What we will cover…What we will cover…

What is a “RED FLAG”?

When the “RED FLAG” can be overcome

When the “RED FLAG” is a deal breaker

What is a “RED FLAG”…What is a “RED FLAG”…

RED FLAG=warning that something doesn’t add up and that you need to investigate further before deciding whether or not you can proceed with a loan.

Examples of “RED FLAGs”…Examples of “RED FLAGs”…

Purchase Price appears too high/too low for the item being financed

Identifying information (name, address, SS#, Date of Birth don’t seem to match)

Income and Employment information (income not a match for employment type, cannot verify employment, employer doesn’t know the employee, phone number not a match for company)

Assets (what they own-cannot verify assets, assets not appropriate given income, age, types of assets, etc.)

Liabilities (what they owe –very high amounts of debt on credit cards, unsecured or in total, many loans backed by any collateral)

Under 18 years old (cannot contract)

Residency Status (permanent or temporary)

Red Flags to watch for in the loan Red Flags to watch for in the loan application…application…

Gaps in employment or addressesSudden changes in employment type or income (higher or lower) If no “reserves”- # months of expenses covered in savings does it make sense given their age, income, etc. Incomplete applications, missing key information that would be used to locate the borrower/collateral Address is a P.O. Box with no physical address for the borrowerPurpose of loan and/or collateral is not clear

Red Flags about accuracy of Red Flags about accuracy of information provided by the information provided by the borrower …borrower …

Did borrower provide accurate information (income and expenses, “dates of employment, loans”, collateral information, etc.)

Information about the collateral

Explanations of delinquency or collections (does the date of the collection or delinquency match to the dates the hardship occurred?)

Red Flags In Income & Red Flags In Income & Employment…Employment…

Verification of Income and Employment as Stated:

Paystubs, tax returns, call to employer, written VOE

Verification of Residence/Rental history as Stated:

contacting the landlord, utility bills, picture ID with address

Verification of Credit History as Stated: Credit Report Non-traditional references (landlord, utilities, cell phone, cable, other bills with a monthly payment plan.)

The Credit Report…more red The Credit Report…more red flags?flags?

Name, address, date of birth and SS#-verify they match what you have-look for logical explanations for variances (i.e. Jr./Sr.)

Fraud alerts (SS# not issued, name doesn’t match record, etc.)

Public records (tax liens, bankruptcy, judgments, etc.)

Credit report red flags…Credit report red flags…High debt to income ratiosAddress does not match-frequencyAmount of new debt-secured/unsecuredMaxed out credit cardsLate payments (look for explanations of lates-events to match time of delinquency)

No credit history for older borrowersA lot of debt for younger borrowers-student loans, credit card debtCharge-offs and other unpaid debt-need explanations-work with them to resolve them and clean up credit-HUD counseling agencies

Red Flags…not deal breakers if…Red Flags…not deal breakers if…

Late payments or collections were isolated to a specific event (death, disability, loss of job) and the borrower made timely payments before and after the “event”

The explanation or documentation provided clears up the differences in information Income fluctuates based on overtime, seasonal

work or some other reasonable explanation.

Collateral (vehicle) has more features than originally indicated which explains the higher value.