03 - ASPS-AOS-TM-0003 - Credit Underwriting 101

Credit Underwriting 101
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Table of Contents
I. Purpose................................................................................................................................4
II. Intended Audience..............................................................................................................4
III. Course Prerequisites...........................................................................................................4
IV. References and Usage......................................................................................................4
Chapter I. Underwriting Basics...........................................................................................7
1. The Four C’s of Underwriting.......................................................................................7
Chapter II. Credit Underwriting.........................................................................................11
1. What is Credit Underwriting?.....................................................................................11
2. Introduction to Credit Reports...................................................................................12
3. Types of Credit Reports..............................................................................................15
4. Credit Scores...............................................................................................................17
5. Purpose of a Credit Scoring System...........................................................................18
6. Credit Scores From Three Repositories......................................................................18
7. Calculating the Qualifying FICO Score........................................................................18
8. Factors affecting a borrower’s FICO score.................................................................19
9. Rack Your Brains.........................................................................................................22
Chapter III. Introduction to the Credit Reports..............................................................23
1. How to Read a Credit Report......................................................................................23
2. Personal Identifying Information................................................................................24
3. Credit Scores...............................................................................................................25
4. Credit History..............................................................................................................25
5. Credit information/History.........................................................................................25
6. Trade Summary/ Derogatory Summary:....................................................................33
7. Public Records............................................................................................................34
8. Alerts...........................................................................................................................35
9. Inquiries Placed by Other Creditors and Repositories...............................................36
10. Sources of Information...........................................................................................38
11. Validity of Credit Report.........................................................................................39
12. Rack Your Brains.....................................................................................................40
Chapter IV. Liability Reconciliation.................................................................................41
1. Liability Reconciliation (including undisclosed debts)................................................41
2. Real Estate Owned......................................................................................................43
3. Verification of Mortgage’s Existence..........................................................................44
Chapter V. Analyzing the Credit Report............................................................................51
© 2017 Altisource. All rights reserved. Confidential / Internal Use Only Page 2 of
1. Types of trade-lines....................................................................................................51
2. Deferred Obligations:.................................................................................................58
3. Authorized User..........................................................................................................59
4. Contingent Liability.....................................................................................................60
5. Types of Contingent Liabilities:..................................................................................61
6. Alimony, Child Support, Maintenance.......................................................................62
7. Business Debt in Borrower’s name............................................................................64
8. Disputed Accounts......................................................................................................64
9. Private Savings Club....................................................................................................66
10. Undisclosed Debts..................................................................................................66
11. Non-Borrowing Spouse Debt..................................................................................67
12. Judgment and Tax Liens..........................................................................................67
13. Tax liens..................................................................................................................67
14. Major Derogatory Events........................................................................................68
15. Bankruptcy..............................................................................................................68
16. Types of Bankruptcies.............................................................................................68
a. Chapter 7 Bankruptcy.............................................................................................68
b. Chapter 13 Bankruptcy...........................................................................................68
c. Multiple Bankruptcy Filings....................................................................................69
17. Short Sale................................................................................................................70
18. Deed-in-Lieu of Foreclosure....................................................................................70
19. Foreclosure.............................................................................................................71
20. Consumer Credit Counselling.................................................................................73
21. Non-traditional credit history.................................................................................74
22. Independent Verification of Non-Traditional Credit Provider................................75
23. Sufficiency of Credit/Acceptable Credit History.....................................................75
VI. Appendix..............................................................................................................................76
II. Document Change Tracker................................................................................................90
I. Purpose
This document serves as a reference and/or training guide for new hires and existing
employees.
II. Intended Audience

This document is designed to serve as a comprehensive guide for Credit, Income and
Assets review.
III. Course Prerequisites

Before taking this course you must complete the following training modules:
 Mortgage 101.
IV. References and Usage

In this document, you will frequently come across references to FHA and Fannie Mae
Guidelines.
Users can view the handbook/guidebook by accessing the following link:
 Fannie Mae Selling Guide

 FHA Handbook 4000.1
Using the Fannie Mae Selling Guide
Step-1 : The user must open the Fannie Mae link by clicking above to access the Selling
Guide.
Step-2: The user must click the PDF version ( refer the snapshot below)
Step-3: Once the PDF version of Selling Guide is opened, click ‘Ctrl + F’ to search for the
respective topic.
For example – If an user wants to search for a guideline mentioned under the specific topics
below, the user must copy the specific heading (please refer the snapshot below)
Search for the above copied topic in the PDF version of the handbook (please refer below)
1. Underwriting Basics
Mortgage underwriting is a process where the lender, by verifying certain important
parameters, determines if the risk of offering a mortgage loan to a particular borrower is
acceptable. These parameters are often called the 4 C’s of Underwriting.
2. The Four C’s of Underwriting

The four C’s of underwriting help determine a borrower’s worthiness when it comes
to repayment of loans.
Credit Capacity
Capital Collateral
Credit
Credit Reputation is the use of a borrower’s credit history to determine how willing
that borrower is to make their payments on time. In other words, credit history (FICO
score) is used to statistically determine the creditworthiness of the borrower. To
make things easy, this creditworthiness is expressed in the form of a number known
as the borrower’s credit score.
Credit history is a vital factor in determining whether a borrower can make his or her
payments on time. This factor, when expressed numerically, is known as the
borrower’s credit score.
CREDIT HISTORY IS USED TO PREDICT HOW LIKELY THE BORROWER IS TO MAKE THEIR PAYMENTS ON
TIME.
By reviewing past factors (payment history, total debt compared to total available
debt i.e credit used so far, active Trade Lines, the types of credit: revolving credit vs.
installment, debt outstanding) each borrower is assigned a credit score which can
reveal the anticipated repayment. The higher the score of the borrower, the less risky
it is for the lender to approve the mortgage. A loan officer will often pore through
borrower’s credit early on to see what challenges may (or may not) arise while
approving the loan. Based on the scores, you can even make a rough guess of how
good or bad a reputation the borrower has. The following table can be used to make
an estimate of the reputation of the borrower.
By analyzing the borrower’s past for payment history, debt, past loans taken etc., a
credit score is assigned to the borrower. A higher credit score generally means it is
safer for the loan officer to approve the loan. Borrowers with low credit scores
typically have a higher chance on defaulting on their loans.
The following table illustrates how easy it is to make a rough estimate of the
borrower’s credit reputation.
Credit Scores Reputation

720 and above Very good
660-720 Good
620-660 Mediocre
Below 620 Difficult
Capacity
Capacity tells us how capable the borrower is when it comes to repaying his
mortgage. In a numerical format, the Capacity of a borrower is expressed in the form
of two ratios:
 Front-end Ratio (also known as Housing Ratio)

 Back-end Ratio (also known as Debt Ratio)
Front-End Ratio
A front-end ratio or a housing ratio is expressed as:
Components of Front-End Ratio:
o Recurring monthly housing debt comprises Principal, interest, taxes,

homeowner insurance, flood insurance and mortgage insurance – Monthly
Insurance Premium (MIP)/ Private Mortgage Insurance (PMI)/funding fee
(if applicable), association dues/maintenance fees(if applicable)
o Gross monthly income or total qualifying income is derived from
acceptable sources of income of the borrower
A good Housing Ratio (often called the front-end ratio) would be 28% or less;
although, many times, loans are approved at a significantly higher number. That’s
because your front-end ratio is considered in conjunction with your back-end ratio.
Back-End Ratio
The back-end ratio (referred to as your Debt Ratio) is expressed as:
Components of back-end ratio:
o All recurring monthly debts comprise the total housing expenses and all
other monthly obligations of the borrower which include but are not
limited to installment accounts, revolving accounts, credit cards, child
support, alimony, etc. (Utility accounts are not to be considered)
o Gross monthly income or total qualifying income is derived from
acceptable sources of income of the borrower
A good back-end ratio would be 40% or less. However, many loans are granted with
higher debt ratios.
Capital
Capital refers to the borrower’s total liquid funds available for the transaction. An
underwriter or a reviewer needs to verify the sources of funds and their acceptability.
Collateral
Collateral refers to the subject property on which the borrower is taking a mortgage.
In other words, Collateral is a property or other assets that a borrower offers a lender
to secure a loan. The eligibility of the property, however, needs to be verified
according to the agency/investor requirements. Collateral review comprises a review
of Title/Preliminary Report and Appraisal Report (the collateral team performs this
review).
3. Credit Underwriting
1. What is Credit Underwriting?
Credit Underwriting is the process by which a lender verifies the eligibility of the
borrower to repay a loan using credit history, financial capacity and liquid assets as
determining factors.
When someone applies for a loan, the lender needs to verify the borrower’s eligibility
before putting his own money into the transaction. That way, he can know if the
borrower is capable enough of repaying the loan. Hence, the lender verifies the
borrower’s credit history, financial capacity and liquid assets, to determine how
qualified the borrower is to repay the loan. This process of verification of the
borrower’s repayment capacity, by assessing credit history, financial capacity and
liquid assets, is known as Credit Underwriting.
Credit Assessment
Credit Underwriting Financial Capacity
Liquid Assets
2. Introduction to Credit Reports

A Credit Report is a report detailing an individual’s credit history as prepared by a
credit bureau and used by a lender in determining a loan applicant’s
creditworthiness.
The lender must obtain a credit report for each borrower on the loan application who
has an individual credit record. The credit report must be based on data provided by
the national credit repositories. In other words, Mortgagee must obtain a credit
report for each Borrower who will be obligated on the mortgage Note.
Credit Reporting Cycle and Developing a Profile
Let’s say John Appleseed borrows a mortgage loan from a creditor. The creditor
keeps a track of the John Appleseed’s payment history and sends them to private
agencies known as Credit Repositories. These Repositories are responsible for
compiling his credit data and giving him a credit score.
Creditor keeps track Creditor reports

