Mortgage Minutia #3 – Wait, we are not done with credit yet!

After reading just three editions of the Mortgage Minutia Minute you should start to understand why speedy approvals in mortgage transactions can create huge challenges.  It appears that the regulators and credit risk officers want to see a consumer go through a full credit cycle during the mortgage process so that they can get an accurate look at how the consumer utilizes credit.

More credit items that can complicate a mortgage application:

Liens or public records, authorized users on credit cards – yours or theirs, co-signed debts, and undisclosed debt.

Liens and Public Records:

- Claims against the consumer from an outside source, for example the federal or local tax authority, can be addressed by placing a lien against a consumer for an outstanding debt.  A contractor can also place a lien against a property. Any outstanding liens will need to be resolved and discharged for lending purposes.

Authorized Users:

- If a borrower is authorized to use another person’s credit card that debt will show up.  The account does not count towards the trade line requirements but the debt will count towards the borrower.  It is easy to call up and have an authorized user removed from the account if the debt ratios are out of range.

Co-Signed Accounts:

- When a consumer co-signs on a credit application for a friend or family member that debt becomes the consumers debt and is counted towards the overall debt ratio of the borrower.  We need to collect 12 months of cancelled checks from the paying debtor to prove that the co-signer is not responsible for making the monthly payments if we need to remove the payment from the ratio calculation.

Undisclosed Debt:

- Consumers should always get a copy of their credit report from the lender to confirm that all the data is correct and that all debt is properly reported.  There are creditors who do not report to the credit agencies.  Undisclosed debt is a HUGE fraud buzz word.  An example would be child support and/or alimony.  Just because the debt does not appear does not mean it can be ignored.  Most likely it will be found later in the process when a fraud guard report is pulled or when evaluating the tax returns.  Best approach is complete honesty and transparency so that a transaction is not at risk later on.

Consumers need to consider all activities that impact their credit and be open and honest with their loan officer to insure that nothing comes up late in the process that hurts the deal.  They should also be cautious before co-signing debt, if not paid properly the negative credit becomes the co-signers as well and can negatively impact the credit scores.

Feel free to contact us if you have questions about how credit impacts a borrower, or types of undisclosed debt at 781-719-4664.