Bulletin 2023-058 Pre-fund Diligence and Best Practices – Undisclosed Debt (Conforming Loans)
Newrez LLC "Newrez" Approved Correspondent Clients; Newrez is sharing requirements and best practices to assist in identifying undisclosed liabilities up through the day of closing (note date). For complete underwriting guidelines, refer to Newrez Underwriting Guide Chapter 1F.6 Inquiries and Undisclosed Liabilities. Newrez Chapter 1F.6 will be updated at a later date.
What’s Required
To help identify undisclosed debt, not reflected on the initial credit report, but obtained up through the day of closing (note date), the following is required for Non-Delegated transactions and strongly recommended for Delegated Clients. Regardless of the process used to identify undisclosed debt, all Clients remain responsible for considering all debt incurred up to and on the day of closing for both Delegated and Non-Delegated Clients.
A single repository Soft Credit Pull or a third-party Undisclosed Debt Monitoring (UDM) Report for the purpose of determining if any new debt has been incurred by the borrower(s).
- The Soft Credit Pull or UDM report should be obtained as close as possible to closing but no earlier than 10 calendar days prior to the Note date.
- If any new credit inquiries appear on the Soft Credit Pull or UDM report, those inquiries must be addressed by the borrower(s).
- Any new debt appearing on the Soft Credit Pull, UDM report or resulting from an inquiry must be considered in the DTI and DU/LPA rerun if tolerances have been exceeded.
The purpose of the Soft Credit Pull is to identify any new debt not shown on the original credit report. If any new credit inquiries appear, those must be explained by the borrower to confirm whether any new debt resulted. Any new debt not previously considered in the final underwriting of the loan, must be included in the DTI and DU/LPA rerun if tolerances have been exceeded.
What’s Not Required
The Soft Credit Report:
- Does not include any credit score(s).
- Does not include all existing tradeline(s) shown on the original credit report with updated payment histories.
- Does not include all existing tradeline(s) shown on the original credit report with updated monthly payment amounts and outstanding balances.
When the Soft Credit Pull contains more information than is required, that information must be considered in the final decision. In some instances, it could render a loan ineligible.
For example:
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If |
Then |
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The Soft Credit Pull includes a credit score(s) for any of the borrowers. |
A new tri-merged credit report for all borrower(s) must be obtained and DU/LPA rerun. |
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The Soft Credit Pull includes updated payment histories for existing tradeline(s) shown on the original credit report. |
If any new derogatory credit is revealed, a new tri-merged credit report for all borrower(s) must be obtained and DU/LPA rerun. |
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The Soft Credit Pull includes updated monthly payments and updated outstanding balances for existing tradeline(s) shown on the original credit report. |
The new monthly payments must be considered, and DU/LPA rerun if outside of tolerance. |
Correspondent Clients may want to evaluate with their credit vendor what information is currently provided when ordering refreshed credit reports compared to what information is required.
Newrez reminds all Correspondent Clients of the required reps and warrants for individual loans as outlined in the Correspondent Operations Guide Section C102 AAA, which in part includes the following:
- Correspondent Clients are required to determine that all debts of the borrower incurred or closed, up to and concurrent with the closing of the subject mortgage are disclosed on the final loan application and included in the qualification for the subject mortgage loan. If it is determined that any debts were not adequately disclosed on the application nor included in the debt-to-income ratio such that the loan would not have met eligibility requirements, the mortgage loan will be ineligible.
Correspondent Clients must have adequate internal controls and processes in place to ensure these requirements have been met.