Borrower with
of payment history payment history to
mortgage
of borrrower Credit Repositories
Repositories
compile payment Credit Report
history data
Credit Repositories
A credit repository is a for-profit company that collects information about individuals’

and businesses’ debts, and assigns a numerical value called a credit score that
indicates the borrower’s creditworthiness. Creditors would typically include banks,
mortgage lenders, credit card companies and other financing companies. Credit
Repositories are also commonly referred to as consumer reporting agency or credit
reporting agency.
The three main credit repositories in the United States are:
Equifax Experian Transunion

They maintain centralized credit records on consumers. These repositories receive
information from virtually all businesses that extend credit to consumers. In return,
these repositories provide credit reports on request to companies who are looking to
lend money and need to evaluate the borrowers’ or consumers’ creditworthiness. A
credit report request is made through an intermediary known as a credit agency (not
directly from the repositories), for a fee. The fees charged will depend on the type of
credit report requested.
A credit Repository doesn't decide whether an individual qualifies for credit or not. It
only collects information that it considers relevant to a person's credit history and
financial habits.
3. Types of Credit Reports

The following are the three main types of credit reports which you will be dealing
with in your underwriting journey:
A. In-file Credit Report: Is a credit report obtained directly from one credit
repository and contains information for that repository only. If this type of report is
utilized the loan package must contain an in-file credit report from at least two of the
three repositories.
 Merged Credit Report: This report reflects combined data from more than
one repository. This is the most common credit report format utilized by
mortgage lenders. This is sometimes referred to as a “Tri-Merge” Credit
Report
 Residential Mortgage Credit Report (RMCR): The RMCR is the most
comprehensive credit report and includes not only automated data from the
national repositories but also includes manually updated verification of
accounts
 Trended Credit Report: Trended Credit report is a type of ‘Tri-Merge’ Credit
Report which reflects historical trade line (generally 12-24 months) data such
as balances, schedule payments and actual payments reported for each
month over an extended period of time
B. Refresh Credit Report/LQI Credit Report: Refreshed Credit Report is a "soft"

inquiry (Link: Soft Inquiry) that identifies any recently/ newly incurred or otherwise
undisclosed liabilities, but does not affect the borrower’s FICO score.
Loan Comparison report is a part of Refresh credit report which compares the original
credit report against the refreshed credit report. The comparison report highlights
any discrepancies for the reviewers to quickly and easily see anything that changed
since the initial credit report/ hard inquiry was made on the loan file.
Sample-1a:
Sample-1b:
The above sample gives a comparative data about the change in payment terms.
Sample-2b:
C. QC Credit Report: Post-closing lender’s are required to conduct a QC review of

10% of the minimum mortgage loans that it originates or acquires from a third party
using a random selection methodology. Post closing review primarily focuses on
Reverification of Borrower’s Credit History for which QC Credit report is pulled for all
the borrower(s): If a borrower’s credit was evaluated by using a traditional credit
report, the lender must reverify the borrower’s credit history by obtaining a new tri-
merge credit report. The new report does not need to include trended credit data
even if reflected on the credit report used for underwriting purposes. Lenders are not
required to analyze trended credit data in the new credit report. If a borrower’s
credit history was evaluated by using nontraditional credit or a nontraditional
mortgage credit report, the lender must reverify each of the credit references on that
report. If the lender obtained written references from creditors, the lender’s QC
review process must include reverification of each of the credit references. The
liability information obtained on the new credit report must be reconciled against the
credit report or references used at the time of underwriting the loan to identify any
discrepancies or the existence of any debt that may not have been taken into account
when the loan was underwritten. The lender must also review any “potential red
flag” messages appearing in the DU Underwriting Findings report or alerts created by
sources other than DU associated with the credit report to ensure all messages have
been addressed and documented, and that the loan is eligible for sale to Fannie Mae.
Note: HUD and Fannie Mae require tri-merged credit report or residential mortgage
credit report or in-file credit report as applicable.
Loan Link Specific Guideline Reference

Program
Fannie Mae Fannie Mae Selling 1. B3-5.2-02, Types of Credit Reports
Guide
HUD/FHA HUD Policy 1. II. ORIGINATION THROUGH
Handbook POST-CLOSING/ENDORSEMENT A. Title II Insured
Housing Programs Forward Mortgages 4.
Underwriting the Borrower Using the TOTAL
Mortgage Scorecard (TOTAL)
Specific section to referred to in the handbook
ii. Credit Reports (TOTAL)
4. Credit Scores
A credit score is a numerical representation of a borrower’s ability to pay their

obligations on time. Lenders use this figure to determine the creditworthiness of a
particular borrower, that is, whether this borrower capable enough to pay off their
debts on time.
To give an analogy, it’s similar to CIBIL scores in India. In India, we use CIBIL scores to
determine the credit history of people and determine whether they are eligible for
home loans. Similarly, in the United States, they mostly use FICO scores as a credit
scoring system.
5. Purpose of a Credit Scoring System

A credit scoring system is used to assess the borrower’s credit risk. This system helps
lenders determine an applicant's credit risk and accordingly reach a decision whether
to extend their credit. Furthermore, it also helps them estimate the likelihood of how
well the loan will perform in the long run.
6. Credit Scores From Three Repositories

An underwriter requires – for Conventional and FHA loans – the following versions of
the classic FICO score for both DU and manually underwritten mortgage loans:
National Credit Repository Credit Score Name

Equifax BEACON
Experian Experian/ Fair Isaac (FICO)
TransUnion EMPERICA
The inclusion of complete and accurate credit score data plays a vital role in
determining a borrower’s creditworthiness.
7. Calculating the Qualifying FICO Score

While evaluating borrower’s eligibility, we consider median scores of the three credit
scores. This median figure is commonly referred to as FICO.
8. Factors affecting a borrower’s FICO score
FICO is an acronym for Fair Isaac Corporation which is a company that provides credit
scores to financial institutions. As a Credit and Income analyst or underwriter, you will
come across this term frequently and you will be using this score as an essential criterion
when underwriting a loan file.
“The higher the FICO score, the more trustworthy the borrower”
Following is a hypothetical snapshot from AUS wherein Darth and Luke have applied
for a mortgage together as applicant and co-applicant:
Borrower Credit Scores

Darth Vader 806 815 788
Luke Skywalker 722 791 727
Here, for Darth Vader, the credit scores are 806, 815 and 788, which are collected
from three different repositories. For the final FICO score, we will be considering a
median figure of the three scores. So, the final FICO score for Darth Vader will be 806.
P.S: To calculate median in Excel, use the MEDIAN formula. For example: when you
put in ‘=MEDIAN(806,815,788)’, you’ll get 806 as the output.
Similarly, for Luke Skywalker, the credit scores are 722, 791 and 727. So, the final
FICO score for Luke will be 727.
Here, final score to qualify the loan file will be 727(lowest of the two median scores).
Credit Doctoring
Credit doctoring was offered by credit repair companies which helps the borrower in
improving the credit score. Since, a major portion of the FICO credit score is set by
the ratio of credit used to credit limit, the credit doctoring company used to increase
the score by simply increasing the credit limit. Some of the credit repair agencies, for
a fee, used to report to the credit bureaus that they have opened an account with a
high credit limit. The borrower could not actually use this account but it would
improve the customer’s FICO credit score due to lowering the balance-to-credit limit
ratio. This method is no longer allowed.
Summary of the process for deriving the borrower’s final qualifying score:
Credit scores of the three

Median (or the mid score) is derived
repositories are reviewed
1. For single borrower, the median

score is considered as the qualifying
credit score (FICO).
2. For loan files with two or more
borrowers, lowest of the median
scores of the borrowers is
considered as the qualifying credit
score (FICO).
Once we have our FICO score with us, we need to refer to the guidelines for further
specifications in order to comply with agencies’ requirements.
Loan Program Link Specific Guideline Reference

Fannie Mae Fannie Mae Selling 1. Eligibility Matrix
Guide 2. General Requirement: Section B3-5.1,
Credit Scores
HUD/FHA HUD Policy Handbook 1. II. ORIGINATION THROUGH POST-
CLOSING/ENDORSEMENT A. Title II
Insured Housing Programs Forward
Mortgages 1. Origination/Processing
Specific section to be referred to in the manual:
(3) Borrower Minimum Decision Credit Score
9. Rack Your Brains

It’s time to test your knowledge of what you’ve learned so far. Try to solve this puzzle
using some of the important terms from this chapter.
Across
4. Front-End Ratio = Recurring Monthly

debt/_______
Down
1. Creditor keeps a track of ______ and sends

it to the repositories
2. Component of total housing expenses is

_____
3. Credit-score of the borrower is called

_______
4. ____ score is considered to validate

borrower eligibility
5. Appraisal Review is covered under _______
10. Introduction to the Credit Reports

A credit report is a report detailing an individual’s credit history as prepared by a
credit bureau and used by a lender in determining a loan applicant’s
creditworthiness.
1. How to Read a Credit Report

On the surface, the credit report can look like a complicated document. However,
once you get acquainted with it, you will effortlessly be able to effortlessly read and
analyze it. That’s why, in this section, we will be breaking down the report into easily
digestible chunks so that you will get familiar with Credit Reports in no time.
This report includes:
Personal Identifying Information
Credit Scores
Credit History - Detailed Account Information & Summary
Public Records -Judgements via Federal, state or county records, liens
Alerts
Inquiries Placed By Other Creditors and Repositories
The “look” and “layout” of credit reports vary based on the type of report requested
(i.e., In-File, RMCR, etc.) and the company providing the report. Regardless of the
type of report requested, each credit report will typically include the five categories
of information listed below.
2. Personal Identifying Information
Critical information to identify each borrower needs to be located. This information is

usually found near the top of a report and should match the information found on
the 1003. It includes:
 Borrower’s name
 AKA’s or Nicknames
 Addresses - Current and Previous
 Social security number
 Date of birth
 Spouse’s name
Sample Credit Report
Following is an example of a credit report with hypothetical names and addresses:
Reference:
1. Lender or Broker who have requested for the credit report.

