Lenders Incur Visible Risk from Hidden Borrower Debt


Is undisclosed debit really that big a problem in the mortgage industry or is Equifax just trying to sell a new service by making a market for a product they are pushing? For a more detailed look at this subject – please read the article below.

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Over the past few years, lenders and underwriters revamped their standards to reduce risk, but Equifax says there’s one challenge many lenders still have difficulty combating—undisclosed debt.

In a recent white paper, Equifax published results of its research into undisclosed debt and its recommendation for how to deal with this difficult hazard. Ultimately, Equifax said, “The results are somewhat surprising and disturbing.”

“Undisclosed debt poses a risk even for lenders with conservative underwriting standards, experienced professionals, and credit-worthy applicants,” Equifax asserted in its paper.

Nearly one-fifth of borrowers apply for at least one new line of credit during the period between their credit profile review and the closing on their mortgage loan—deemed the “quiet period” by Equifax.

While some homeowners sign up for store credit as they purchase new furnishings or household items—not realizing this could impact their credit—others intentionally apply for multiple mortgage loans at the same time.

“Most borrowers are honest, but whether undisclosed debt during the quiet period is intentional or not, it poses a threat to lenders, regardless of their underwriting process,” said Craig Crabtree, SVP and general manager of Equifax Mortgage Services.

About 36 percent of borrowers who opened at least one trade line during the “quiet period” increased their debt-to-income ratio by at least 3 percent, which is significant for lenders.

“For lenders, undisclosed borrower debt incurred during the underwriting process presents a very real risk, since a 3 percent or more increase in borrower DTI can result in expensive loan repurchase demands by the secondary market or penalties by regulators,” Equifax stated in its white paper.

To read the complete article – please use the link below.

Hidden Borrower Debt

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