Government-insured mortgage loans, including those backed by the Federal Housing Authority (FHA), the U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of Agriculture (USDA), are a significant resource for would-be homeowners, especially when interest rates are high and lenders are holding their purse strings very tightly.
However, qualification for a government-backed mortgage is never automatic. While the government’s criteria are generally more relaxed than the average lender’s, you still have to meet some qualifications. That includes having a certain minimum credit score, a modest downpayment and a few other things.
You also need to get a clean bill of financial health from the government’s Credit Alert Verification Reporting System, or CAIVRS. If you have any delinquent federal debt, this will halt your application in its tracks.
What Is CAIVRS?
First established in 1987, CAIVRS was designed by HUD as a central database that agencies and lenders could use to easily determine if a would-be borrower was delinquent on any federal debts. Since 1989, CAIVRS has been used to pre-screen loan applicants who want government-backed mortgages.
It is generally illegal for someone who is currently delinquent on any federal debts to receive new federally backed loans, and CAIVRS is meant to prevent lenders from making mistakes.
What Sorts of Debts Does CAIVRS Report?
When people think of “federal debt,” most people’s thoughts gravitate toward unpaid and delinquent IRS taxes, but those actually will appear on your credit report, not the CAIVRS report. Instead, CAIVRS actually reports a number of other potential issues, including:
- Judgments against you from the Department of Justice for FHA-insured investment loans, unpaid child support and other debts that may be subject to court orders
- Defaults on your federal student loans or any educational loans for which you have a judgment
- Loans through the Small Business Administration (SBA) for a business that were never repaid, even if the loan was issued under the taxpayer identification number
- FHA loans that you’ve defaulted on in the past or current FHA loan delinquencies, plus any foreclosures that you had in the last three years prior to your current application
- VA loans that you’ve defaulted on, as well as any foreclosures you have had in the past
- VA disability overpayments that were never repaid or Social Security Disability overpayments
- USDA loans that have gone 90 days past due or those in default or foreclosure
What Happens if You Can’t Pass the CAIVRS Report?
If your CAIVRS report is flagged for problems, you may have to rethink your plans – but this isn’t necessarily the end of the road for your homeownership dreams.
Typically, the first thing you need to do is find out what federal delinquency is showing up on the report and make sure that it does, in fact, belong to you. If not, that’s something that your loan officer can likely help you sort out.
If the debt is yours, the second thing you need to do is discuss the options with your lender. Ideally, of course, you can just pay off the debt and clear the record – but that’s usually realistic for most people. With that in mind, every federally backed mortgage program approaches this situation a little differently, so you have to look carefully at the restrictions on borrowers for the program you want to use and your specific circumstances.
For example, if you defaulted on an FHA-backed loan two and a half years ago and let a home go through foreclosure, a short sale or something similar, waiting another six months to resume your home-buying journey might be the best plan. That will not only give you time to pull past that three-year limitation on new loans that is imposed by the FHA, but also an opportunity to save more money for a downpayment and correct any other problems that may have cropped up with your credit.
If you have an unpaid tax lien, that debt can remain unpaid without interfering with your ability to get an FHA loan. However, you must enter into a repayment agreement with the Internal Revenue Service and make at least three on-time monthly payments before you re-apply for the loan. Non-tax debts must be resolved “in accordance with the Debt Collection Improvement Act,” so that may mean different things based on the issue at hand.
Is There Any Other Option?
Lenders vary, but a problematic CAIVRS report isn’t necessarily a barrier to a traditional mortgage through a bank or credit union, since they aren’t required to use them. In that situation, however, you still have to worry about any problematic issues on your credit (like a foreclosure or a tax lien) and you’ll have to follow your lender’s guidance on how to handle the situation.
If you have tax lines, you will generally have to make a repayment agreement and follow through with at least a few monthly payments on time before a bank will give you a loan. If it’s any other kind of debt, such as student loans, the bank may require the same. It’s important to remember, however, that your monthly payment plan for the old debt will be factored into your debt-to-income ratio when the lender evaluates you for creditworthiness. Ultimately, that can affect how much you’re able to borrow and the interest rate you’re offered.
You may also be able to get a traditional lender to offer you a loan if you have a cosigner with good credit who is willing to help. That’s not an option with a federal loan if you have a bad CAIVRS report because everybody who is listed on the mortgage must pass that hurdle.
The mortgage process can be very complicated, especially when you have had some bad financial times in the past — but there may be options open to you that you don’t realize are there. Let someone with experience guide you through the steps so that you know exactly what you need to do to achieve your goals!