2. Borrower’s name and Social Security Number (SSN)
3. Borrower’s date of birth
4. Borrower’s current address
3. Credit Scores
Following is a sample credit report for John Appleseed – our hypothetical borrower –
identifying his credit scores.
In the aforementioned screenshot, the mid-score being 776 will be considered as the
qualifying score for the borrower (FICO).
4. Credit History
Credit history of the borrower is bi-furcated into
1. Detailed Account Information

2. Account Summary
5. Credit information/History
Lists current and past credit accounts or trade lines that borrowers have with the
banks, retailers, credit card issuers, lenders and other credit issuers. The report also
states:
 If anyone else besides the applicant (i.e., a spouse or co-signer) is responsible

for paying the account
 The date the account was opened
 Credit limit or loan amount (Original and unpaid balance)

 The account balance
 The terms or manner in which the borrowers repaid the accounts
Snapshot of detailed account information on credit history
Section Green
1: Creditor’s name and loan number
2: Last date on which the activity on the debt was reported by the creditor to the
repositories
3: Date on which the account was opened
4: Date on which last activity was noted by the creditor of the borrower
5. This section represents the original Principal balance for installments and mortgage
debts, and high credit balance, for revolving debt.
6. Account balance: Remaining outstanding or unpaid balance on the trade line
7. Account type: The type of account, for example, in the aforementioned snapshot,
the account type is mortgage. Depending on the format of the credit report, account
type is identified by assigning a letter code to each account.
C = Check Credits R=Revolving Credit

(Line of Credits) (Example: Credit Card)
I = Installment Credit M = Mortgage Loan

(Example: Auto Loan) (Example: Home Equity Loan)
O = Open Account
(Requires the balance of account to be paid off each
month)
8. Terms and Monthly Payment: On close-ended loans (Installment and Mortgage),

total term in months is reflected. Monthly payment refers to the monthly obligations
that a borrower has on the trade-line. (Revolving accounts do not have a specific
term since they are open-ended loans).
9. Past Due: Current status of the borrower’s trade-line is reflected here. Past due $0
means that the borrower is not overdue on the account. In other words, the
borrower, as of now, is current on the account.
10. Months Reviewed: This section identifies the total number of months for which
the borrower has made payments and this is reported by the creditor to the
repositories. Months reviewed might be different from the total length of account.
Section in Orange
11. Trade-line Rating (30-60-90): This section identifies any late payments on the
trade-line: 30 Days Delinquent, 60 Days Delinquent, 90 Day Delinquent are the
sections used to identify the number of times the borrower has made late payments
by 30, 60, or 90 days respectively.
Current Manner of Payment: This section further verifies the rating of the trade-line.
Following is the most commonly used manner of representing the payment history of
the borrower on the trade-line.
Trade-lines are rated depending on how punctual the borrower(s) is (are) while
repaying their debts. Depending on the format of the credit report, the ratings or
current MOP (manner of payment) of the trade-lines are expressed combining by the
rating with the account type:
Account Type Current Status Current MOP

Revolving (R) 30-Day Late = 2 R2
Installment (I) 60-Day Late = 3 I3
Mortgage (M) 90-Day Late = 4 M4
Open (O) 30-Day Late = 2 O2
Section in Red
12. ECOA: The credit history also contains the Equal Credit Opportunity Act
(ECOA) code which designates the type of participation for that account.
Section in Blue
13. WHOSE: The WHOSE section indicates who is responsible for repayment of
the debt. Initially a credit report provided for single borrower will have WHOSE
updated as Borrower (B), if there are 2 borrowers reflected on the credit report,
it helps us identify whether the trade-line belongs to Borrower (B) or Co-
borrower (C) or Jointly by both (J). So, in the aforementioned example, the
trade-line belongs to the borrower only.
Section in Purple
14./15. Remarks: Any information which is not already covered in the

aforementioned sections is updated in the Remarks section. Furthermore, it
reflects any additional information that a creditor communicates to the
repositories. Example: current status of the account is disputed by the
borrower, date of late payments reported, whether the loan is modified, and
more. Moreover, ratings of the account are also reported here.
When it comes to ratings, a series of numbers or characters represent months - (i.e.,

001111111011 or 00XXXXXXX0XX) are updated in this section. The most common
payment stream codes are as follows:
Payment Stream Codes Represents

0, 1, C Payments made on time
X No Reported History
2 (30+) Days Late
3 (60+) Days Late
4 (90+) Days Late
5 (120+) Days Late
7 Making regular payments under Wage
Earner Plan or a similar plan
8 Repossession
9 Collection or Charged-off Accounts
Note: For further clarification on codes, you can refer to TransUnion and Equifax user
guides:
Source Link
TransUnion TransUnion User Guide
Equifax Equifax User Guide
Special Messages : The remark column also reflects special messgaes which helps in
identifying the type of loan or any derogatory events (e.g. Bankruptcy,Foreclosure),
etc. Following are some of the examples of messgaes reflecting on credit report.
a. FHA Mortgage
b. FNMA loan
c. Bankruptcy
d. Disputed Account
e. Consumer Credit Counseling
f. Short Sale
g. Deed-In-Lieu of Sale
16. Trended Data: The snapshot provides historical information of past 24 months
(highlighted in yellow) about the account. The historical data reflects the payment
reported date, scheduled payment, actual payment and balance
6. Trade Summary/ Derogatory Summary:

Trade summary details all the trade-lines of the borrower, whereas derogatory
summary lists down all the trade-lines on which borrower has defaulted. Depending
on the format of the credit report and the provider, trade summary and derogatory
summary will be provided either in the beginning of the credit report or at the end.
Note: Information under summary section should be consistent with the credit
information/ history section.
7. Public Records
Public records are documents or pieces of information that are not considered
confidential. In other words, it is information that is available to any member of the
public.
Basically, public records include history of any significant derogatory credit event
which is considered to be of high risk. Such significant derogatory credit events
include bankruptcy filings, court judgments, overdue child support, or tax liens. The
more recently such events have occurred, the more adverse their impact is on the
credit profile. Although most public record information is retained in the credit
history for seven years (ten years for bankruptcies); as time goes by, it does become
less significant to DU’s credit evaluation.
8. Alerts
The Fair and Accurate Credit Transactions Act (“FACT”) allows, consumers to request
and obtain a free credit report once every twelve months from each of the three
nationwide consumer credit reporting companies (Equifax, Experian and TransUnion).
Additionally, the said act also contains provisions to help reduce identity theft, such
as the ability for individuals to place alerts on their credit histories if identity theft is
suspected, or if deploying overseas in the military, thereby making fraudulent
applications for credit more difficult. Further, it requires secure disposal of consumer
information. Which is the primary purpose of alert section under credit report. This
section indicates potential red flags on the loan file. A fraud alert is notice to a credit-
reporting bureau that a consumer’s identity may have been stolen and a request for
new credit in that consumer’s name may not be legitimate.
Credit Fraud Alert are of three main types:
1. Alerts placed by the borrower

2. Hawk Alert
Alerts placed by the borrower comprise:
 Initial Alert/Fraud Victim Alert: An Initial Alert is valid for 90 days and can be
renewed for 90-day terms thereafter.
 Credit Freeze: The credit freeze locks the data at the consumer reporting agency
until an the borrower gives permission for the release of the data.
 Extended Alert: An Extended Alert is valid for 7 years and requires you to submit a
police report to the credit bureaus notifying them that you have been a victim of
identity
 Active Military Alert: An active military alert is valid for 1 year and can help
protect your credit while you’re deployed.
Hawk Alerts: Hawk is a fraud detection product that searches the Hawk databases in
conjunction with a credit report, Fact, Peer, all TransUnion online products, or other
permissible purpose products.
Hawk generates a series of messages that serve as warnings that Hawk customers
should carefully examine the address, social security number (SSN), or telephone
number corresponding to the message.
Hawk messages fall into six categories:
 List information - specific warnings about non-residential addresses and

telephone numbers that may be inappropriate on a personal credit
application
 Subscriber-contributed information - information supplied to Trans Union by
subscribers or loaded directly by TransUnion's Fraud Victim Assistance
Department (FVAD); indicates addresses, SSNs, or telephone numbers used in
suspected or confirmed fraud
 Social Security Administration information - can point out inconsistencies in
SSN information
 System intelligence messages - cross-references the Hawk database elements
and TransUnion consumer credit database file information
 System availability messages - indicate when the Hawk system is partially or
completely unavailable
 Clear for all searches performed - no Hawk matches are found
9. Inquiries Placed by Other Creditors and Repositories

When a borrower applies for a credit, their credit history is reviewed by the creditors.
That is, creditors ‘inquire’ for a copy of the borrower’s credit report. These inquiries
are reflected on the credit report under separate section.
Inquiries in other words lists down all the names of all credit grantors and potential
employers who obtained a copy of the borrower’s credit report for any reason.
Additionally, it lists anyone who has accessed the report over the past two years.
(Federal law requires the two-year retention for employer inquiries, but only six months
for credit grantor inquiries.)
Recent inquiries can indicate a recently opened undisclosed account. The inquiry should
be researched by contacting the creditor. The creditor can confirm whether the applicant
did or did not open a new account. Any recent inquiry made by the credit grantor needs
to be analysed by the underwriter to validate whether the same has resulted into any
recent debt or not.
An explanation of the listed inquery is required to be requested from the borrower,

except in following scenarios: 1. New debt already reflecting as a tradeline under
borrower’s credit; 2. Inquiry made by the lender/mortgagee/ broker of the current
transaction; 3. Inquiriy made by the reporsitories; 4. Inquiries made by the Utility service
providers such as telephone agency, water department, etc.
There are primarily two types of inquiries placed by the borrowers:
a. Soft Inquiry (Pull): A soft inquiry, or soft pull, is a term used to refer to an inquiry
that does not adversely affect the credit score. Soft inquires are recorded when a
business accesses credit data of the borrower for a purpose other than an application
for credit. Soft inquiries include request made by the borrower to their own credit
report or employment-related requests made by third party. This type of inquiry is
recorded by the credit bureaus but does not usually appear on a credit report
purchased by the creditors or businesses while processing application for credit.
b. Hard Inquiry (Pull): A record of a business request to see a credit report data for the
purpose of an application for credit. Hard inquiries appear on a credit report each
time an application is completed for a credit card, loan, cell phone, etc. i.e. Anytime
borrower is actually getting a loan or a new credit card, the lender/mortgagee are
required to conduct a hard pull on the credit report of the borrower. This stays on
the record. It also lowers the credit score by about five points for six months. Hard
inquiries can remain on a credit report for up to 2 years.
10. Sources of Information

