"Zooming in on Undisclosed Debt - The Risk and Implications of Undisclosed Borrower Debt in Mortgage Lending"
Today, the vast majority of mortgage borrowers are forthcoming about their debts during the initial mortgage application; however, the problem occurs during the "quiet period" between the original credit file pull and the loan closing. Almost one-fifth of all mortgage borrowers, including those with solid credit scores and debt-to-income (DTI) ratios, apply for at least one new trade line during this period.
Today, lenders use various methods for identifying undisclosed borrower debt. The most basic approach is to pull a credit report immediately prior to loan closing to ensure that the borrower has not undertaken new debt. This method, however, has some major disadvantages. A more reliable method now available is to implement a dynamic monitoring platform that identifies undisclosed debts and liabilities continuously and provides lenders with daily alerts of activity that may indicate a borrower is taking on new debt during the quiet period.
Supported by proprietary data and analysis from Equifax, this white paper explores the widespread industry problem of undisclosed debt by borrowers, identifies why lenders need to address the problem of undisclosed debt, and describes possible solutions.
We have been using Equifax's Undisclosed Debt Monitoring solution for almost two years and have found it to be a very effective tool to help reduce our repurchase risk. Our operations teams love it because it is constantly working in the background, which helps us to focus only on consumers that do something they shouldn't, not our entire pipeline. Our sales teams like it because we don't wait until five days prior to closing to uncover issues that might blow up a closing."
Tom Fiddler, Chief Operations Officer - Prospect Mortgage