three credit bureaus in the trigger business.

TransUnion last week launched a new variation of the service it calls “Turnkey Triggers,” which take the process a step further. While customer lead information typically is sent to the company, which then contacts the prospect, TransUnion now will send out mail or e-mail to potential customers on behalf of the firm using the service.

“This takes one-to-one marketing to a new level,” Michael Browning, executive vice president of TransUnion’s Marketing Solutions division, said in a press release announcing the new product. “TransUnion Turnkey Triggers gives our customers an automated solution that leverages both our predictive data and direct-marketing expertise to execute all aspects of a marketing campaign. This is truly an industry first and represents TransUnion’s commitment to help our customers more effectively and efficiently acquire new customers and manage existing customer relationships.”

John Battaglia, president of Boston-based Cambridge Mortgage Group, said he knows firsthand of consumers who are confused by the use of triggers. About six months ago, some of his customers started complaining about solicitations from other mortgage brokers after submitting an application with Cambridge Mortgage.

“I don’t think it’s what the customer expects when they apply for a mortgage,” he said. “The customer feels [a mortgage application should be] confidential.”

Battaglia also said he believes the majority of consumers will stay with the original lender even after receiving multiple offers from competitors. Although the transaction has not closed at that point, most borrowers have already made a choice and will stick with it.

Battaglia, who also is chairman of the Massachusetts Mortgage Bankers Association, said he is working to educate industry professionals about credit triggers. In a newsletter issued on Friday, the MMBA warned its members of the growth in use of credit triggers. Battaglia said the first step in fighting back is letting industry professionals know about the practice and that the association does not condone the use of triggers.

“The next step is to say, ‘What can we do about it?’ We are not dealing with small entities,” he said. “Obviously, there is some loophole in the law that allows this.”

“We are going to make every effort to inform and protect the primary business relationship between the consumer and lender.” said Kevin Cuff, executive director of the MMBA. “Since most consumers believe that the breach is initiated by the primary lender, the MMBA is going to go so far as to inform all of our members to pass along consumer information explaining the program and how to opt out of its practice. In addition, we are preparing the appropriate correspondence to the three major reporting agencies asking them to cease the practice.”

Michael Istvanko, vice president of marketing for Boston-based Summit Mortgage, said credit triggers is not a service Summit plans to use. He said he sees credit triggers being used more by companies that are looking for the quick close rather than making a deal after a relationship has been established between a consumer and a lender. Istvanko said lenders will be carefully watching consumer reaction to the practice, as well as monitoring whether more lenders begin using credit triggers.