CAIVRS for Reverse Mortgages
When you apply for a reverse mortgage, there are a few things that can stand in your way of getting approved, including your existing mortgage balance, the value, and condition of your home and your ability to pay property taxes and insurance. But there’s one factor that you might not be aware of: the CAIVRS check.
What is CAIVRS?
CAIVRS (pronounced KAY-vers) stands for Credit Alert Interactive Verification Reporting System. The Department of Housing and Urban Development (HUD) developed the system in 1987, and it helps processors of federally backed loan applications screen applicants who have defaulted federal loans or are delinquent on other debts owed to the federal government.
The CAIVRS database contains information several types of federal debt, including:
- FHA loans
- VA home loans
- USDA loans
- Federal student loans
- Small Business Administration loans
Borrowers cannot check CAIVRS themselves. Only participating agencies and authorized lenders have access to the system.
All lenders of government-backed mortgages (including home equity conversion mortgages, or HECMs, which are reverse mortgages backed by the FHA) are required to check applicants against CAIVRS as a part of the loan approval process. If the borrower’s Social Security number shows up on CAIVRS, the lender is required to contact the creditor and verify the delinquency. CAIVRS provides a contact number and debt reference number for that purpose.
If the creditor confirms the debt is valid, the borrower will be ineligible for a federally backed loan until he or she resolves the debt.
Can you still get a reverse mortgage (HECM) if you show up on CAIVRS?
If you show up on CAIVRS with a valid debt or delinquency, the only way to get approval on a federally backed loan is to resolve the debt. But resolution doesn’t necessarily mean you have to pay the debt in full before you can qualify for a reverse mortgage.
Good news is you have a few options:
Pay off the debt with proceeds from the reverse mortgage
Depending on the size of the debt, you may be able to negotiate with the federal agency to pay off the debt with proceeds from the reverse mortgage.
Most people have a specific reason for the HECM such as home repairs or modifications or to supplement their monthly living expenses so taking proceeds away from their intended use to pay off debts might not make sense.
However, if the debt you owe is small, or if you can negotiate a lower payoff with the federal agency that reported the debt to CAIVRS due to a hardship situation, this might be a viable solution. When the loan closes the lender will issue a check directly to that federal agency so they know the debt was paid.
Rehabilitate the loan
If the defaulted federal debt that got you listed on CAIVRS is a federal student loan you may be able to resolve the issue by rehabilitating the loan.
Rehabilitating the loan requires making nine on-time monthly payments. Once you’ve made the required payments, the loan is removed from default status. However, that process can take anywhere from nine to 12 months. Usually, borrowers want a reverse mortgage faster to meet a current need.
Join a debt management plan
If you are unable to resolve the federal debt on your own and have other debts that make it difficult to meet your monthly obligations, you may benefit from enrolling in a debt management plan (DMP).
Credit counseling agencies offer DMPs. Under these plans, you make one monthly payment to the credit counseling agency, and it sends payments directly to your creditors.
But this strategy takes time, as well. It’s not enough to just go back to the lender and tell them you’ve agreed to make payments. You’ll need to show a history. For FHA-backed reverse mortgages, the lender will want to see that you’ve been successfully making payments toward your debt management plan for 12 months.
Once you resolve the debt, the creditor agency can verify to your lender that the debt has been resolved. The lender will need to document the resolution in their underwriting file.
Exceptions to the CAIVRS policy
There are three situations in which showing up on CAIVRS will not disqualify you from getting approved for a HECM.
- Assumptions. You sold the property to a buyer that assumed your government-backed loan and that buyer subsequently defaulted on the loan. You must be able to prove that the loan was not in default at the time of sale.
- Divorce. You are divorced or legally separated, and your divorce or separation agreement awarded the home to your former spouse, who subsequently defaulted on the mortgage. However, if the mortgage was in default at the time of the divorce or legal separation, you are not eligible for the exemption.
- Bankruptcy. The property was included in a bankruptcy that was caused by circumstances beyond your control (such as the death of a spouse and principal wage earner, loss of employment or long-term, severe uninsured illness).
Should you work with a private reverse mortgage lender instead?
Private lenders are not required to perform a CAIVRS check before extending credit, so you may be able to qualify for a non-FHA reverse mortgage through a private lender. However, merely changing lenders isn’t recommended.
If a federal debt shows up on CAIVRS, the government probably has a lien on your property. That lien may be too old to show up on your credit report, but the lien remains on your property (and CAIVRS) for 20 years.
When the lender orders a title search, that federal lien will show up. No lender wants to be in a position where a lien can supersede their mortgage, so private lenders will also likely require you to address the debt.
What to do if you shouldn’t be listed on CAIVRS?
If the information in CAIVRS is incorrect, you’ll need to get it straightened out before you’ll be eligible for a HECM.
While it is a rare occurrence for a consumer to be listed on CAIVRS erroneously, that doesn’t mean it can’t happen. For instance, you may have defaulted on a federal loan years ago and worked out an arrangement to pay it off. Despite following the terms of the payment arrangement, CAIVRS was never updated.
In that case, going to the website of the federal agency that reported you to CAIVRS, and contacting the ombudsman is recommended.
All federal agencies have an ombudsman, whose job it is to argue your side of an issue with that agency. You will need to submit a form, provide a written statement explaining your situation and submit copies of documentation supporting your position. The ombudsman should investigate your complaint and work on your behalf to get it resolved.
The bottom line
If the results of a CAIVRS check are standing in the way of getting a reverse mortgage, your lender will likely refer you to a housing counselor, or you can find one on your own using this tool from the Consumer Financial Protection Bureau (CFPB). Resolving the issue may be as simple as identifying the debt and finding out whether it can be settled with proceeds from the reverse mortgage. It also may involve setting up a repayment agreement and making enough on-time monthly payments to satisfy the lender’s requirements.
In any case, if you’ve ever had trouble with government-backed loans of any kind, get your paperwork in order before you apply for a reverse mortgage. It might come in handy if your debt shows up on CAIVRS and you need to work on setting up a payment plan, or prove that there shouldn’t be a black mark on your report.