One borrower, Skeens recalled, had received home purchase money on the side from a “loan club” that would require $600 a month to pay off. Oops!
According to Equifax Vice President Raymond White, undisclosed debts — or fresh inquiries for additional credit never disclosed to the lender — now turn up in “nearly one out of five” mortgage applications. Yet under Fannie Mae and Freddie Mac rules, any increase in the total debt-to-income ratio of more than three percentage points, or that pushes the ratio beyond 45 percent, can put the lender into a vulnerable position. If the mortgage later goes bad, Fannie and Freddie can force the lender to buy it back — financial torture for any bank.
White said that failure to disclose debts on mortgage applications is an equal opportunity problem, seen in all market segments, including well-off borrowers who have excellent credit. Research by Equifax found that people with high credit scores are significantly more likely to have undisclosed debts — or new credit obligations in the works before settlement — than other categories of applicants.
“The higher the FICO score you have,” White said in an interview, “the more likely you are to buy something” — or apply for new credit — that triggers an alert.
It's counterintuitive, he agrees, and it's probably because consumers with higher FICOs feel more confident about their credit and may have more resources to handle new debts. But inquiry pings from auto or boat dealers can still mess up their home purchases or refinancings.
Bottom line: From application to closing, don't shop for new credit. It's entirely possible someone is watching. And you are suddenly a person of interest.
Ken Harney's email address is email@example.com.
WASHINGTON POST WRITERS GROUP