8.4.1 Use of Credit Reports and Credit Investigation

A. Credit reports or credit histories are a means of validating and cross-checking information received from the Borrower and Principals in financial statements and in application exhibits. Credit reports give

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Chapter 8 Mortgage Credit 8.4 Investigating Credit and Character

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a picture of payment history and financial interactions with creditors. The Lender must reconcile any contradictions with a summary statement.

B. A commercial credit report for a business or a residential mortgage credit report (RMCR) for individuals must be current within 60 days of the application acceptance date, and HUD may require updated reports during processing. Merged credit reports from the three major credit bureaus are acceptable, but compiled infile reports are not acceptable. Infile reports have the potential of containing select or less reporting rather than the full reporting as in a single credit report.

C. For Principals who are individuals, credit reports are needed for the individual and for that individual’s other business concerns (i.e. ownership of property management firm, general contracting or subcontracting firm, or land or property development entities, etc.). The Lender should randomly select an overall 10% or more of these other business ventures or property operating companies for credit review for the individual and its other business concerns. The report should contain information on pending judgment(s), legal actions and bankruptcy claims.

D. The General Contractor’s credit reports are required on the business entity/firm, and its operating affiliates, if any. The Lender must provide credit reports for Principal(s) of the General Contractor if the financial capacity and track record of the General Contractor entity is deemed insufficient to assess a credit risk.