Government mortgage programs are all the rage these days--mainly because that's where the money is. And unlike the crazy, water-tight underwriting of private mortgage programs, government mortgage lenders don't require that you provide a saliva sample and turn over your first-born child.
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However, there is one hard-and-fast test. You've got to get through a CAIVRS test. What is CAIVRS? Well, although it's pronounced "cavers," it has nothing to do with spelunking.
CAIVRS stands for Credit Alert Interactive Voice Response System. CAIVRS was developed by HUD and is a federal government database that tracks people who have defaulted on federal debts or obligations, have had claims paid on direct or guaranteed federal loans, have a federal lien, judgment or a federal loan that is currently in default or foreclosure, or has had a claim paid by a reporting agency.
CAIVRS contains delinquent borrower records from:
- the Department of Housing and Urban Development (HUD);
- the Department of Veterans Affairs (VA);
- the Department of Education (DOE);
- the Department of Agriculture (USDA);
- the Small Business Administration (SBA);
- the Federal Deposit Insurance Corporation (FDIC); and
- the Department of Justice (DOJ).
All federal agencies that extend credit pre-screen all applicants for delinquencies on federal obligations--it's required by law. If you have applied for an FHA mortgage or USDA Rural Development Loan and are not delinquent on federal debt and/or do not have a federal tax lien outstanding, then no worries--the check is a mere formality.
However, if CAIVRS indicates that you are delinquent on federal debt or have had a claim paid in the last three years on any HUD loan, you are not eligible for financing. You will have to pay the debt in full or otherwise bring it current under a repayment plan. If approved you will have to obtain a written copy of the plan from the debt holder. (Federal IRS tax liens may remain unpaid provided the IRS subordinates the tax lien to the FHA mortgage.)
Exceptions to this may be granted under the following situations:
- Assumptions: If you sold the property, with or without a release of liability, to a mortgagor who subsequently defaulted and it can be established that the loan was not in default at the time of assumption, you are eligible.
- Divorce: You may be eligible if the divorce decree or legal separation agreement awarded the property and responsibility for payment is to the former spouse. However, if a claim was paid on a mortgage in default at the time of the divorce, you are not eligible.
- Bankruptcy: When the property was included in a bankruptcy that was caused by circumstances beyond your control (such as the death of the principal wage earner, loss of employment due to factory closing, reductions-in-force, etc., or serious long-term illness), you may be eligible
What if you're on CAIVRS by mistake?
Hey, it happens and it's not uncommon. You don't have to put a bag on your head or anything. Find out from your lender which agency reported you and then you can straighten everything out. Its best if you provide the proof that you paid the claim to both your lender and the reporting agency. This should come up very early in the mortgage process (before your lender can get you a loan case number it has to check CAIVRS) so it doesn't have to hold up your closing. And if you needed another reason to get pre-approved before shopping for a home, you have it.
The federal government can be a tough creditor. While it might make you a loan when no one else will, it will also go to great lengths to collect. And it has more power to do so than anyone.