Don't bother to ask for those free credit reports you thought you were getting under newly-enacted federal credit system reforms.

And don't look for "risk-based pricing" alerts at your next home mortgage application -- another key consumer protection provision in the landmark Fair Access to Credit Transactions Act signed earlier this month by President Bush.

You've got about a year to wait.

Last week both the Federal Reserve Board and the Federal Trade Commission proposed Dec. 1, 2004 as the first date on which consumers will be able to take advantage of either of the new reforms. The proposed effective dates use virtually the full 12 months Congress allowed the agencies to set up procedures, write rules and phase in the new programs.

FTC officials said the first six of the 12 months will be devoted to coming up with operational structures and writing rules. For example, if as expected, consumers will be able to order all three of their free national credit reports at one time from a single source, who or what should that source be? How will it coordinate requests and pull credit data from the online files of the three big bureaus -- Equifax, Experian and Trans Union? What procedures will it use to validate identities of persons requesting the reports? All these details and many more need to be worked out before next June.

The final six months will be a transition period allowing the bureaus and lenders to adjust their operations to handle the new rules.

For example, under the risk-based pricing reform, every time a home buyer or other credit applicant receives less-than-the-best-available quote on interest rates or terms because of an electronic underwriting system, the lender will need to provide a disclosure.

Say you or your home buyer client submits an application for a mortgage. The vast majority of all home loan quotes today are made with the help of electronic underwriting systems that access national credit bureau files instantaneously. If you've got glitches or errors in your credit files, they are likely to lower your credit scores. And those, in turn, are likely to raise the quotes of rates and fees you receive from the lender.

Say the lender's "par" rate with zero points is 5 3/4 percent for 30 years. But because of negative information in your credit files, you are quoted six percent. Under today's system, you wouldn't know the six percent rate quote was higher than the best the lender could offer. You'd either accept it, ignorant of the higher pricing, or you'd shop elsewhere.

Under the new law, by contrast, you will be informed of the higher pricing attributable to negative credit data detected by the lender's electronic underwriting system.

Still to be decided, according to FTC officials, is precisely when to provide the risk-based pricing disclosure. Should it be during the course of the application -- before you've actually accepted the terms and signed up for the loan? Or should it be sometime later on?

Lenders tend to favor the latter. Consumer groups prefer the former. FTC staff attorney Clarke Brinkerhoff says that, on the one hand, "We don't want to scare people" who would otherwise be satisfied with the rate quote they receive under the risk-based pricing system.

On the other hand, the FTC wants the disclosure to accomplish its congressionally-mandated goal: to alert borrowers that there is negative information -- correct or incorrect -- in their credit files that has triggered a higher rate quote or less favorable terms than would be otherwise available. The alert would then enable the borrower to obtain the credit data and determine whether it is erroneous.

But why wait for federal rules to begin using these heads-up consumer protections? By all means, order your credit reports long before you apply for a home mortgage. They may not be free, but $9 per report shouldn't break your bank account. Make sure you correct anything erroneous -- or incomplete -- in the files before applying for a mortgage.

Then ask the loan officer to tell you whether you are being priced by an electronic system, and whether you are getting the very lowest prices and terms available under that system. Most brokers and loan officers shouldn't have a problem cooperating.

Published: December 22, 2003

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.