Fannie Mae has been instituting new guidelines, which will affect the loan origination process. According to policies set forth in the Fannie Mae Loan Quality Initiative (LQI), Lenders are responsible for identifying and disclosing any new debts borrowers may have incurred just before closing, checking related parties against exclusionary lists, and validating Social Security numbers (SSN) throughout the origination process.
"Lenders must determine that all debts of the borrower incurred or closed up to and concurrent with the closing of the subject mortgage are disclosed on the final loan application and included in the qualification for the subject mortgage loan..."
"...Fannie Mae's updated policy requires that lenders determine that the borrower has not established additional debt on or prior to the closing date. If additional liabilities are discovered, lenders must consider any such additional debts of the borrower in the qualification."
Lender that discover new information that could impact the performance of the loan may have to resubmit the loan.
"Examples of situations in which loan casefiles should be resubmitted... if new derogatory information is detected and/or the credit score has materially changed."
Additionally, going forward, loans found by Fannie Mae to be in noncompliance are subject to repurchase by the lenders.
"if Fannie Mae determines that any debts were not adequately disclosed on the application nor included in the debt-to-income ratio such that the loan would not have met Fannie Mae eligibility requirements, the mortgage loan will be subject to repurchase by the lender."
Essentially, this means lenders are responsible for identifying and disclosing credit activity that has occurred between the time the loan is approved to the time it closes. Fannie Mae recommends a few key steps to help ensure compliance with its LQI.
- Refresh credit reports just before closing to identify any new inquiries or debt obligations
- Investigate new inquiries to determine whether the borrower does in fact have any additional debt to repay
- Validate SSN with solutions such as ID Risk Review, Level One authentication, or SSA89 verifications
- Credit Comparison report to quickly identify differences from initial report and refreshed report
I would advise everyone who is in the process of obtaining a conventional loan to make sure you are mindful of any credit or spending through out the entire loan process. Any new debt that creeps up last minute regardless of how big or small can wreck havoc on your closing. I would also be very careful of any new inquiries, and make sure not to use any of your credit cards for appliances or other home related purchases until after your loan has closed and funded. There can be times where a simple increase in credit card balance of only hundreds of dollars will jeopardize your transaction and result in a last minute denial. This can happen right up until the day of closing. I know that as far as Allied goes, we will only pull updated reports with the credit score omitted, however many other lender will pull reports with new scores. If the report has a lower score, you might be out of luck! Think about it this way, if your score is a 622 and the minimum threshold to qualify is a 620, and you get to closing and your new score is only a 619, then your entire approval is null and void and your loan can and will be denied at the table!
These challenging times continue to pose difficulties for borrowers, however if we are all diligent and proactive we avoid these issues and still close all of our transaction. We will continue to do everything possible to educate our customers to the new standards to make sure every loan closes as efficiently as possible, if you are not using Allied for your mortgage needs I would suggest you stay up on the latest changes and make sure your customers understand the new guidelines to avoid your deal crashing at the table.
Content Provided by::Steve Fingerman