Third Party Search By Mortgage Lenders During Underwriting Process

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Third Party Search By Mortgage Lenders During Underwriting Process

This BLOG On Third Party Search By Mortgage Lenders During Underwriting Process Was UPDATED On August 8th, 2018

what is Third Party Search By Mortgage Lenders During Underwriting Process

Mortgage lenders will pull three credit reports on every mortgage loan applicants during mortgage process:

  • First step in mortgage process is lenders look at borrower’s credit scores
  • The credit scores is what decides whether the loan applicant qualifies for a particular loan program
  • For example, to qualify for a 3.5% down payment FHA Loan, the loan applicant needs a 580 credit score
  • To qualify for a conventional loan, the borrower needs a 620 credit score
  • To qualify for a FHA 203k Loan, most lenders will require a 640 credit score due to overlays
  • Gustan Cho Associates does not have any overlays on government and conventional loans
  • To qualify for a VA Loan, most lenders will require a 620 credit score
  • The U.S. Department of Veterans Affairs does not have any credit score or debt to income requirements
  • Most jumbo lenders will require a credit score of 700
  • Gustan Cho Associates offers non-qm jumbo mortgages with credit scores down to 620
  • Besides the credit score, lenders will carefully review borrower’s credit report
  • Underwriters will pay special attention to collection accounts, late payments, tax liens, judgments, bankruptcy, foreclosures, deed in lieu of foreclosures, and short sales
  • Special emphasis will be on looking for public records
  • Third party search by mortgage lenders will be done on every mortgage loan file to detect mortgage fraud
  • Third party search by mortgage lenders will also detect public records that are not reported on the credit bureaus
  • All third party search by mortgage lenders are done by hiring third party vendors such as Data Verify or Lexis Nexis or some other third party search companies

Credit Repair And Third Party Search By Mortgage Lenders

what is Credit Repair And Third Party Search By Mortgage Lenders

It is highly recommended borrowers review their credit report and check to see if they can improve their credit scores and repair their credit prior to applying for a mortgage loan.

  • Many use the services of credit repair companies and credit repair does work
  • However there are times where credit repair can do a lot of damage and backfire
  • A credit repair company can remove derogatory information such as older collection accounts, charge offs, late payments, repossessions, and other derogatory items
  • Surprisingly, I have seen many credit repair companies remove public records such as bankruptcies, foreclosures, deed in lieu of foreclosure, short sale, tax liens, judgments, delinquent student loan accounts, and delinquent child support payments
  • Third party search by mortgage lenders cannot detect deletions of collection accounts, charge offs, and late payments since they are not public records
  • However, third party search by mortgage lenders will detect all public records in the United States
  • Borrowers who paid premium dollars to remove their public records such a prior bankruptcies, foreclosures, and judgments will get caught by third party search by mortgage lenders

Results Of Third-Party Search By Mortgage Lenders

what are Results Of Third Party Search By Mortgage Lenders

Lets take a case scenario on a borrower who has several unsettled judgments on their credit report.

  • Some credit repair companies can get those unpaid judgments off the consumer’s credit report
  • When a loan officer pulls all three credit reports, the unpaid judgments will not show up on the credit report if the credit repair company got them deleted through credit repair
  • The loan originator will submit the application to processing and underwriting with a clean credit report
  • However, during the mortgage underwriting process, the mortgage underwriter will hire a third party vendor like Data Verify and/or Lexis Nexis to do a third party search on the applicant
  • There is no way of finding out derogatory deletions such as late payments, unpaid collection accounts, charge off accounts, or other negative derogatory credit accounts that is not filed with public records
  • However, third party vendors will find out derogatory items that has been filed on public records that is off the consumers credit report
  • Public records such as bankruptcies, foreclosures, deed in lieu of foreclosures, short sales, judgments, tax liens, and delinquent child support and alimony payments will get discovered through third party public records search by mortgage lenders

Mortgage Application Questionnaire

What is Mortgage Application Questionnaire

At the end of the 1003 mortgage loan application, there will be a series of questions that is asked.

  • Questions whether or not has applicants had filed bankruptcy in the past 7 years, had a foreclosure, have any judgments will be asked. The mortgage application questionnaire needs to be answered truthfully
  • Applicants who knowingly misstate the answers on application questions, then it can possibly be classified as mortgage fraud
  • There are cases where consumers have credit repair companies delete public records such as bankruptcies, foreclosures, and judgments to qualify for mortgage
  • Since they are not on their credit reports, applicants simply states no to the questions of bankruptcy, foreclosure, and judgments
  • The mark NO even though they know they have them recently
  • Many applicants think lenders will not find out
  • Unfortunately, lenders will find out when they do a third party search and the mortgage loan will get denied
  • Even though this is a form of mortgage fraud
    • mortgage fraud is a serious felony punishable up to 30 years in federal prison for each count of mortgage fraud
    • most people who get caught do not get in trouble and just get warned
    • If the mortgage loan closes and funds and borrower defaults on their loan and the lender finds out that they were deceived due to the borrower lying on their mortgage loan application, then it is another matter
    • the borrower can get in trouble for mortgage fraud

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