If you’re planning to buy a home or refinance an existing mortgage loan soon, you should take some important steps to prepare. Solid credit scores, clean credit reports and good job history all give you a better shot at a mortgage approval. But even if you can check all of these requirements off your list, you still may not automatically qualify for a new loan.
It is possible for negative credit incidents that don’t actually appear on your traditional credit reports to haunt you. You may ask, “How is that possible?” It’s a reasonable question because normally credit problems that do NOT show up on credit reports won’t impact your loan approval prospects. The answer is simple. The credit reports generated by Equifax, TransUnion and Experian are not the only type of reports your lender may review when you apply for a mortgage.
CAIVRS: The "Secret" Database
The Credit Alert Verification Reporting System (CAIVRS) database was developed by the U.S. Department of Housing and Urban Development (HUD) in June 1987. Like the credit reports generated by the three major credit reporting agencies, lenders will sometimes rely upon CAIVRS reports to help them determine whether or not to approve your loan application.
Unlike the databases maintained by the credit reporting agencies (Equifax, TransUnion and Experian), CAIVRS is a database which strictly tracks delinquent and defaulted federal debts. If your name appears on CAIRVS, it is because you have defaulted or your payments are past due on a debt that is either owed to or backed by the federal government. This is sometimes referred to as a “negative only” database because the information contained is a record of delinquency or default rather than on-time payments.
Here are a few examples of some of the types of issues that could land you in the CAIVRS database:
- Past due or defaulted federal student loans
- Unpaid settlement to the Department of Justice
- FHA/VA/USDA loans with delinquencies, defaults or a government-paid insurance claim within the past three years
- Small Business Administration (SBA) loan delinquencies or defaults
Why Lenders Use CAIVRS
It is true that your CAIVRS report can help lenders to predict the risk of doing business with you, just like a traditional consumer credit report. But the primary reason lenders check your CAIVRS report is because they are generally required to do so for any applications that involve a federal loan (FHA, VA, USDA, SBA, etc.). Lenders are required to conduct a CAIVRS search because Title 31 of the United States Code (Section 3720B) bars "delinquent federal debtors from obtaining federal loans or loan insurance guarantees."
Is Your Name In the Database?
If your name appears in the CAIVRS database, you probably will not be eligible to receive a new federally backed loan (unless you qualify for an exemption) until the issue in question has been resolved. The bad news is that unlike credit reports that you can view on your own, the CAIVRS database can only be accessed by a lender. If you are worried that your name may appear in CAIVRS, it’s probably best to tell your lender right away so that you will have time to try to fix any potential issues early in the application process.