The Fair Credit Reporting Act, (“FCRA”) is U.S. Federal Government legislation
enacted to promote the accuracy, fairness, and privacy of consumer information
contained in the files of consumer reporting agencies. It was intended to protect
consumers from the willful and/or negligent inclusion of inaccurate information in
their credit reports. To that end, the FCRA regulates the collection, dissemination,
and use of consumer information, including consumer credit information.
Users of the information for credit purposes have the following responsibilities under
the FCRA:
1. Users can only obtain consumer reports for permissible purposes under the
FCRA;
2. Users must notify the consumer when an adverse action is taken on the basis
of such reports; and,
3. Users must identify the company that provided the report, so that the accuracy
and completeness of the report may be verified or contested by the consumer
To ensure information report on the credit report is accurate and fair, “Source of
information” section is provided on the credit report. This section specifies the details
and all the variations in the borrower’s information for credit to further analyse the
dependability of the information. In other words, everything that is reported and
used by the credit reporting agency is mentioned in the ‘Sources of Information’
section. It lists down:
o The names and AKAs used by the borrower(s)

o SSNs and all the AKA SSNs used by the borrower(s)
o Date of birth mentioned by the borrower(s)
o History of previous and current addresses used by the borrower(s)
o Employer details of the borrower (if reported) or the occupation of the
borrower(s)
o Past and current creditors of the borrower(s)
The reviewer needs to ensure that the information detailed in this section is
consistent with the information on the loan file.
11. Validity of Credit Report

The validity of credit report is limited to 120 days at the time of disbursement. The
credit report cannot be more than 120 days old at the disbursement date.
Note: For FHA loan, we cannot re-run AUS with new credit report post closing.
12. Rack Your Brains

R B M Q S I I I G F C T U U U
T E V O P W B J R B R N O C N
F R P P R X L A T O E E M L O
S R E O M T U D F H D M D P W
V P L L S D G P T K I E H S Y
O B A M A S Z A C J T G H C C
L X U L M K E V G H C D P O H
A D E A T N W S P E A U A I W
K R B Y N Z E A S E R J S H Q
T P Z P M Z J G H I D T T I Y
C I N Q U I R I E S O I D O M
C U E O I D J U P R L N U Y S
H K J Y F Z W X Y A V W E N Q
P U B L I C R E C O R D S R L
E N I L E D A R T L B B M F M
Answers:
CREDITCARD
FRAUDALERT
HAWKALERT
HISTORY
INQUIRIES
JUDGEMENT
MORTGAGE
PASTDUE
PUBLICRECORDS
REPOSSESSION
TRADELINE
13. Liability Reconciliation

1. Liability Reconciliation (including undisclosed debts)
Consistency among the documents is of prime importance when the underwriter or
reviewer reviews the loan files. To ensure consistency, the borrower’s liabilities need
to be accurately assessed. For that, the reviewer needs the borrower’s credit report.
A credit report comprises all the trade-lines of the borrower being reported by the
creditor to the repositories. Thus, the reviewer, through the borrower’s credit report,
assesses the borrower’s liabilities.
Some of borrower’s liabilities however, might not be listed in the credit report. These
debts are additionally required to be considered during ratio analysis, that is, they are
required to be considered in total expenses of the borrower while calculating the
Debt to Income (DTI) ratio.
Furthermore, the reviewer needs to verify the liabilities listed on the credit report
and other source of documents with “Section VI. Assets and Liabilities” of 1003.
Following are the examples of the sources of documents for liabilities:
o Divorce decree
o Tax lien
o Judgment agreement
o Credit card statement
o Credit supplement
o Payment agreement with Internal Revenue System (IRS)
Reviewers are also required to verify the consistency of the information pertaining to
liabilities in Automated Underwriting System (AUS) and Loan Transmittal (1008/
92900-LT). The basic idea is to ensure that each document is in sync with the other.
Note: If the values on the loan application (1003) are less than the values on the
credit report whist exceeding the tolerance level, the reviewer needs to identify the
reason for the discrepancies between the two. Furthermore, reviewers are required
to update the loan application values to calculate accurate ratios. The information
must be updated either with verified values from the credit report or with
independent, outside verifications.
Example-
The Assets and Liabilities section of 1003 (Section VI) is reflecting the following
liabilities:
The reviewer must match the liabilities mentioned on 1003 with those on the credit
report (please refer to the following screenshot) while reconciling liabilities.
Credit report reflects the following liabilities:
Note: If any additional liabilities are noted on credit report which are not taken in
account or reported on 1003, the same should be considered in calculating the Front
End and Back End Ratios.
Integration with AUS:
Automated underwriting system(AUS): AUS is a computer generated loan

underwriting decision tool which give decision on loan approval or denial. For the
further insight to AUS kindly refer to the Appendix section for more details about AUS.

Tolerance limits: The information eneterd in DU must be accurate to reflect the
correct recommendation based on the risk involved. However; various guidelines
(FNMA, FHLMC, FHA etc.) permit certain variations in data entered in the DU. These
variations are usually termed as Tolerance limits.
For example – In FHA loan file, when an inaccuracy in the amount or type of debt or
obligation is revealed during the application process and the correct information was
not considered by the AUS, the lender must resubmit the information to DU if the
amount of liabilities that must be included in the borrower’s debt increases by more
than $100 per month.
2. Real Estate Owned

Section VI. ASSETS AND LIABILITIES additionally contains the Schedule of Real Estate
Owned. Reviewer/ Underwriter is required to ensure all the Real Estate Owned
(REO)* properties of the borrower.
In addition to REO properties, the reviewers need to verify the mortgages (first and
second liens) against each property, if any. Moreover, one needs to verify whether
the mortgages are escrowed or not. If the mortgages are not escrowed or the
property is free and clear (property without any loan) we need to verify the taxes and
insurance amounts from Tax certificate and Home Owners Insurance Policy/Binder
respectively.
(*) Properties that are taxed as Real Estate Owned
3. Verification of Mortgage’s Existence

We can identify whether the borrower’s property has a mortgage or not using the
following documents:
o Credit Report
o Verification of Mortgage (VOM)
o Mortgage statement
o Servicer’s payment history of the mortgage
o Schedule A (Mortgage Interest component) and Schedule E
o Any other direct verification from the lender
o Homeowners’ insurance ( Verifying mortgagee clause)
o Credit Supplement
Mortgage Statement:
Schedule A of 1040 (Mortgage Interest):
Schedule E of 1040:
Homeowners Insurance:
Payment History:
Credit Supplement:
4. Analyzing the Credit Report

In the following section, we’ll take a detailed look into the trade-lines and analyze their
impact on underwriting.
1. Types of trade-lines
Installment Account: A type of loan where the borrower makes a fixed amount of
payment each month. This includes personal loans and automotive loans. Mortgage
loans are also installment accounts but are usually classified by the credit reporting
system as real-estate accounts instead.
Another type of account, known as Lease account, is often mistaken for Installment
accounts. However, Lease accounts are different from installment accounts since
they are considered to be ‘recurring’ in nature. This is because, typically, whenever a
particular lease agreement expires, a new lease agreement needs to be created.
Note: Installment accounts are required to be considered as one of the liabilities of the
borrower. However, these accounts can be excluded if certain guidelines are met. Those
guidelines are mentioned in the following table:

Program
Fannie Mae Fannie Mae 1. B3-6-05, Monthly Debt Obligations
Selling Guide
Specific section to referred to in the selling guide
i. Installment Debt
2. B3-2-02, Risk Factors Evaluated by DU

i. Installment Loans
3. B3-6-01, General Information on Liabilities

i. General Information on Liabilities
ii. Calculating Total Monthly Obligation
4. B3-6-07, Debts Paid Off At or Prior to Closing

i. Payoff or Paydown of Debt for Qualification
5. B3-5.3-02, Payment History

i. Payment History
HUD/FHA HUD Policy 1. For DU approved loans:

Handbook II. ORIGINATION THROUGH
POST-CLOSING/ENDORSEMENT A. Title II Insured

i. General Liabilities and Debts (TOTAL)
ii. Installment Loans (TOTAL)
2. For Manual underwritten loans
II. ORIGINATION THROUGH
Housing Programs Forward Mortgages 5. Manual
Underwriting of the Borrower

i. General Liabilities and Debts (Manual)
ii. General Credit (Manual)
iii. Installment Loans (Manual)
Revolving accounts: A revolving account is an open-ended account similar to a credit

card that can be used for payment to any creditor or service provider. A borrower can
have a dedicated line of credit with a creditor, in which, the revolving account can
only be used. Repayment is usually at regular intervals but not for a specified
amount.
It is a line of credit where the borrower is allowed to use the funds when they are
needed up till a capped credit limit. It is generally used for operating purposes and
can fluctuate each month depending on the borrower’s current cash flow needs.
Revolving accounts are required to be considered as a liability of the borrower if it is

having an outstanding balance irrespective of the amount.
For example, a credit card is a type of revolving account.
Note: Revolving accounts are not time-bound by any term; hence, credit report will
not be reflecting any term associated with this trade-line.
For guidelines related to revolving accounts, refer to the following table:

