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Reader Questions | The Consumer Explanation Letter

I’ve received several questions from readers just this week on one mortgage document: the consumer explanation letter.  Most of them are just plain annoyed with having to complete this document and don’t understand how to complete it.

The consumer explanation letter prints at the end of your credit report and has five different sections: derogatory accounts, public records, addresses, inquiries, and name variations.  Each of these sections contains items from your credit history for which the mortgage lender requires an explanation.

Derogatory Accounts

If you have any late payments or collections, they will show in this section.  The document asks you for an explanation and an outcome of the derogatory event.  For many clients, a late payment they made on a credit card so long ago that they don’t even remember it will appear in this section.  The good news is that it’s okay to simply write “I don’t remember why this happened” as an explanation for older items (as long as it’s not a large collection–you should probably be able to remember something like that).

Public Records

If you have had a bankruptcy, foreclosure, judgment, etc. it will appear in this section.  A very brief explanation for the event will be required.  In addition, if a longer explanation is required for this event by the underwriter, you may be asked to write a separate letter of explanation.

Addresses

Different variations of your current address as well as previous addresses will appear in this section.  You will simply need to explain whether or not you currently own this property.  It’s not uncommon for there to be an address present that you have never heard of.  You may simply write that the address is a mistake on your credit report.

Inquiries

Any recent inquiries to your credit report will appear in this section.  The underwriter needs to make sure you haven’t obtained any new liabilities that need to be added to your debt to income ratio that haven’t yet hit your credit report.  You will need to indicate whether or not new credit was opened from each inquiry.  Oftentimes a borrower will have a few inquiries from mortgage companies on their report if they were shopping for an interest rate.  If this is the case, I always tell them to write “shopping for an interest rate” for the explanation.

Name Variations

Every single name variation you have ever used will show in this section.  You will need to write a brief explanation of the variation (e.g. maiden name, last name from a previous marriage, nick name, etc.).  Keep in mind if you do have a name from a previous marriage, the underwriter may ask to see your divorce decree and property settlement agreement to make sure you don’t pay alimony or child support.  Do not over think this section.  And, if you see a name variation you cannot recall using before, it’s okay to say just that.

If you are going through the mortgage process right now, just remember this document is now very common and required by most lenders so it won’t do you any good to fight it.  Also, if you’re having trouble explaining something on your letter, you should be able to reach out to your loan officer for assistance.

If you have any questions about this letter or if you are considering purchasing or refinancing in Virginia please contact me for a free mortgage consultation. 

If you are interested in purchasing or refinancing in another state, please contact me and I will be happy to connect you with a loan officer who is licensed in your state.

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