CAIVRS database will lock you out of FHA mortgage

If you've failed to make good on money you've borrowed from the government but want a Federal Housing Administration mortgage, a little-known federal database could halt your dreams of homeownership. It's known as the Credit Alert Interactive Voice Response System, or CAIVRS.

What is it?

Maintained by the Department of Housing and Urban Development, CAIVRS keeps a record of anyone who has borrowed money from the federal government, such as a home loan, Small Business Administration loan or student loan and defaulted on that debt within the past three years. FHA lenders access the system via phone or online to determine where a potential borrower stands.

"One of the very first things that people should do is make themselves aware of the fact that this database exists," says Bruce McClary, a spokesman for the National Foundation for Credit Counseling. "It's surprising how many people don't know that this database is out there and that records are being kept."

CAIVRS contains the Social Security numbers of more than 1 million borrowers with various forms of government debt. As of September 2015, the share of those borrowers who were in default on an FHA single-family mortgage was 289,436.

CAIVRS could limit your loan options

A prospective first-time buyer with limited down payment funds might consider an FHA loan as the most plausible choice for financing a home purchase. But if the borrower already has federal debt — a student loan, for example — that hasn't been repaid and has entered default status, an FHA mortgage comes off the table.

"If the database is preventing you from getting a federal loan, then you do have to turn toward some of your options among private lenders," McClary says, "and even there, you're going to be at the mercy of your credit history."

That same info in CAIVRS could show up on your credit report in the form of a lien or judgment, he adds.

How to determine your CAIVRS status

The public doesn't have access to CAIVRS, so you must consult an FHA-approved lender to learn whether you're in the system. Have this taken care of during the early stages of the homebuying process, McClary says.

"(Borrowers) really should not make any firm commitment until they have that database checked to make sure that there's nothing on there that would stop the deal," he says. "You shouldn't enter into an agreement; you shouldn't pay any fees to a broker."

Are there ways around it?

Not all hope is lost if you're listed in CAIVRS but still want an FHA loan. You may either arrange a repayment plan with the debt holder or pay the debt in full, according to the HUD website. If you work out a repayment plan, you must obtain documentation from the debt holder to show HUD that the debt is current.

"Then you can work around what's in the database and work with a lender to get approved for a federal loan," McClary says.

However, if your defaulted debt is a foreclosed FHA loan, you won't be able to apply for a new FHA loan until three years after HUD pays your previous lender for the claim associated with your mortgage foreclosure.

Boomerang buyers — former homeowners who went through foreclosure and now want to own again — could find themselves in this sort of situation, says Daren Blomquist, vice president at real estate information firm RealtyTrac.

"The first hurdle they have to really overcome is having that ding on their credit score removed, which takes time," he says.