www.hudclips.org U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410-8000 March 30, 1988 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 88-8 TO: ALL APPROVED MORTGAGEES SUBJECT: Standards for Residential Mortgage Credit Reports The credit report provides information upon which underwriting decisions can be made for determining mortgage credit risk. In response to the changes that have occurred in recent years in the lending industry, the Department of Housing and Urban Development (HUD), Veterans Administration (VA), Farmers Home Administration (FmHA), Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac), credit repositories, repository affiliated consumer reporting agencies and independent consumer report agencies have been working to develop new standards for residential mortgage credit reports. That effort is now complete and all agencies have agreed on the new standards. These standards represent the best combination of characteristics necessary to ensure quality credit reports without having a negative impact on the loan origination process. Accordingly, for HUD-insured mortgages, these standards are required for all residential mortgage credit reports ordered on or after July 1, 1988. 1. DEFINITIONS The meaning of the term "factual data credit report" and "standard factual data credit report" have changed over the years from the original meaning intended by HUD. The use of the two terms on credit reports has become commonplace even though the credit reports are prepared with a wide variety of formats and procedures. Therefore, the term "Residential Mortgage Credit Report" has been adopted to describe the type of consumer credit report expected in conjunction with the underwriting of one- to four-family mortgage loans. Only "Residential Mortgage Credit Reports" which meet published standards for format and research procedures can be used on or after July 1, 1988. An organization engaged in gathering, recording, updating and storing financial and public record information relative to the paying habits of individuals being considered for credit extension is called a repository of accumulated credit records. The six national organizations that meet this definition are: Associated Credit Bureau Services, Associated Credit Services, Inc., Credit Bureau, Inc., The Chilton Corporation, TRW and Trans Union. A Consumer Reporting Agency (Bureau) is an organization engaged in the preparation of reports used by credit grantors to determine the credit and public record history on an individual. 2. PREPARATION OF CREDIT REPORT The preparation of the Residential Mortgage Credit Report entails research and quality control procedures that require time to properly complete. Reports that are rushed through to completion are more likely to have errors and omissions and to have neglected research routines that are necessary to comply with these requirements. Reports generated in this manner are generally unacceptable. 3. GENERAL REQUIREMENTS The Residential Mortgage Credit Report is a detailed account of the credit, employment and residence history as well as public records information concerning an individual. The report must have all of the following characteristics: a. The report must be issued by a professional consumer reporting agency that obtains or verifies all information from sources other than the applicant. b. The credit report in each mortgage file must be an original report, with no erasures, whiteouts, or alterations. c. The agency must present all credit data in the form that is easy to read and must be understandable, without the need of code translations. d. The credit report must identify the full name, address and phone number of the credit reporting agency. e. The credit report must identify who ordered the report and, if different, who was billed for it, unless the billed third party has a documented agent or corporate relationship with the lender who ordered the report. The original report must be delivered to the office of the requestor. f. The consumer reporting agency must contact at least two national repositories of accumulated credit records for each area in which the borrower has resided during the most recent two-year period. Separate repository inquiries are necessary when co-borrowers have maintained separate credit. The names of the national repositories from where the information is obtained must be shown in the residential mortgage credit report. g. In preparing and submitting reports, a consumer reporting agency must make responsive statements concerning items on the report, i.e., the agency must report, "unable to verify" or "employer refused to verify." The same responsive reporting applies to trade and credit history. h. The credit report must list inquiries made within the previous 90 days. i. A certification must be provided stating that the Residential Mortgage Credit Report meets the standards prescribed by HUD, VA, FmHA, FNMA and FHLMC. 4. CREDIT INFORMATION For each debt listed: the credit report must provide the creditor's name, date account was opened, high credit, current status, required payment amount, unpaid balance and payment history. The report must list the historical status of each account in the "number of times past due" format. Statements such as "current", "as agreed" or "satisfactory" are either subjective or do not describe the payment history and are not acceptable. All open debts listed on the application must be verified. A separate written verification may be necessary to be obtained by the lender. 5. AGE OF INFORMATION The report must contain all discovered credit and legal information that has occurred within the last seven years. Reports that restrict information collection to shorter time periods are not acceptable. The credit report must indicate the dates the accounts were last updated with the creditors. Each account with a balance must have been checked with the creditor within 90 days of the date of the report. 6. INTERVIEWS The agency must provide verification of the borrower's current employment and, if obtainable, income. Verification may be made by telephone. A positive statement that employment was verified and the date of verification must be shown. If there has been a change in employment in the past two years, the report must also describe the borrower's previous employment and income. In cases where the interview was not conducted, the report must indicate why it was not. The subject(s) of the report must be interviewed when the consumer agency has incomplete information or when it discovers information that indicates the possible existence of undisclosed credit or public records. The interview may be conducted by telephone and should obtain any information necessary to provide a quality report. 7. LEGAL INFORMATION Each credit report must include all available public records information. The legal search must disclose whether any judgments, foreclosures, tax liens or bankruptcies were discovered in the public records. Adverse items are to be reported as required by the Fair Credit Reporting Act. Consumer reporting agencies are expected to exercise due diligence in obtaining public record information. This includes ensuring that their sources provide public records information that meets our requirements. Public records information must be obtained from credit repositories, direct searches of court records by reporting agency employees, and/or by information obtained from a public records search firm other than the repository. When the reporting agency discovers any information that indicates the possibility of undisclosed public records, the agency must perform the additional research necessary to confirm or deny its existence. Each credit report must disclose the specific source(s) of public records information used for that report. In conclusion, HUD will monitor the quality of credit reports to ensure compliance with the foregoing criteria. The lender's failure to require that credit reports meet these standards will result in appropriate sanctions. Sincerely yours, Thomas T. Demery Assistant Secretary NOTE: If you have any questions, please contact the local HUD Office.