Equifax Launches New Tool to Help Lenders Identify Undisclosed Debt

In an effort to help lenders identify undisclosed debt during the underwriting process and stay in compliance with Fannie Mae's updated policy regarding borrower liabilities, Atlanta-based ""Equifax Inc."":http://www.equifax.com/home/en_us has launched a new mortgage solution--Undisclosed Debt Monitoring.

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According to Equifax, this new solution is the mortgage industry's first platform to monitor for and notify financial institutions of new accounts and borrower activity initiated during the ""quiet period,"" which spans from the mortgage application date to the loan closing date â€" a historical blind spot for lenders. The company said the tool gives lenders the ability to comply with Fannie Mae's guidelines and also gain increased transparency into the underwriting process to cover undisclosed debt and minimize buyback risk.

As part of the ""Fannie Mae Loan Quality Initiative"":https://www.efanniemae.com/sf/lqi/index.jsp, mortgage lenders are required to meet additional guidelines to ensure the borrower has the propensity and capacity to repay a debt. For loan applications dated on or after June 1, 2010, lenders must verify at pre-funding that borrowers have not incurred new debts or liabilities that may affect their ability to fulfill a mortgage payment obligation.

If it is found that additional credit was obtained up to the funding date, a borrower will have to be re-qualified with the monthly payment included in the debt-to-income calculation. And any debts or liabilities incurred during this period, which are not reflected on the credit report or disclosed in the final loan application, may subject the lender to the risk of loan repurchase, Equifax explained.

""The new Undisclosed Debt Monitoring tool will be very helpful in ensuring that we are continuing to write the best possible performing loans while also fully complying with Fannie Mae's Loan Quality Initiative Program,"" said Michael Lyon, VP of operations for ""Quicken Loans."":http://www.quickenloans.com/ ""This tool will provide us much needed visibility into any changes affecting a client's debt profile throughout the

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lending process. It also will allow us to ensure we can help our clients make wise decisions on their finances should they make changes after the initial underwriting.""

This new solution, which continuously monitors for new debts or liabilities, alerts lenders of borrower activity that may represent potential risk associated with mortgage loans in their pipelines. According to Equifax, providing rapid notification of borrower activity during a critical time window gives lenders the ability to leverage the right underwriting resources to mitigate potential borrower misrepresentation or fraud while focusing on approving quality loans in a high volume environment.

The company said financial institutions that leverage this new solution will benefit from enhanced quality control on a number of levels. In addition to delivering daily alerts, Equifax said its platform is built to provide benchmarking and analytics on various borrowing activity tracked during the monitoring process.

Furthermore, the company said the platform will help lenders better prioritize manual underwriting review by enabling them to focus their resources on applicants and transactions that pose the highest level of repurchase risk. And at the conclusion of the monitoring period, the lender will receive a summary file with additional information that can be used to mitigate the risk of future loan buyback.

Equifax said the need for this solution is underscored by the multi-billion dollar impact the problem of undisclosed debt has on the mortgage market. In its analysis, the company found that up to $142 million in auto loan payments were potentially overlooked during the mortgage underwriting process last year. In addition, the company said borrower misrepresentation of income, employment, occupancy, or assets when applying for a new mortgage loan led to an increased prevalence of broken loans and significant losses in 2009.

Recognizing these industry pressures, Equifax said it partnered with several customers and dedicated significant time and resources to develop its Undisclosed Debt Monitoring solution.

""Committed to supporting the evolving needs of today's mortgage market, Equifax introduced the Undisclosed Debt Monitoring platform to equip lenders with a powerful solution to tackle this most important issue in mortgage underwriting,"" said Dann Adams, president of Equifax Consumer Information Solutions. ""Without greater transparency into loan transaction details, many lenders risk being left in the dark.""