Written By: Frankie Lacy, Op-Ed Writer
Most loan processors and underwriters are familiar with the general rules of credit report review. We double check for mortgage lates and we compare our liabilities to the information disclosed on the 1003. However, there are more details to consider within the credit report.
One scenario that requires detailed consideration is transfer activity within trade lines. Mortgage and student loan accounts are commonly transferred to new servicers. This can be misleading when reviewing the trade lines because the old loan will show “paid” and $0.00 balance. However, under the trade line details there may be a message stating “Transferred to another lender”. This means the loan has not been paid in full and closed, but has only been transferred to a new servicer. As a result, we must include the monthly payment and debt balance in the liabilities section under the new servicer’s name.
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It is also important to keep an eye on the last date reported and date of last activity (DLA) on the mortgage accounts. The payment history may reflect 0X30 late pays, but if the DLA is not current, you are missing required mortgage history. A credit supplement is an easy way to get the activity report dates updated and verify the most recent 12 months of mortgage payments were made 0X30.
Address and employment history is an often overlooked, but extremely significant area of the credit report. This section of the report can act as a flag for undisclosed real estate or recent employer changes. In addition, this section acts as a “double-check” for validating the correct subject property address on the 1003.
The collection and public records section of the credit report offers critical information about adverse activity in the borrower’s credit history. If a bankruptcy or foreclosure is reporting on credit within the last seven years, the declarations section of the 1003 should reflect a “Yes” answer to questions “B” and “C”. Take a close look at the activity dates to verify the appropriate amount of time has passed (also referred to as “seasoning”) before the borrower is eligible to obtain mortgage financing.
If the public records section or trade lines do not show an activity or discharge date, further information from the creditor is required. At this point, we would usually request a copy of the bankruptcy discharge papers to determine seasoning.
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Finally, all inquiries must be reviewed. If the inquiries cannot be associated with a new trade line on the credit report, an explanation is required. The inquiries section of the credit report is an excellent tool to identify attempts by the borrower to obtain real estate financing on other, non-disclosed properties.
When the full credit report is considered in the loan review, the result is a fully informed decision. The underwriter is able to identify and address gaps in information and undisclosed data that is relevant to the loan ratios. The credit report should be read in its entirety to insure its highest and best use as a loan decision tool.
About The Author
Frankie Lacy - As an op-ed writer, Ms. Frankie Lacy is a 15+ year mortgage industry veteran with extensive conventional mortgage underwriting experience. Topics of Frankie's expertise include: Fannie Mae, Freddie Mac, USDA Rural Housing, underwriting to investor overlays, self-employed borrowers, personal and business tax return analysis, rental income, condos/co-ops/PUDs, and more. Frankie is a Davenport University graduate with a degree in Business Administration.
