The government has a secret do-not-lend list. If you're on it the odds of getting mortgages are just about zero.
So what is this list and how does it work?
Everybody knows about credit reports and credit scores. You know that you should examine your credit report two or three months before applying for a mortgage so that you have enough time to seek the removal of any items that are factually incorrect or out-of-date, usually items which are at least seven years old and 10 years for bankruptcies. By addressing credit issue in advance you can smooth and speed the mortgage application system.
However, few people know about CAIVRS, the Credit Alert Interactive Verification Response System. It's pronounced "Cavers" and if you're on the list a lot of mortgage options are off limits.
How CAIVRS Stops FHA, VA and Rural Housing Loans
CAIVRS was developed by the Department of Housing and Urban Development in the 1980's and is now maintained by HUD. It "alerts participating federal lending agencies when an applicant for credit benefits, or for a position of trust in support of the administration of a federal credit program, has a federal lien, judgment or a federal loan that is currently in default or foreclosure, or has had a claim paid by a reporting agency."
If you have not been making payments on that long-ago student loan, walked away from an FHA loan or a VA mortgage, defaulted on a small business loan, have a delinquent debt with the Justice Department or the Department of Agriculture, then CAIVRS will stop any further extensions of credit which involve federal guarantees.
While CAIVRS was originally set-up as a phone-in system, it's now Internet-based. The way it works is that an authorized lender goes to the system and enters the borrower's Social Security number (SSN). Then, says HUD, "if the applicant's SSN is not in the database, the caller will receive a clear confirmation code. If there is a record of default for the borrower whose SSN was entered, the caller will be given the name of the Agency reporting the default, the case number of the defaulted debt, the type of delinquency (default, claim, foreclosure, lien or judgment) and a telephone number to call for further information or assistance."
Mortgages and CAIVRS
CAIVRS is necessary because commercial credit reports typically do not show when insured federal debts are delinquent. The catch is that if you want to know if you owe money to Uncle Sam you cannot access CAIVRS directly, so for borrowers it's a secret system. Only authorized lenders -- more than 60,000 of them -- have access to the system and that may be a problem. Here's why:
A lot of people have benefited from federal loans and guarantees and the result is that the CAIVRS system is huge: More than 31 million borrowers have been pre-screened through the system. HUD says that by using CAIVRS it has saved more than "$12 billion in potential claims and over $4 billion in potential losses."
A system with so many entries may have items which are out-of-date or erroneous, meaning your mortgage application could be held up if not declined because of such errors.
However, there is a consumer protection built into the system. As a HUD official explained to LendingTree, "if a listing in CAIVRS is factually incorrect or outdated, consumers may contact the federal agency that has provided the listing, and the agency will notify HUD to remove the erroneous information. CAIVRS automatically updates monthly (and in some cases, weekly)." (parenthesis theirs)
Since you don't want to delay a mortgage application -- and since it can take several weeks to clear up a CAIVRS mistake -- speak with lenders well in advance of making a formal loan application and get pre-approved. The odds of an erroneous CAIVRS listing may not be high but if it happens you'll be grateful for checking in advance. As well, if you do have an outstanding debt with Uncle Sam it can be removed from the system by paying off the amount owed, something which happens fairly often: Each year the government collects $6 million from delinquent borrowers identified by the CAIVRS system.