How to Monitor Your Pipeline for Undisclosed Debt

You’ve seen it before: 

• A borrower’s application - approved.

• Credit obligations and documentation - checked.

• The debt to income ratio test - passed. 

And then, right before closing, you find out that the borrower applied for a line of credit for new furniture. 

When this happens, it can cause a laundry list of problems for lenders, including expensive loan repurchase demands, declining GSE scorecards, and even potential regulatory actions. This means monitoring for undisclosed debt early on and continuously through the loan origination process is critical for lenders. 

 

Are you monitoring for hidden debt?

You don’t want to be forced to “buy back” loans from investors Fannie Mae or Freddie Mac because your borrower had more debts than disclosed at the time of application. Problems can arise during the quiet period between the original credit file pull and loan closing. Relying on a snapshot of borrower credit behavior at application and closing leaves you missing a huge blindspot and opening yourself up for risk. By identifying undisclosed debt early, lenders can communicate with their borrowers, change loan terms, gather additional documentation or craft another resolution before the closing. Efficient mortgage lenders continuously monitor borrowers for new credit inquiries or tradelines throughout the loan process.  

How to tell if a monitoring solution is right for you?

 

When choosing a solution to monitor loan pipelines, consider a solution that has the following:

 

• Real Time Processing 

1 out of 10 consumers who apply for a mortgage also obtain other loans during the mortgage origination process*. Lenders should have a solution that provides real time back-end processing. In addition, an effective monitoring tool will provide you daily alerts on any new loan or liability activity appearing on the credit file between mortgage application and closing, 24/7 including holidays. Don’t wait for the pre-close credit report, get timely notifications on your borrower's activities so you can take necessary action.

 

• Multi Bureau Monitoring

Having a robust review process during mortgage origination encourages trust between risk management teams and lenders. Consider a monitoring solution that offers additional risk protection features. Undisclosed Debt Monitoring™ (UDM) offers Dual Bureau Monitoring, a feature that allows lenders to receive daily alerts from both Equifax and TransUnion (TU)  for any incoming new inquiries or trade alerts. 

 

• Reporting 

Reporting is critical as GSEs and investors look closely at loans. It is equally as important for lenders to see how they are performing — and opportunities for improvement. UDM reporting features quarterly and summary reports providing a quick overview of all of the alerts for the borrower, including new inquiries and new tradelines. Our reports can help demonstrate trends and KPIs for lenders to present to internal stakeholders.

 

To get started or learn more, visit Equifax.com/undiscloseddebtmonitoring

Sources:

*Equifax data and analytics July 2022