Is having a copy of the original application important?

8 Replies

I am in the process of purchasing a note.  Seller tells me that they don't have a copy of the original application.  Is this important?  Am I able to pull credit through a third party vendor without it?

I know that FCI tells me that they need it for them to pull credit.  Is there other reasons that having a copy of the original application is necessary?  

We generally don't get the original app in the collateral package. Is there a copy available that the seller of the note can certify?

I don't have it for any of my notes and have had no problem getting credit reports. Is it a new requirement?

The only reason I can think of that you will need the application is if you eventually sell the note to an institutional investor. Such investors require all the documentation from origination to the present day. That said, an institution is unlikely to buy a loan that was in default for for a long period of time and/or is secured by a lower-value asset (under $150,000). So I don't see any real problem in not having the origination file.

It is nice to get the original application because it will often contain helpful information about the borrower. It will give clues to the earning power of the household and other information that may help with the workout. For example, we see a lot of low/no doc loans originated in the go-go days of '06-'07. For example: the borrower claimed $40,000 a year of income as a seasonal fruit harvester. The loan went into default in month 6 (or as soon as the teaser rent adjusted to the market rate). 

In reality, this borrower probably makes closer to $20,000 a year and can afford payments in the $5,000 a year range. That gives you a lot of clues as to what the likely exit will be. Is $450 per month in payments cheaper than renting? If so, you have a good chance of getting the homeowner to stay and reperform. If not, you are probably loooking at DIL or FC. 

As to pulling credit. I'm not sure why FCI needs the original application. It may be that at the time of applying for the loan, the borrower granted all future owners of the loan the right to pull credit in perpetuity. That's just a guess though.

Hope its helpful. Good luck

Paul

@Sandy Uhlmann I will often get a copy of the application when buying a contract for deed but almost never when buying a 1st lien mortgage. As @Paul Birkett says though its nice when you do so that you can put a story together about your borrower. It can help in negotiations when you have a bit more information of their life when the loan was originated vs today. 

For a credit check all you really need is the SSN and full name though so a full application form is not really necessary. 

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FCI is not willing to pull credit on a loan you do not own and they don't have a contractual interest in to service for you.  That is pretty standard.  They have no idea what you will do with it and you may or may not violate Fair Credit Act standards with it.  

An application is not required for a credit pull, provided you have an interest in the loan but it is a best practice to obtain either authorization signed by the borrower or an application giving authorization to pull credit. Also, pretty standard credit practice. Authorizations are generally not assignable. An interest can be ownership or through a contractual intent to purchase. Since most trades do not include LOI's the authorization is used as a best practice. You will give the Seller the authorization form and ask they have the borrower execute it. The alternative is to ask the seller to pull one for you.

@Dion DePaoli  Thanks for the clarification.  The seller was kind enough to pull one for me.  I just wasn't sure if not having the original loan application was a problem or not.  

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