Analyzing Credit Report

❖ Public Records:
This Section may reflect information about Bankruptcies, Court Judgments, tax liens, foreclosures.
➢ Any judgment(s) reflecting on credit report must have satisfied or dismissed. If a judgment is in
pending status, it must be paid off and cleared.
➢ Any unpaid County, State or Federal Tax Lien, reflecting on credit report, must be paid off and
cleared by borrower. Any tax lien can remain on credit report up to 7 years. If any property is sold
because of an unpaid tax lien then borrower may also default on new mortgage.
➢ Bankruptcy: If borrower has filed bankruptcy and is not discharged / dismissed then file will be
declined.
- If borrower had filed bankruptcy chapter-13 and is “discharged” then borrower can apply for a
mortgage loan after 2 years from the date of discharge and if it is “dismissed” then borrower
can apply after 4 years from dismissal date.
- If borrower had filed bankruptcy chapter-7 and is “discharged” or “dismissed” then borrower
can apply for a mortgage loan after 4 years from the date of discharge/dismiss.
- If borrower has filed multiple bankruptcies then borrower can apply only after 5 years from the
date of discharge or dismiss.
- In a particular scenario with valid reason wait period after bankruptcy can be reduced from 4
years to 2 years. (Applicable for both chapters)
➢ Foreclosure: If borrower was involved in property foreclosure then borrower can apply for a new
mortgage only after seven years. In special case, borrower can apply after 3 years only if new
transaction is purchase of primary residence or limited cash-out refinance of any REO with LTV of
less than 90%.
➢ Deed-in-Liu of Foreclosure: Waiting period is 2 years if LTV is 80%, is 4 years if LTV is more than
90% and is 7 years as per eligibility matrix.

❖ Trade lines on Credit Report:

➢ Minimum Trade line requirement:
Option 1
o the credit report contains a total of at least three (3) open non-disputed trade lines; one
(1) of which must be a non-disputed installment or mortgage trade line,
o each of the three (3) trade lines must be open for at least 24 months, and
o Each of the three (3) trade lines must be updated within the last six (6) months.
Option 2
o the borrower must have a credit history of at least five (5) years,
o the credit report must contain at least five (5) non-disputed trade lines (open, paid or
closed); one (1) of which must be a non-disputed installment or mortgage trade line
(open, paid or closed),
 o individual trade lines may be established for less than a five (5) year period, and
o The trade lines being evaluated in Option 2 must have had activity within the most recent
five (5) year period.

➢ There can be no 30-day late payments in the last 12 months on any mortgage (1st, 2nd, or HELOC)
or rental accounts for primary, second home and investment properties.
➢ If disputed account need to be removed from credit report and account must be paid off and
closed.
➢ Installment account, with less than 10 payments remaining, must be excluded from calculation.
➢ All lease accounts, regardless of number of payment remaining, need to be included in calculation.
➢ Authorized accounts: Need to be included in calculation if borrower’s spouse is using that. This
account can be excluded from calculation if any other person than borrower’s spouse is using that
and we have other person’s 12 months bank statements or cancelled checks to support.
➢ If borrower has taken loan from private lenders and that particular account is not reflecting in
credit report then we need last 12 months history and account statement of that account. (for
example, we need mortgage statement for mortgage loan from private lender & also 12 month
cancelled checks along with bank statements).
➢ Collection/Charge-off accounts:
- For investment properties, individual accounts equal to or greater than $250 and accounts that
total more than $1,000 must be paid in full prior to or at closing.
- For one-unit, principal residence properties, borrowers are not required to pay off outstanding
collections or charge-offs—regardless of the amount.
- For two- to four-unit owner-occupied and second home properties, collections and charge-offs
totaling more than $5,000 must be paid in full prior to or at closing.
➢ Accounts that are reported as past due (not reported as collection accounts) must be brought
current. We do this at the time of funding.
➢ If borrower is not liable to make payments for any account reflecting in his credit report, we need 12
month payment history and account statement to support the same thing.
➢ Deferred student loan must be included in underwriting calculation. Monthly payment is considered
by calculating 2% of current balance.
➢ Child support payment more than 10 payments should be considered in DTI .
 FORMULAS

LTV Calculation:

Loan amount * 100

Appraised value or S.P (W.E.L)

CLTV Calculation:

(Loan amount + Drawn portion (outstanding principal bal of HELOC) * 100

Appraised value or S.P (W.E.L)

HCLTV Calculation:

(L.A + HELOC + Unpaid principal balance of all closed-end sub-financing) * 100

Appraised value or S.P (W.E.L)

DTI Calculation for primary residence:

• TOP:
Proposed Housing Expenses * 100
Total Income

• BOTTOM:
(Proposed Housing Expns + all other liabilities) * 100
Total Income
DTI Calculation for Second Home & Investment:

• TOP:
Present Housing Expenses * 100
Total Income

• BOTTOM:
(Present Housing Expns + all other liabilities) * 100
Total Income

Reserves required for Second Home or Investment Property

1 to 4 financed properties - 2 months for each second home or investment property

5 to 10 financed properties - 6 months for each second home or investment property

Straw Buyer: A straw buyer is a person that buys a home on behalf of another person this is
frequently used in fraud crimes when a person wants to buy a home but has poor credit or is unable to
obtain financing. While straw buyers are not in and of themselves illegal, they are a key component of
many fraud crimes. In straw buyer-based purchases, a straw buyer is paid by a “real buyer” in order to
cover mortgage loan payments. On top of that, the real buyer also pays the straw buyer for their
services and for the use of their credit.
Naturally, banks and lenders do not like straw buyer-based purchases since these expose banks to a
higher risk of default since the actual person paying the mortgage loan is unknown to them.
Front Borrower: Borrower purchasing a property as primary residence for relative without monetary
benefit.