Okay, we admit it. The mortgage industry certainly has more than its fair share of acronyms such as CAIVRS. In addition to using our own language it seems during the mortgage process we also employ these shortened versions of longer terms almost on a regular basis. But sometimes it’s just more convenient but we also admit throwing these acronyms around borrowers without sometimes thinking. It’s a habit and we attempt to fix it but sometimes it’s difficult to break. PMI, APR, TRID…you get the picture.
But one you probably don’t hear too much about is CAIVRS. Pronounced CAVE-ers. And, if you haven’t heard of it, that’s a good thing. Because if you had, it might have meant there was a problem getting a government-backed home loan. What is CAIVRS and why is it important?
CAIVRS stands for Credit Alert Interactive Voice Response System, although no longer is it an interactive voice response system, but is the Credit Alert Verification Reporting System. Small change granted, but the old acronym is the one still in use today.
This is a database that lenders access when someone applies for an FHA loan. The FHA loan was created in 1934 and set standards banks could use everywhere when customers applied for a home loan. Prior to the introduction of the FHA loans, banks had free reign with their own underwriting guidelines. Banks could require a down payment as high as 50 percent and the terms of the loan were extremely short, say 60 months in many cases which required borrowers to take out yet another loan when the balloon payment came due. FHA eliminated all that with a set of universal guidelines banks could follow.
FHA, VA and USDA
The FHA loan has always carried a government-backed guarantee. Should the loan ever go into default and the bank approved the loan following FHA guidelines, the lender was compensated for the loss should the loan go into foreclosure. This guarantee is funded by mortgage insurance that is both rolled into the loan as well as an annual premium paid monthly. The FHA doesn’t approve loans, lenders do. FHA just insures them. But it is still a federal program under the auspices of the Department of Housing and Urban Development.
VA and USDA loans follow the same path as FHA loans. These additional government-backed home loans provide lending guidelines for mortgage companies and as long as the lender approves a loan using these guidelines set forth by these agencies the lender is compensated for part or all of the loss, depending upon the program, should the loan ever go into default.
CAIVRS : The Database
Today, when you apply for a government-backed mortgage loan, one of the very first steps a lender takes is to access CAIVRS. This federal database contains information regarding delinquent federal debt. This federal debt could be a student loan, a federal lien, judgement or a government-backed loan that went into default and was foreclosed upon. If there was an unfortunate situation where there was a claim made by a government agency such as FHA, USDA or the VA, that person’s name will show up in the CAIVRS database.
The FHA loan cannot proceed if a name is showing on CAIVRS. What types of claims can show up and who files them?
• The Department of Housing and Urban Development
• The Department of Justice
• Small Business Administration
• The VA
• FDIC
• Department of Education
• Department of Agriculture
When someone defaults on a loan associated with any of these agencies, their name will appear on this list. If the information is correct and there is an outstanding federal debt balance, the balance must be paid off in full before a government-backed loan can be processed. There are exceptions to this, such as a Federal IRS lien where the individual is on a payment plan but otherwise it stops the loan dead in its tracks.
Fixing a Mistake
However, there are times when the information is in fact an error but you will still need to document your side of the story. For example, you sold your home and the buyers assumed your government-backed mortgage and they went into default. If you provide evidence you were not delinquent on the loan prior to the assumption, you’re eligible for an exception. So too in the instance of a divorce where the ex-spouse who received the home and the mortgage went into default and not you. Further, if the mortgage was included in a bankruptcy and was discharged, if you can provide evidence the bankruptcy was beyond your control, an exception can be made. An acceptable explanation would be an extended illness, a sudden loss of a job, divorce or a death of a family member.
In addition to potential borrowers, others can be placed in the CAIVRS database. The guideline states that anyone “in a position of trust in support of the administration of a Federal credit program.” That’s a long-winded way of saying anyone involved in an FHA transaction such as an appraiser who has defaulted on a federal debt cannot be used with an FHA loan. The same goes for a VA or a USDA mortgage application as all three are in fact a federal debt where the borrowers defaulted and the agency had to pay a claim to the lender.
Consider an FHA loan for example. A couple bought a home several years ago and used an FHA loan to finance the purchase. The loan went into default and the lender filed a claim with the FHA with the FHA compensating the lender to the tune of $145,000. Later on, the couple applied for another FHA loan and the lender accessed the CAIVRS system where their names appeared. In order to proceed with the FHA application, the claim would have to be settled to the tune of about $145,000. That’s going to be a tough for most people to fix.
The CAIVRS system is designed to ensure the integrity of government-backed lending as well as keeping the programs viable for future borrowers. When someone appears on CAIVRS, they probably don’t know about it until their loan officer tells them. This is why lenders access CAIVRS very early on, to take care of any federal debt issue that might occur with a government-backed loan application.
