Mortgage Lenders Detect Undisclosed Debt Incurred during the “Quiet Period”
How do mortgage lenders detect undisclosed new debt assumed by mortgagors during what is called the “Quiet Period?” For those new to the mortgage lending game the phrase “quiet period” refers to the time frame elapsing between the original pulling of the credit reports and the actual closing. I don’t know where the phrase “quiet period” originated but I love it. It reminds me of nap time in Kindergarten. But mortgage lenders have little use for naps. Borrowers who try to get away with some fast moves can find that they have ruined their chances for a great mortgage deal by deceptive moves. Bankers don’t get and keep all that money by being stupid.
A Lot of Borrowers Use the Quiet Period to Try to Sneak in Extra Borrowing
Fraudulent mortgage applications are so prevalent that Lenders have been working overtime at increasing the transparency that is essential to safe lending practices. Equifax released a study that showed that almost 20 percent of borrowers in their study applied for at least one new trade line during the quiet period. New homes always seem to cry out for new furnishings and any number of unexpected and unplanned for new expenses. Surprisingly there were a large number of borrowers with high credit scores and good debt to income ratios included in this category. For some lenders the figure was as high as 40 percent. The average monthly payment on this new debt was $251.00
Tool Helps Lenders Detect Undisclosed Debt at Closing
Lenders have always been able to simply pull a brand new credit report at closing to combat this. Of course this can become a nightmare of planning with a high likelihood of errors compounding the confusion. Lenders can be caught unaware if the new loan has not yet begun reporting to the credit bureaus. There will be a new inquiry. The average age of accounts will be lowered as well. The debt to available credit ratio may be affected. These changes can all wreak considerable havoc to the borrower’s credit score. If the credit score was marginal to start with the whole deal may very well have to be scrapped.
Lenders Detect Undisclosed Debt Through “Undisclosed Debt Monitoring”
The best answer for mortgage lenders to the problem seems to lie in a system that provides continuous monitoring from the date of application and daily proactive alerts. Equifax has come up with just such a system for undisclosed debt monitoring. Although it is doubtful that any such system can ever be expected to be 100 percent perfect this is a step in the right direction. Most importantly the borrower will be put on warning to just not take on extra debt because he will know that the system is in place. This deterrent value will certainly discourage any borrower who may be tempted to see what they can get away with during the quiet period. Like those subject to random drug testing the borrower will find it easier to simply play by the rules.