A Federal Housing Administration (FHA) loan might be the best mortgage for you if you're looking to buy a home and want to put down a lot less than 20%. However, there's a database that can make your chances of buying a home through FHA lending slim to none if you haven't made payments you owed to the federal government.
This might be the case if you've defaulted on a loan from the U.S. Small Business Administration (SBA), or if you had a prior mortgage backed by the FHA that was foreclosed upon.
- The Credit Alert Interactive Verification Reporting System (CAIVRS) is a database of consumers who have defaulted on federal debts in the last three years.
- CAIVRS is overseen by the Department of Housing and Urban Development (HUD).
- HUD agencies and approved lenders can use CAIVRS to verify that loan applicants haven’t defaulted or fallen behind on federal loans.
- CAIVRS contained the Social Security numbers of over 7.9 million borrowers as of December 2020.
An Introduction to CAIVRS
The U.S. Department of Housing and Urban Development (HUD) oversees the FHA. HUD created the Credit Alert Interactive Verification Reporting System (CAIVRS) more than 30 years ago, in June 1987, as a way to keep tabs on consumers. It tracks those who have defaulted on a federal debt, or who had a claim paid on a federally insured loan within the last three years.
CAIVRS allows programs "to prescreen their borrowers and to broaden the federal government's base in determining an applicant's creditworthiness," according to HUD's website. Applicants are prescreened via CAIVRS for all federally insured loans except for FHA streamline refinances.
How Does CAIVRS Work?
CAIVRS could once be accessed via phone. But that option ended in October 2008. It can only be accessed online as of 2021.
The agencies and lenders who access CAIVRS are able to confirm that loan applicants haven't defaulted or fallen late on direct or guaranteed loans of participating federal programs. They can prescreen applicants for a federal credit benefit. They can avoid granting benefits to those who are thought to be credit risks. According to HUD, CAIVRS also shows the public that the federal government is committed to collecting delinquent debt and meeting its obligations.
CAIVRS included the Social Security numbers of over 7.9 million borrowers in December 2020. According to HUD data, 178,348 borrowers had a claim paid on a foreclosed FHA mortgage in the last three years.
What Agencies Report to CAIVRS?
CAIVRS serves as the hub for records on consumers who are late paying on debts owed to the Department of Agriculture, the Department of Education, the Department of Veterans Affairs, and the SBA.
The Department of Justice (DOJ) also reports information lien judgments to CAIVRS. Nearly 100,000 approved lenders and these federal agencies have access to the database, according to HUD data.
What if You're on CAIVRS?
You won't be able to check CAIVRS yourself. An FHA-approved lender has to verify your credit status in the database.
The data will be shared with you if the lender finds that you're in default on a federal loan, or that you've had a claim paid on a prior FHA loan. This might include the agency with which you've fallen behind on payments, which would mean you're ineligible for an FHA loan.
You can try again for an FHA loan after you work with the agency to either arrange a payment plan or pay the debt in full, but you'd have to wait until after three years have passed if your CAIVRS record shows problems with an FHA loan.
Get Ahead of the Game
Think about looking deeper into the issue before applying for a mortgage if you believe that your status on the CAIVRS database could prevent your home purchase. Work with an FHA-approved lender to learn your CAIVRS status. Take steps to pay off the delinquent debt, or set up a payment plan.
This would be a good time to review your credit reports as well. Clear up any negative marks that appear there. They may be the result of a reporting error. You should also keep building good credit habits to bring your credit score up and maintain a good history.
Make sure you meet the waiting period rule. Do your due diligence to become a creditworthy borrower again before you embark on a new homebuying journey.