Program
Selling Guide
i. Revolving Charge/Lines of Credit
2. B3-2-02, Risk Factors Evaluated by DU

i. Revolving Credit Utilization
3. B3-5.3-05, Credit Utilization

i. Credit Utilization
Specific section to referred to in the selling

guide
i. Payoff or Paydown of Debt for Qualification

ii. Revolving Charge Accounts (TOTAL)

i. General Credit (Manual)
ii. General Liabilities and Debts (Manual)
iii. Installment Loans (Manual)
Open 30-Day Charge account: Open 30-Day Charge accounts are open-ended loans
which are similar to Revolving Charge accounts. However, Open 30–day Charge
accounts require the balance to be paid in full every month. These accounts usually
represent utility accounts.
Note: 30-Day Charge accounts are required to be the considered as a liability of the
borrower only in specific scenarios. The type of action to be taken on an open 30-Day
charge account can be done based on the following guidelines:

Program
Selling Guide
i. Open 30–Day Charge Accounts
Specific section to referred to in the selling

guide
i. Open 30–Day Charge Accounts

i. 30-Day Accounts (TOTAL)

i. 30-Day Accounts (Manual)
Previous Mortgage Payment history: The accounts which are secured against real
estate properties are classified as Mortgage account.
The reviewer must review that the borrower's credit report(s)/equivalent documents
to determine the status of all mortgage accounts. If a borrower had previous
mortgages, the lender does not have to independently verify the mortgage’s
payment history provided the credit report includes a reference to the mortgage (or
mortgages) and reflects 12 months of the most recent payment activity. If mortgage
payment history is not included in the borrower’s credit report, the reviewer can use
the documentation listed in the “Verification of payment history” to verify the
borrower’s payment history on a previous mortgage(s).
Note: Mortgage delinquency is considered as a serious derogatory event for the

borrower. Hence guidelines for satisfactory mortgage payment history are defined
separately by the agency. Reviewer is required to ensure that the borrower is having
satisfactory credit as required:

Program
Fannie Mae Fannie Mae 1. B3-5.3-03, Previous Mortgage Payment History
Selling Guide
POST-CLOSING/ENDORSEMENT A. Title II
Insured Housing Programs Forward Mortgages
4. Underwriting the Borrower Using the TOTAL

i. Housing Obligations/ Mortgage Payment
History (TOTAL)
5. Manual Underwriting of the Borrower

Satisfactory Credit
8. Programs and Products – Refinances

Payment History Requirements (Manually
Underwritten)
Collection Accounts: A collection account is a loan that has been given over to a
third-party agency or an internal collection department which will legally enforce
collection from the borrower due to negligent payment practices of the borrower.
The collection agency assumes the responsibility of collecting the debt for the original
creditor. While the borrower makes payments on the collection account, the account
will remain open and will be listed as a “collection account” on the borrower’s credit
report.
Reviewer need to identify collection account of the borrower(s) and the total amount
due under collection account(s). Further depending on the guideline related to
specific loan program reviewer needs to take the appropriate action.
Note: Medical collection account will be excluded while reconciliation of collection

account.

Program
Fannie Fannie Mae 1. B3-2-02, Risk Factors Evaluated by DU
Mae Selling Guide
Risk Factors Evaluated by DU
Public Records, Foreclosures, and Collection
Accounts

Payment History
3. B3-5.3-09, DU Credit Report Analysis

Past-Due, Collection, and Charge-Off of Non-
Mortgage Accounts

Collections, Charge-Offs of Non-Mortgage Accounts,
Judgments, Garnishments, and Liens
5. B3-6-08, DU: Requirements for Liability Assessment

Auto-Populating DU Liabilities From the Credit
Report

i. Collection Accounts (TOTAL)

i. Collection Accounts (Manual)
Charge-off: A charge-off/profit and loss/written off is the declaration by a creditor

(usuallys a credit card account) that an amount of debt is unlikely to be collected.
This occurs when a consumer becomes severely delinquent on a debt. In other words,
creditor declares these accounts as bad debts.

Program
Fannie Fannie Mae 6. B3-2-02, Risk Factors Evaluated by DU
Mae Selling Guide
Risk Factors Evaluated by DU
Public Records, Foreclosures, and Collection
Accounts

Payment History

Past-Due, Collection, and Charge-Off of Non-
Mortgage Accounts

Collections, Charge-Offs of Non-Mortgage Accounts,
Judgments, Garnishments, and Liens

10. B3-6-08, DU: Requirements for Liability Assessment

Auto-Populating DU Liabilities From the Credit
Report

i. Charge Off Accounts (TOTAL)

i. Charge Off Accounts (Manual)
2. Deferred Obligations:
In this type of account, the monthly liabilities of the borrower are deferred. Deferred
Obligations refer to liabilities that have been incurred but where payment is deferred
or has not yet commenced, including accounts in forbearance.
For example, Brad Johnson opts for a student loan of $30,000 for two years. During
his two years of education and another one year of employment, Brad is not required
to make the monthly payments. The bank or the creditor has advised that the
payment shall start after three years. For these three years, student loan will be in
deferment period.
In Forbearance, the borrower makes a request for deferment.
(Note: Most common types of deferred loans are student loans)
For example, let’s say Julia Bing opts for a personal loan of $56,000. After a few
months of unemployment, she is unable to make the payment and she requests the
creditor to temporarily suspend the monthly payments because of the hardships she
has to face.
Deferred loans can only be excluded from the borrower’s monthly obligations if
certain agency guidelines are met. You can refer to those guidelines from the
following table:

Program
Fannie Fannie Mae 1. B3-6-05, Monthly Debt Obligations
Mae Selling Specific section to referred to in the handbook
Guide Risk Factors Evaluated by DU
Deferred Installment Debt
Student Loan
Handbook II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages 4.
Underwriting the Borrower Using the TOTAL Mortgage
Scorecard (TOTAL)
i. Deferred Obligations (TOTAL)
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title
II Insured Housing Programs Forward Mortgages 5. Manual
i. Deferred Obligations (Manual)

3. Authorized User
When a credit account owner permits another person, typically a family member who
is managing credit for the first time, to have access to and use an account, the user is
referred to as an authorized user of the account. This practice is intended to assist
related individuals in legitimately establishing a credit history and credit score based
on the account and payment history of the account owner, even though the
authorized user is not the account owner.
For example, Tom Bradford’s wife uses his credit card on his behalf and she’s not
liable to make monthly payments on the said card.
Borrower’s authorized user account(s) can be excluded from the borrower’s monthly
obligations if certain agency guidelines are met. You can refer to those guidelines
from the following table:

Program
Fannie Fannie Mae 1. B3-5.3-06, Authorized Users of Credit

Mae Selling Guide
Authorized User Tradelines


i. Sufficiency of Credit References

ii. General Liabilities and Debts (Manual)
4. Contingent Liability
A Contingent Liability is a liability that is required to be repaid by the borrower(s) only
when a specific event occurs.
For example, a contingent liability exists when an individual can be held responsible
for the repayment of a debt if another legally obligated party defaults on the
payment. Contingent liabilities may include Cosigner liabilities and liabilities resulting
from a mortgage assumption without release of liability.
5. Types of Contingent Liabilities:

1. Mortgage Assumptions: When a borrower sells off a mortgaged property and the
property purchaser assumes the outstanding mortgage debt without a release of the
liability, the borrower has a contingent liability.
For example: For example, Jennifer Lawrence, a homeowner owes a 30-year

mortgage loan of $250,000 against her house. A prospective buyer, Sandra Bullock
wants to purchase the house for $300,000 and keep the same mortgage in order to
avoid going through the process and expense of applying for a new loan. Sandra pays
$50,000 cash for the equity and assumes the $250,000 mortgage, thus becoming
liable for the debt.
2. Co-Signed Liability: When a borrower co-signs for a loan to enable another party (the
primary obligator) to obtain credit—but is not the party who is actually repaying the
debt—the borrower has a contingent liability.
For example: Chris Evans’ daughter wants to take a car loan; however, she’s unable
to qualify for the loan. Chris has co-signed as a guarantor for the car loan to ensure
that his daughter qualifies for the loan. Here, Chris has a contingent liability against
the car loan.
3. Court-ordered Obligations: When a borrower has outstanding debt that was assigned
to another party by court order (such as under a divorce decree or separation
agreement) and the creditor does not release the borrower from liability, the
borrower has a contingent liability. The lender is not required to count
this contingent liability as part of the borrower’s recurring monthly debt obligations).
For example: Sam just got a divorce from Sarah. As per the court order divorce
decree, Sarah has been awarded the joint-owned real-estate property. Along with the
property, she is now liable to make the mortgage payments on the property. Also,
since the mortgagee has not released Sam from the mortgage, this will become Sam’s
contingent liability. The reviewer is not obligated to count this liability as a part of
Sam’s monthly obligations.
Program
Fannie Fannie Mae 1. B3-6-05, Monthly Debt Obligations

Mae Selling Guide Specific section to referred to in the handbook
i. Co-Signed Loans
ii. Court-Ordered Assignment of Debt
2. B3-6-06, Qualifying Impact of Other Real Estate
Owned
Mortgage assumption
i. Contingent Liabilities (TOTAL)

i. Contingent Liabilities (Manual)
6. Alimony, Child Support, Maintenance.

