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Financing

The Secret Database That Could Torpedo Your Mortgage

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If your financial past is less than stellar, a government-backed mortgage might be your ticket to getting into a new home. Loan programs through the Federal Housing Administration, the Department of Veterans Affairs, and even the USDA are known for being more flexible with those who've had encounters with bankruptcy, foreclosure, or other not-so-minor slip-ups. In fact, wait times for those who've gone through foreclosure can be significantly less with a government-backed loan than a conventional loan.

But that doesn't mean getting approved will be easy.

If you're applying for a government-backed loan, in addition to the usual credit and income checks, your lender will also run a check through a specialized database known as the Credit Alert Verification Reporting System, or CAIVRS. This little-known database, which tracks things a regular credit report doesn't, could spell big trouble for your home-buying aspirations if you've run afoul of another government-backed program in the past.

Don't panic (yet). Here's what you need to know before you go after that government-backed loan.

What's reported to CAIVRS

CAIVRS, managed by the Department of Housing and Urban Development, is a vast database that tracks loan defaults, delinquencies, foreclosures, and many other financial issues you might have had with the federal government. A host of agencies -- from HUD to the Small Business Administration -- contribute data.

And if you're applying for a government-backed loan, there's no way to dodge it.

"All lenders are required to check CAIVRS for any FHA, VA, or USDA loan application," says Joe Parsons, branch manager with Caliber Home Loans in Dublin, CA.

So what might be on your report? Student loan defaults are common. So are FHA and VA foreclosures. But not everything is reported -- the Internal Revenue Service doesn't report tax liens or delinquencies to CAIVRS. (Don't think you've dodged a bullet there, though -- they're reported to the credit bureaus.)

CAIVRS vs. credit reports

At first glance, the differences between a credit report and a CAIVRS report may not seem significant. Both reports track big financial missteps such as a defaulted student loan. But where credit reports leave off some information (not all departments report everything all the time), a CAIVRS report is highly detailed. Even if you're lucky enough to get a pass on a student-loan delinquency on your credit report, it will likely show up on CAIVRS. If you're getting a government-backed loan, you'll have to pass a review of both reports.

What to do if CAIVRS reports delinquencies

Currently, borrowers can't pull a copy of their CAIVRS report -- you'll have to wait for your lender to do that for you. If the report comes back with serious delinquencies, it may hurt your chances of qualifying for a government-backed loan.

But there is a way to fix things.

First, you should check to make sure the entry isn't a mistake. CAIVRS reports operate much like credit reports offered by third-party credit bureaus. And, just as with a standard credit report, mistakes can happen. It could be that you weren't supposed to be listed in the database at all. Perhaps they're reporting outdated or incorrect information.

If you do find a mistake, you can get it corrected.

"If someone finds themselves on the list mistakenly, they can deal with it in the same way they would handle an incorrect credit report entry: Provide documentation to the bureau, and wait for it to be corrected," Parsons says. Your lender can help you file the right documentation with the right department to get any mistake cleared up.

But what if it's not an error? You still have some options, but be aware that they could delay getting financing.

For example, if your student loans are in default, you can pay off the default entirely or enter into a payment plan with the federal Department of Education. You may also be able to consolidate your student loans and get the payments back on track faster.

If you defaulted on another loan -- say a business loan through the SBA -- you'll likely need to pay it back in full before qualifying for more government-sponsored assistance. However, you may be able to work out a payment plan for delinquencies and other smaller issues.

If the problem was a foreclosure, your options may be limited. Typically, you have to wait three years from the date the agency paid on your foreclosure before you'll be eligible for another loan. Plan accordingly.

What about conventional loans?

If you're not applying for a government-backed loan, you won't have to worry about CAIVRS directly -- conventional loans don't require a CAIVRS clearance.

But that doesn't mean you'll be entirely in the clear. Foreclosures, student loan defaults, and delinquent payments may show up on your credit reports, which conventional lenders will use. To make sure, it's a good idea to pull your credit reports yourself a few months before you apply for a loan.