What you always wanted to know about “ RED FLAGS”… but were afraid to ask! June 2012 By: Milissa Gofourth- Oklahoma ABLE Tech & Cheryl Fatnassi-Opportunities Credit Union

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 application…  Gaps in employment or addresses  Sudden 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 borrower  Purpose of loan and/or collateral is not clear

Red Flags about accuracy of information provided by the 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 & Employment…Red Flags In Income & 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 flags?The Credit Report…more red 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 ratios  Address does not match-frequency  Amount of new debt- secured/unsecured  Maxed out credit cards  Late payments (look for explanations of lates-events to match time of delinquency)  No credit history for older borrowers  A lot of debt for younger borrowers-student loans, credit card debt  Charge-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.

Questions? Now you know your RED FLAGS from your RED FLAGS!!!