Alimony: An Alimony is a periodic pre-determined sum awarded to a spouse or
former spouse following a separation or divorce. Alimony is an obligation to make
payments for support or maintenance; an alimony payment is the actual sum paid to
fulfill the obligation. A decree or court order outlines the alimony payment structure
and requirements.
Child Support/Maintenance: The monetary payments that are made from one ex-
spouse to another after divorce proceedings in order to cover the expenses of the
children for a period defined as per the divorce decree. (Usually, child support is paid
till he/she attains the age of 18)

Program
Fannie Fannie Mae 3. B3-6-01, General Information on Liabilities

(06/30/2015)
Mae Selling Guide
4. B3-6-02, Debt-to-Income Ratios (09/29/2015)
5. B3-6-05, Monthly Debt Obligations (05/31/2016)

i. Alimony, Child Support, and Maintenance (TOTAL)

i. Alimony, Child Support, and Maintenance

(Manual)
7. Business Debt in Borrower’s name
Business Debt in borrower’s name is a debt in the name of a self-employed borrower

who uses funds received from his business to pay off his monthly obligations. For
example, Marshall, who is a real-estate agent has bought a car for his business and
has taken an auto loan for the same in his own name. This auto loan will be
considered as a business debt in the borrower’s name.
Note: Auto loan can be excluded in cases where sufficient documentation is present
verifying the payment was made by the business.

Program
Fannie Fannie Mae 1. B3-6-05, Monthly Debt Obligations (05/31/2016)

Mae Selling Guide

i. Business Debt in Borrower’s Name (TOTAL)

i. Business Debt in Borrower’s Name (Manual)
8. Disputed Accounts
A dispute is a consumer driven request to remove or correct credit data on the credit
report. The borrower requests the Credit Bureau/Creditor to correct an error in the
information pertinent to the Trade Line. Once the borrower submits a request, the
dispute is then reflected under that particular trade-line in the credit report.
In other words, when a borrower disagrees with the accuracy of the information
reported by the creditor for the trade-line. The borrower can, in this case, dispute the
information that is disclosed.
There are two types of Disputed Accounts:
o Disputed derogatory accounts

o Disputed non-derogatory accounts
To further verify the guidelines pertinent to disputed accounts, kindly refer to the
following table:

Program
Fannie Fannie Mae 1. B3-5.3-09, DU Credit Report Analysis

Mae Selling Guide Specific section to referred to in the selling
guide:
Disputed Credit Report Tradelines

HUD Policy 2. For DU approved loans:
Specific section to referred to in the selling guide:
iii. Evaluating Credit History – (B) Disputed

Derogatory Credit Accounts (TOTAL)
9. Private Savings Club

Private Savings Club refers to a non-traditional method of saving by making deposits
into a member-managed joint account. The money in the account is the joint
property of all club members. In order to maintain these account(s), if the
borrower(s) is obligated for monthly charges, the same is required to be considered
as a liability of the borrower in DTI calculations.
10. Undisclosed Debts

Undisclosed Debts refers to those obligations which are not listed on the mortgage
applications and/or credit report. The reviewer needs to ensure that undisclosed
debts are documented and considered as a part of the monthly obligations of the
borrower.
For example, Max has applied for a mortgage and while filling 1003, he has not
mentioned the child support payments for which he’s liable. The child support
payments are not listed on the credit report as well. However, while reviewing his
loan file, the underwriter discovers that Max has recently been divorced and has
been decreed by a court order to make child support payments. Here, the
underwriter needs to condition for the divorce decree/separation
agreement/parental order in order to verify the amount of child support for which
Max is liable.

Program
Fannie Fannie Mae 1. B3-2-09, Accuracy of DU Data, DU Tolerances, and

Errors in Credit Report
Mae Selling Guide
Specific section to referred to in the selling guide:
Ensuring DU data and Delivery Information Accuracy

i. Business Debt in Borrower’s Name (TOTAL)
11. Non-Borrowing Spouse Debt

In a community property state, an asset owned individually by the husband or wife
becomes a joint property even if it was originally bought in the name of either of the
partners. Similarly, liabilities of either spouse are considered to be a joint liability of
both the borrowers as per the state government law. Hence, in FHA loans, liabilities
of the non-borrowing spouse too are required to be considered as a part of the
borrower’s monthly obligations.
12. Judgment and Tax Liens

Judgment is court ordered ruling. Federal lawsuit filed against the borrower which
results in a monetary obligation for the borrower. Judgment is reflected under the
public records section of the credit report.
For example, Andrew has filed a case against our borrower Matthew. The court has
ordered Matthew (defendant) to pay Andrew (plaintiff) a sum of $4,000 to
compensate for Matthew’s losses. This court order ruling will be reflected as a
judgment on the borrower’s credit report.
13. Tax liens

A tax lien is imposed against a borrower for delinquent taxes owed on real
property or personal property, or as a result of failure to pay income taxes or other
taxes. These are reflected under the public records of the borrower.
A tax lien is imposed against the borrower when he or she:
o Owes taxes on a real-estate property

o Owes taxes on a personal property
o Has failed to pay income taxes or other taxes
14. Major Derogatory Events
Derogatory (adj): Tending to lessen the merit or reputation of a person or thing;

disparaging; depreciatory. Source (Dictionary.com)
Derogatory event most commonly refers to late payments, but also includes other
information that indicates credit risk. Settling a debt and not paying it in full as
originally agreed is a serious negative issue and would therefore be described as
derogatory, for example.
The most common forms of major derogatory events are:
o Bankruptcies
o Foreclosures
o Short Sales
o Deed-In-Lieu Foreclosures.
A major derogatory event negatively affects the borrower’s ability to qualify for a
mortgage loan or other credit services.
15. Bankruptcy
Bankruptcy is a legal status of a person who cannot repay the debts he or she owes
to their creditors. In most jurisdictions, bankruptcy is imposed by a court order, often
initiated by the debtor.
16. Types of Bankruptcies
a. Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a proceeding in which the borrower liquidates all the
assets due to their inability to pay off the debts. The proceeds from sale of assets
are used to pay off the liabilities and then the remaining debt is discharged.
b. Chapter 13 Bankruptcy
In Chapter 13 Bankruptcy, instead of selling off all relevant assets to pay creditors,
people who file for Chapter 13 bankruptcy set up repayment plans that use their
income to gradually eliminate their debts. It's typically used by debtors whose
income exceeds the limits of Chapter 7.
A chapter 13 bankruptcy is also called as wage earner's plan. The purpose of this
bankruptcy is to enable an individual with a regular source of income to propose a
chapter 13 plan that provides for their various classes of creditors. Under chapter
13, the Bankruptcy Court has the power to approve a chapter 13 plan without the
approval of creditors as long as it meets the statutory requirements under
chapter 13.
Chapter 13 plans are usually three to five years in length and may not exceed five
years. It plan may be looked at as a form of debt consolidation. A chapter 13 plan
may provide for the three general categories of debt: priority claims, secured
claims, priority unsecured claims, and general unsecured claims. Chapter 13 plans
are often used to cure arrearages on a mortgage, avoid "underwater" junior
mortgages or other liens, pay back taxes over time, or partially repay general
unsecured debt.
Note: FHA does not disqualify a Borrower from obtaining a Mortgage, if at the time
of case number assignment at least 12 months of the pay-out period under the
bankruptcy has elapsed. As a general rule, if an individual is under a Chapter 13
bankruptcy repayment plan, he must approach his court and seek an approval
before any new major financial obligations like a mortgage is obtained. Reviewer
is required to verify the documentation confirming the same.
In recent years, some bankruptcy courts have allowed Chapter 13 to be used as a
platform to expedite a mortgage modification application.
By filing under this chapter, individuals can stop foreclosure proceedings and may
cure delinquent mortgage payments over time. Nevertheless, they must still
make all mortgage payments that come due during the chapter 13 plan on time.
Another advantage of chapter 13 is that it allows individuals to reschedule
secured debts (other than a mortgage for their primary residence) and extend
them over the life of the chapter 13 plan. Doing this may lower the payments.
c. Multiple Bankruptcy Filings

Multiple bankruptcies reflect in a credit report when a borrower has filed for
more than one bankruptcy within the past seven years. The presence of multiple
bankruptcies in the borrower’s credit history is evidence of significant derogatory
credit and increases the likelihood of future default.
For example, Hermione Granger, a borrower, had filed for a Chapter 7 bankruptcy
in 2012. Then, in 2015, she filed for a Chapter 13 bankruptcy once again.
Consequently, her credit report reflected those two bankruptcies.
In case there are two or more borrowers, if the first borrower has one bankruptcy
and the co-borrower has one bankruptcy, then it is not considered as a multiple
bankruptcy.
17. Short Sale

Selling a property for less than the amount the current owner owes the mortgage
company is called a short sale (or pre-foreclosure). In a short sale, the proceeds from
the transaction are less than the amount the seller needs to pay the mortgage debt
and the costs of selling. These are typically identified on the credit report through
Remarks Codes such as “Settled for less than full balance”.
In case of a short sale or a pre-foreclosure, the borrower needs to take a prior

approval from the lender to settle the account in full.
For example: Ronald Weasley owes a $50,000 mortgage on a property whose value
has now depreciated to $30,000. Now, due to financial hardships, he is unable to pay
off his debts. Consequently, Ronald took a pre-approval from the lender and sold the
property off for $30,000 and settled the mortgage account with balance of $50,000 in
full. That way, he won’t have to pay off the remaining $20,000.
18. Deed-in-Lieu of Foreclosure

