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Equifax, Interthinx Offer A Real-Time View of Mortgage Borrowers' Debt

Fannie Mae requires mortgage lenders to know exactly how much debt their borrowers have, but credit reports that are 30-90 days old at the closing date don't show recently acquired credit cards and auto loans. Equifax and Interthinx offer credit report updates that can be incorporated into the underwriting process.

It's not uncommon for a mortgage borrower to take out a credit card or auto loan shortly before the mortgage closing, a development that banks traditionally haven't been aware of because they're relying on a 30- or 90-day-old credit report, according to credit bureau Equifax. The company says $43 million in auto loan payments were potentially overlooked during mortgage underwriting in the first three quarters of 2010. That's why the company rolled out an undisclosed debt monitoring service last May. The service sends banks alerts when new debt reported to Equifax is added to a borrower's credit file.

The product was designed to help lenders comply with the Fannie Mae Loan Quality Initiative, which took effect June 1 and requires mortgage lenders to verify at pre-funding that borrowers have not incurred new debts or liabilities that may affect their ability to fulfill a mortgage payment obligation. If additional credit was obtained up to the funding date, a borrower must be re-qualified with the monthly payment included in the debt-to-income calculation. According to Fannie Mae loan reviews completed through the end of January 2011, undisclosed liabilities continue to represent the leading type of significant misrepresentation, comprising 24% of all 2009 - 2010 originations.

Yesterday, Equifax partnered with Interthinx, a provider of risk mitigation software, to make it easier for banks to integrate its consumer debt updates into their existing mortgage underwriting process.

"Imagine if someone had a mortgage closing this Friday and they obtained a new auto loan five weeks ago," says Steve Meirink, Equifax mortgage growth initiatives leader. "It's beneficial to the borrower as well as the lender to have been alerted to and been in discussion with the lender about their options and the impact to the underwriting process, versus waiting until the 11th hour and trying to have that conversation when they've already sold their existing home."

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