Sometimes our worst nightmares happen when we’re awake and the thing we most fear actually comes to pass. Close your eyes and picture the following. You’ve been working on a specific loan for some time and closing is scheduled for tomorrow. You’re reviewing the final paperwork and everything seems to be in order.
Suddenly you learn that the borrower has taken out a loan to purchase a new car. Your stomach clutches in panic. You run the numbers, desperately hoping this doesn’t change the debt-to-income ratio. Then you run them again.
Your heart sinks as the truth becomes clear: your applicant no longer qualifies for the program you secured for them. Even worse, closing will have to be postponed because it is less than 24 hours away, the loan will have to go through underwriting again, and you’ll have to search out a new program for the applicant. You drop your head into your hands and send out a fervent wish that your alarm clock will go off and you’ll awake to discover it was all a bad dream.
Unfortunately this nightmare scenario is all too real. If only you could have discovered the new debt earlier, you might have been able to take steps to mitigate the damage done, maybe even salvage the closing. Take heartthis problem is not yours alone. Some 22% of undisclosed debt is obtained by applicants within 10 days of closing.
Fannie Mae’s Loan Quality Initiative guidelines recommend that “lenders have processes in place to facilitate borrower disclosure of changes in financial circumstances throughout the origination process.” But you pulled a credit report a week ago and everything seemed fine; what else could you have done? How do you monitor an applicant throughout the process?
After listening to many similar tales of frustration, Credit Plus decided that a comprehensive solution needed to be found, a way to monitor applicants throughout the process so lenders have the assurance they need that buyers haven’t taken on new debt.
Our solution is to offer Undisclosed Debt Verifications from all three bureaus. This approach eliminates any data variance caused by the bureaus receiving data from different sources. The product provides real-time monitoring of borrower credit activity during the “quiet period” from the initial credit file pull through closing. These reports include new tradelines, inquiries, secondary reissues, bankruptcies, judgments, liens, collections, late payments and recent high utilization on existing bank card and revolving tradelines.
Now that Fannie and Freddie are electronically validating every loan within 120 days of closing, it is more important than ever to be able to confirm that your applicants are maintaining the acceptable debt-to-income ratio. A product like Undisclosed Debt Verifications from all three bureaus help ensure that new applicant debt won’t take you by surprise right before closing, or even worse, force you into a costly loan buyback later. They’re one more way you can ensure nightmare scenarios stay right where you want themin your imagination.
Greg Holmes is national director of sales and marketing at Credit Plus Inc., Salisbury, Md., a provider of credit and mortgage information services since 1928. He can be reached at beyondbundled@creditplus.com.