A deed in lieu of foreclosure is a deed instrument in which the borrower conveys all
interest in a real property to the lender to satisfy a loan that is in default to
avoid foreclosure proceedings.
A deed in lieu of foreclosure offers several advantages to both the borrower and the
lender. The principal advantage to the borrower is that it immediately releases
him/her from most or all of the personal indebtedness associated with the defaulted
loan. The borrower also avoids the public notoriety of a foreclosure proceeding and
may receive more generous terms than he/she would in a formal foreclosure.
Another benefit to the borrower is that it hurts his/her credit less than a foreclosure
does. Advantages to a lender include a reduction in the time and cost of a
repossession, lower risk of borrower revenge (metal theft and vandalism of the
property before sheriff eviction), and additional advantages if the borrower
subsequently files for bankruptcy.
Coming back to the case of Ronald Weasley who owes a $50,000 mortgage on a
property. He, after multiple attempts, was unable to short sale the property in the
market. Consequently, owing to his inability to pay off the debt, he transferred the
property to the lender.
19. Foreclosure
Foreclosure is a legal process in which a lender attempts to recover the balance of a
loan from a borrower, who has stopped making payments to the lender, by forcing
the sale of the asset used as the collateral for the loan.
Formally, a mortgage lender, obtains a termination of a mortgage borrower’s

equitable right of redemption, either by court order or by operation of law (after
following a specific statutory procedure).
Tony Stark bought a property in Malibu at $5 million. After some financial hardships,
he was unable to make the mortgage payments. Without intimating the lender, he
stopped making the payments. As a result, the lender forced him to surrender his
property so that he could recover the money Tony owed him.
Judicial Foreclosure:
The judicial process of foreclosure, which involves filing a lawsuit to obtain a court
order to foreclose, is used when no power of sale is present in the mortgage or deed
of trust. Generally, after the court declares a foreclosure, subject property will be
auctioned off to the highest bidder.
Non- Judicial Foreclosure:
The non-judicial process of foreclosure is used when a power of sale clause exists in a
mortgage or deed of trust. A "power of sale" clause is the clause in a deed of trust or
mortgage, in which the borrower pre-authorizes the sale of property to pay off the
balance on a loan in the event of the their default. In deeds of trust or mortgages
where a power of sale exists, the power given to the mortgagee to sell the property
may be executed by the mortgagee or their representative, typically referred to as
the trustee. It starts start by filing a notice of default with the county recorder.
The following table provides a comparison of waiting period required for each of the
derogatory event:
Derogatory Event Conventional FHA

Bankruptcy Chapter 7 4 years 2 years at the time of FHA Case
Assignment
Bankruptcy Chapter 13 1. Two (2) years At least 12 months of pay-out
from discharge date period under the bankruptcy
2. Four (4) years must have elapsed
from dismissal date
Deed-in-Lieu of 4 years 3 years
Foreclosure
Short Sale/Pre-Foreclosure 4 years 3 years
sales
Foreclosure 7 years 3 years
Note: The above reference is current as of August 23, 2017

Program
Fannie Fannie Mae 2. B3-5.3-07, Significant Derogatory Credit Events —

Waiting Periods and Re-establishing Credit
Mae Selling Guide

Handbook
i. Bankruptcy (TOTAL)
ii. Pre-Foreclosure Sales (Short Sales)
(TOTAL)
iii. Foreclosure (TOTAL)
iv. Deed-in-Lieu of Foreclosure (TOTAL)
5. For Manual Underwritten loans:

POST-CLOSING/ENDORSEMENT, A. Title II Insured
Housing Programs Forward Mortgages, 5. Manual
i. Bankruptcy (Manual)
ii. Foreclosure and Deed-in-lieu of
Foreclosure (Manual)
iii. Pre-Foreclosure Sales (Short Sales)
(Manual)
20. Consumer Credit Counselling.

Credit Counselling is a process designed to provide guidance to individual debtors in
reducing and settling their debt by providing them tools like education and
budgeting. The objective of credit counseling is to help the creditor avoid bankruptcy,
as well as provide basic education on financial management. Bankruptcy law
mandates that anyone filing for bankruptcy must first undergo credit counseling
before being approved.
21. Non-traditional credit history

A nontraditional credit history is needed when a person does not have a credit report
or if the traditional credit report does not have adequate information of that person’s
credit history. It is designed to access the credit history of a borrower who does not
have the type of trade references that appear on a traditional credit report and used
either as:
o a substitute for a traditional credit report or a Residential Mortgage Credit

Report (RMCR); or
o a supplement to a traditional credit report that has an insufficient number of
trade items reported to generate a credit score
22. Independent Verification of Non-Traditional Credit Provider

For some borrowers, due to insufficient credit history, credit score is not generated.
In such cases, the lender either obtains a Non-Traditional Credit Report or develops
the borrower’s non-traditional credit history through independent sources.
The following trade-lines are developed in case of non-traditional credit references:
a. Rental housing payments (can be verified using cancelled checks or by

verification of rent)
b. Telephone service
c. Utilities (examples: gas, water, electricity, television, internet service bills)
d. Insurance premiums not payroll deducted
e. Payment to child care providers
f. Rental Store Credit Cards (for example, from department, furniture,
appliance stores, or specifically scores)
g. School tuition
h. Medical bills not covered by insurance
i. Automobile lease
j. Cancelled checks or documented payments for existing mortgages
23. Sufficiency of Credit/Acceptable Credit History
A borrower’s non-traditional credit history is reviewed to verify if that credit history is

acceptable even if there are any derogatory events.
VI. Appendix
1. AUS (Automated Underwriting System)
An automated underwriting system is a computer-generated loan underwriting

decision. AUS uses completed loan application information, retrieves relevant data,
such as a borrower's credit history, and arrives at a logic-based loan decision.
In other words it takes in, all the qualifying information along with the loan program
and provides a recommendation - an approval or a denial based on what it analyzed.
If AUS provides a recommendation of approved, the automated underwriting
computer tells what documentation is needed for final approval and closing. If it was
a denial, it tells why the loan was denied. AUS analyses and provides
recommendation on two premises of the loan file:
1. Level of risk associated with the concerned loan file

2. Eligibility of the loan file; that is loan characteristics such as loan amount is
meeting guideline(s) as outlined by the agency.
It is important to remember that the approval and feedback is subject to the

underwriter's review. It is the responsibility of the reviewer to evaluate the aspects of
the loan that is beyond the scope of automated underwriting. In short, it is the
underwriter that approves the loan, not the automated underwriting reason being
AUS only analyses the information entered in the loan application; however the
accuracy of the information is determined by the reviewers.
Following are the list Automated underwriting systems:
1. Desktop Originator/ Desktop Underwriter: DU was primarily introduced by Fannie

Mae to be used for Conventional a loan on which investor is Fannie Mae. It is
currently used to analyze FHA and VA loan files as well.
DU’s recommendation is to be verified in 2 parts:
a. Recommendation establishing the risk associated with the loan file (either Approve or
Refer): Approve recommendation requires reviewers to ensure all the clauses listed
on AUS are met on the loan file. “AUS Clauses” are the conditions/ requirements
outlined by the system which are essential to be met on the loan file to support the
“Approve recommendation”.
Refer recommendation does not out rightly refer to the denial of the file, it simply
means AUS is unable to provide approve for level of risk associated with the loan file
and is required to be underwritten manually by the underwriter/ reviewer. Manual
underwriting requires underwrite to validate the guidelines themselves without
relying on AUS. Guidelines for manually underwritten files are separately listed by the
agencies which are much more stringent that those to be verified on approved files.
b. Recommendation verifying the eligibility of the loan files (either Eligible or Ineligible):
Eligible recommendation is received on the file wherein the loan parameters are
meeting all the required agency guidelines. Ineligibility recommendation is not
acceptable on any loan file and results in a direct denial of the loan file unless the
parameters are adjusted on the loan file prior to close to get eligible
recommendation on the loan file. Reviewers are required to verify the reason for the
ineligible recommendation as listed on the DU and rectify the concern. Note: In
exceptionally rare scenarios there is a possibility to accept the ineligible
recommendation; reviewers should always validate the reasons for ineligibility.
2. Loan Prospectus: LP was primarily introduced by Freddie Mac to be used for

Conventional a loan on which investor is Freddie Mac. It is currently used to analyze
FHA and VA loan files as well.
LP’s recommendation is to be verified in 2 parts in similar manner as that of DU:
a. Recommendation establishing the risk associated with the loan file (through
either “Accept” or “Caution”).
b. Recommendation verifying the eligibility of the loan files (through either “Eligible”
or “Ineligible”).
3. Guaranteed Underwriting System: GUS is used on all USDA files to evaluate the
underwriting decision.
GUS’s recommendation is determined in similar manner as that of DU:
a. Recommendation establishing the risk associated with the loan file (through
either “Accept” or “Refer”).
c. Recommendation verifying the eligibility of the loan files (through either

“Eligible” or “Ineligible”).
FHA’s “TOTAL scorecard”
TOTAL is a tool that assists underwriters/ reviewers in managing its workflow and
expediting the endorsement process, and is not a substitute for the reviewer’s
responsible consideration of risk and credit worthiness. Mortgagees using TOTAL remain
solely responsible for the underwriting decision. TOTAL works in conjunction with various
automated underwriting systems (AUS). TOTAL evaluates the overall creditworthiness of
the applicants based on a number of credit variables and determines an associated risk
level of a loan’s eligibility for insurance by FHA.
Red Flags on AUS
A red flag warning is a signal of warning that outlines the inconsistencies in the loan file.
These inconsistencies often indicate that the file contains misrepresentations. The
presence of one or more common red flags may indicate mortgage fraud however the
file may not necessarily have any fraudulent intent.
AUS not only analyzes the information provided to the system through loan application,
it also captures the information available through online records to verify the details
associated with the subject property.
Following are few examples of red flags that commonly noted on any transactions:
a. Social Security number discrepancies within the loan file

b. Address discrepancies within the loan file
c. Verifications addressed to a specific party’s attention
d. Verifications completed on the same day they were ordered
e. Verifications completed on weekend or holiday
f. Documentation that includes deletions, correction fluid, or other alterations
g. Numbers on the documentation that appear to be “squeezed” due to alteration
h. Different handwriting or type styles within a document
i. Excessive number of automated underwriting system submissions
j. No credit history or “thin” credit files
k. Invalid Social Security number or variance from that on other documents
l. Duplicate Social Security number or additional user of Social Security number
m. Recently issued Social Security number
n. Liabilities shown on credit report that are not on mortgage application

