As part of Fannie Mae's Loan Quality Initiative (LQI), they are requiring that as of June 1st, lenders will need to confirm (not just accept the borrowers word for) that all debts of the borrower, including those incurred during the application process, are disclosed on the final loan application and and included in borrower qualification.
That isn't really a big change, because it is already a requirement, however as a suggestion Fannie Mae provided tips, including the refreshing of a borrowers credit report just prior to closing. As if there weren't already enough ways to screw up a loan, now there is one more, and it could be likely lenders will implement this practice. This means that if your score changes by a point that your loan would have to go back to underwriting using that new credit report. So if you were at a 620 score and the lender requires a 620, and you are at a 619 after the re-check, you need to somehow get that back up in order to close on the loan... or if a credit card that you payoff monthly happens to report before you had a chance to pay it off, and your debt ratio doesn't qualify with the new payment. This is huge if you are in escrow planning on closing, if perhaps you had a collection pop up during the application process, or a "refresh" of a delinquency that was old (as sometimes junk debt collection agencies will do after seeing a mortgage inquiry), or if simply the reporting date on a credit card falls just before. So now it's more important that ever to not incur any new debt, keep balances no higher than what they were when your credit report was initially checked, and for those of you who have a blemish or a few on credit, make sure they are all taken care of not to "irritate" any new potential negative marks on credit.
Fannie Mae hasn't made that an absolute requirement, however in webinars that they've put on they have stated that lenders will need to use the new FICO score and of course all of the payments on liabilities from the new report. Alternatively Fannie has suggested that lenders verify with each creditor on the credit report that no new debt was incurred, however the cost and time of doing that would far outweigh just rechecking credit. Fortunately I haven't had one lender come out and say they will be rechecking credit, but it's not June 1st yet, so we'll see how many of them change their policy & requirements come Tuesday. Just giving you a heads up.
Thanks for the info! This will certainly apply to me since my CR expires 6-17-10 and my LO is doing a whole new approval.
One quick question, will these be an additional hard? Cause I know they do the softs and use the same report for multiple approvals.
Welcome, yes the additional inquiries would be hard.
I just received the "Clear to Close" today, but based on what you said, I'm kindof worried. My CC's (I have 2) balances were $0 and $18 when they ran my scores about 3weeks ago, but they both just closed with balances of $40 ($400 limit) and $80 ($600 limit), will this hurt me. My scores did not go down, but my utilization may be affected right?
Since this announcement was made we've seen various responses from lenders. Some are just simply requiring an "Undisclosed Debt Acknowledgment" to be signed at closing, some are re-pulling a single bureau prior to closing and factoring in any new debts, and some are re-pulling all and factoring in the new revised payments into the debt ratio. Most have not made a big deal about this yet, but it is still something that each borrower should ask their loan officer on how it'll be handled on their own transaction. This only applies to Fannie Mae conforming loans, we have not seen this being implemented on FHA, VA, USDA or Freddie Mac conforming loans.
It seems so funny that the banks are so picky and anal now that they go out of their way to find a reason not to finance a loan. We have a record amount of inventory that Fannie Mae needs to unload and they are consumed with the minutae and not the most important stuff like income, debt, the ratios, credit score, etc. I had one underwriter tell me I drank too much beer and got too many foot massages( I only use my credit union debit and credit card for everything I do)...my whole life is laid out before these assholes. One underwriter saw a deposit($2000) from a bank statement from a year ago and wanted to know what it was. I won a college football handicapping contest . He wanted to know if I had a gambling problem. I should have told him he was going to have a problem with my foot upside his head. After telling him a resounding "NO!!" he wanted to know why I didn't report it on my income tax....because I had more than enough losses to offset it dipwad!! Jesus!!Its a miracle if anyone can get a loan today.
Oh they are very concerned with income, debt ratios & credit score. They are just concerned with a lot of other piddly stuff as well. Your comments are funny (in a good & entertaining way), however realize that this is just the beginning for conforming loans. Fannie & Freddie were both recently delisted from the stock market, they are trying to cover their butts not to go out of biz... if that happens, the mortgage world is in for a huge surprise moving to private lending, and if you think qualifying is tough now, you won't believe the requirements at that point.
I tried getting a school loan through these guys and I was denied because I didn't have enough credit history. Hopefully after paying off my car loan and the few credit cards I have that will be a different story.
Guess I will need to make sure I can follow through with these new guidelines.
Great info thanks!
sandiegorealestate - you are probably thinking of Sallie Mae, which offers student loan financing. Fannie Mae only offers mortgage financing.
Oh wow! I am really worried now. I recently had a construction loan approved and it closed March 14, for 188,000. Its an interest only one year loan. My middle score is 688 and I recently found out that a medical bill has been turned over to a collection agency and its for 5,000 and its 4 years old and its not reported as of yet but the ca said they were going to report. I am stressed. I have to start permanant financing about the time my drywall goes up and I have no idea how this is going to impact my score and what is going to happen. I am going to pay it off but the damage is already done. Can I recover in time before my balloon payment of 188,000 or am I going to lose it all? Help!