o. Length of established credit is not consistent with applicant’s age
p. Credit patterns are inconsistent with income and lifestyle
q. All trade-lines opened at the same time
r. Authorized user accounts have superior payment histories
s. Significant differences between original and new or supplemental credit reports
t. “Also known as” (AKA) or “doing business as” (DBA) indicated
u. Numerous recent inquiries
v. Missing pages and/or supplements
w. Employment discrepancies
x. Social Security number, death, or fraud alerts
Red flag requires more due diligence to be followed. Reviewers are required to ensure
that additional steps are taken to eliminate the risk of any fraudulent activities associated
with the loan file.
DU Underwriting Findings: Desktop Underwriter(DU) starts with ‘SUMMARY’ which lists

down the overall overview of the loan file in terms of eligibility and risk factors involved.
1. Recommendation: This is an important factor in analysis of decision of the loan file

based on the eligibility and risk recommendation provided by the DU.
‘APPROVE/ELIGIBLE’ recommendation indicates that the loan meets all eligibility
criteria’s as required by the Agency/State guidelines and DU approves the level of risk
involved in the loan file.
2. Primary Borrower/Co-borrower: The reviewers are required to verify the name of
Primary borrower/Co-borrower from different documents present in the loan file –
primarily 1003, Identification documents like Social Security Card, Driving License,
etc.
3. Lender Loan Number: This is the unique number which an originator appoints to each
loan for their internal reference.
4. Submission Date: This is the date on which AUS was submitted/re-submitted most
recently.
Note: After first submission of AUS, it can be run again in scenarios where there are
changes in loan parameter(s) such as Tolerance breach, Change in loan amount, etc.
Reviewers are should ensure to review the most recent DU for accuracy of loan
parameter(s).
5. First Submission: This is the date when the loan was first run in DU.
6. Submission Number: This reflects the number of times DU is run.
Note: Reviewers are required to be cautious on loan files with excessive number of
submissions. Excessive submission is a red flag which might indicate that the loan file
has been manipulated to meet the Eligibility and Risk criteria of DU/applicable
guidelines.
7. CaseFile ID: It is the unique number issued by DU to identity the loan for reference
purposes.
8. DU Version: Every time when the DU has been updated in concurrence with the
changes in technology and agency guidelines, it gets a new version.
9. Mortgage Information: This section outlines the basic characteristics of loan file like
LTV/CLTV/HCLTV, Sales Price, Appraised Value, Note Rate, Loan Amount, DTI ratios,
Loan Type, Term, Amortization type, etc. Reviewers are required to reconcile the
information with other documentation provided in the loan file such as Appraisal,
1003, Purchase Contract, etc.
10. Property Information: This section describes the underlying property details: Property
address and Property type are required to be verified from the Appraisal and Title
Report.
Note: In case of any discrepancy noted in the document(s), the reviewers need to be
verify the details or try to resolve the discrepancy by searching public records
available on government website.
RISK ELIGIBILITY
DU outlines the risk eligibility of the loan casefiles under this section. In scenarios,
where the loan file is not meeting Risk profile or the Eligibility requirement, DU will
list down the specific cause for ineligibility/excessive risk.
Condition # 5
If DU reflects the above red flag related to borrower’s SSA number reviewers are
required to further investigate the possibility of fraudulent activity. The above stated
clause appears on DU either because the SSA has not been issued, or was issued
recently or there was multiple SSA associated with the single borrower.
In order to verify the authenticity the loan file must have a third party successful
verification along with SSA-89 document.
Condition #6: Validity of AUS is determined on the basis of Credit report validity. The
above are the standard messages which DU reflects on all loan files. However, based
on the Credit Report used in the loan file, DU conditions for a specific date by which
the loan should be closed. If the loan is closed after date mentioned in the said
clause, reviewer is required to ensure that a new credit report has been used. In the
above example, the loan file must close on or before 10/23/2017, as the validity of
credit report (i.e. 120 days) is expiring post this date.
Note: DU needs to be re-run with updated credit report and the loan should not close
with expired credit report.
Condition #7: DU usually reflects messages pertaining to rental agreement either

when the subject property is an Investment property or 2-4-unit primary residence.
Condition #8: Eligibility matrix needs to be verified by the reviewer for each loan file.
Conventional Specific DU does not list down all the liabilities and the overall agency
requirements. It specifies conditions specific to the loan file and outlines the
actionable items for the reviewers. Kindly refer to the above snaphot from
Conventional DU loan file where in three (3) liabilities have been omitted from DTI
consideration. In this scenario, the DU is reflecting such clause for the reviewer to
verify the documentation supporting such omission.
DU – FHA loans
Unlike Conventional DU, FHA’s DU list down all the liabilities and all the substantial
agency guidelines irrespective of its relevance in the concerned loan file. In the above
snapshot, it can be verified that the borrower is having only one liability which is
considered in DTI; however, DU also list down other guideline requirements such as
collection accounts, disputed accounts, etc. though they are not part of borrower’s
credit profile.
Credit Reference
In order to arrive at a decision, AUS system generally retrives the borrower’s data such as
borrower’s credit history, income etc. The AUS usually retrives the borrower’s liabilities from
the credit report. Upon entering the Credit report reference ID the liabilities reflecting in
credit report are automitcally analysed by AUS.
AUS uses tri merged credit report along with initial application as a source data to assess the
risk associated with the loan file. Reviewers are required to match the Credit reference of
the credit report available in the loan file with the reference number mentioned in the AUS.
2. LQI Credit Report/ Refresh Credit Report

Fannie Mae has launched LQI to identify and implement policy, process, and
technology enhancements to improve the compliance with underwriting and
eligibility guidelines.
The LQI helps mortgagees to ensure that the loan is meeting the credit and eligibility
standards, pricing guidelines, and other requirements of the Selling Guide or
negotiated variances. A primary focus is on capturing critical loan data earlier in the
process and validating it before, during, and immediately after loan delivery.
Primary objective of the product is to capture critical loan data earlier in the process
and validating it before, during, and immediately after loan delivery.
This updated approach is designed to stand the test of time across market cycles and
risk tolerances, thus supporting market stability and reducing investor and lender
risk. Changes introduced under the LQI are intended to reduce repurchase requests
through improved data integrity and consistent and early feedback on policy
compliance while maintaining the current business model of relying on lenders to
make appropriate decisions in accordance with Fannie Mae’s guidelines.
The Loan Quality Initiative focuses on several areas, including:

- Policies that confirm the identity and occupancy of the borrower, validation of
qualified parties to the transaction, and policies that address the borrower’s
credit profile;
- Updated quality control requirements for lenders and an improved feedback
loop;
- The delivery of additional information about the property and the appraisal;
loan delivery enhancements, including
- Validation of loan eligibility at delivery;
- A new capability that enables lender validation of data before, during and
immediately after loan delivery; and
- Collection of additional loan data at delivery and transition to an XML format;
- Reporting and validation of mortgage insurance coverage data.
Sample-1.a:
Sample-1.b:
3. QC Credit Report
II. Document Change Tracker

No. Version Date Change Section Page Done by - Approved by -
No Designation Designation
1 1.0 05-Sep-2017 Revamped TM-0003 All All Mayur Khatri – Pankaj Kalwani –
Trainer Director, Fulfilment
Shail Malviya – Operations
Process Leader

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Credit Underwriting 101

II. Intended Audience

III. Course Prerequisites

IV. References and Usage

Users can view the handbook/guidebook by accessing the following link:

 Fannie Mae Selling Guide

Using the Fannie Mae Selling Guide

2. The Four C’s of Underwriting

Credit Scores Reputation

 Front-end Ratio (also known as Housing Ratio)

A front-end ratio or a housing ratio is expressed as:

Components of Front-End Ratio:

o Recurring monthly housing debt comprises Principal, interest, taxes,

The back-end ratio (referred to as your Debt Ratio) is expressed as:

Components of back-end ratio:

Credit Underwriting Financial Capacity

2. Introduction to Credit Reports

Credit Reporting Cycle and Developing a Profile

Creditor keeps track Creditor reports

A credit repository is a for-profit company that collects information about individuals’

The three main credit repositories in the United States are:

Equifax Experian Transunion

3. Types of Credit Reports

B. Refresh Credit Report/LQI Credit Report: Refreshed Credit Report is a "soft"

C. QC Credit Report: Post-closing lender’s are required to conduct a QC review of

Loan Link Specific Guideline Reference

A credit score is a numerical representation of a borrower’s ability to pay their

5. Purpose of a Credit Scoring System

6. Credit Scores From Three Repositories

National Credit Repository Credit Score Name

7. Calculating the Qualifying FICO Score

8. Factors affecting a borrower’s FICO score

Borrower Credit Scores

Credit scores of the three

1. For single borrower, the median

Loan Program Link Specific Guideline Reference

9. Rack Your Brains

4. Front-End Ratio = Recurring Monthly

1. Creditor keeps a track of ______ and sends

2. Component of total housing expenses is

3. Credit-score of the borrower is called

4. ____ score is considered to validate

5. Appraisal Review is covered under _______

10. Introduction to the Credit Reports

1. How to Read a Credit Report

This report includes:

Personal Identifying Information

Credit History - Detailed Account Information & Summary

Public Records -Judgements via Federal, state or county records, liens

Inquiries Placed By Other Creditors and Repositories

2. Personal Identifying Information

Critical information to identify each borrower needs to be located. This information is

Sample Credit Report

Following is an example of a credit report with hypothetical names and addresses:

1. Lender or Broker who have requested for the credit report.

1. Detailed Account Information

 If anyone else besides the applicant (i.e., a spouse or co-signer) is responsible

 Credit limit or loan amount (Original and unpaid balance)

Snapshot of detailed account information on credit history

1: Creditor’s name and loan number

3: Date on which the account was opened

6. Account balance: Remaining outstanding or unpaid balance on the trade line

C = Check Credits R=Revolving Credit

I = Installment Credit M = Mortgage Loan