Wednesday, July 14, 2010
7/14/2010 04:47:00 PM | Posted by
Arbor Mortgage
Technically, the news about the Fannie Mae Loan Quality Initiative is not new. In fact, it’s pretty darn old; being first announced in February of 2010. But, a big “to-do” is still being made over it since its implementation on June 1, 2010. The section that has every one up in arms is “undisclosed liabilities”. This is FNMA’s way of shifting some of the responsibility for a loan’s performance to the lender, by requiring that the lender verify that all the borrower debts have been disclosed in the loan file.
This means that the lender has to double check to be sure that you didn’t get a new car loan or increase the balance on an existing credit card. If anything material changed on the credit profile before closing, the lender will be on the hook for that loan.
I think we all know that they only way to actually check to make sure there’s no new credit is to pull another credit report. So, it’s with a wry smile that we react to the Fannie Mae LQI FAQ stating
“The Selling Guide update was not intended to require additional credit report pulls or underwriting at the time of closing.”
Right…. How else are we going to know? Since there really isn’t any other way, lenders have taken the conservative approach and are pulling a second credit report after underwriting, but prior to loan funding.
The second credit report is what is really driving people crazy. Credit ratings are tough enough to manage, with the littlest thing shifting your scores just out of reach of the best program or rates. People don’t like to hear that they will be subject to yet another inquiry, since it runs the risk of lowering their score.
Cynics are spouting that this just another way for the banks to try and charge you more; ding your credit score, just to raise your rate. That’s not quite accurate. While some banks are pulling full credit reports, and using the scores to re-price when applicable, that is NOT required by Fannie Mae. Your lender should be looking for only 3 things:
1. New Credit inquiries since your application – If you have any new credit inquiries, this will red flag your lender that you could be opening new credit and they will ask for an explanation.
2. Change in balances – Lenders will be checking to see if your credit card balances have increased significantly. They will use any higher payments to recalculate your debt to income ratio. If your ratio becomes higher than allowable for your loan program, your loan could be denied.
3. New trade lines – Of course the magnifying glass will be out, looking for any new credit line added since application.
Your lender does NOT need to look at the scores. In fact, credit providers offer a tri merged mortgage report with no scores, just for this instance. It’s actually called an LQI credit report and used expressly for determining new debt.
There are two things you can do to be sure that your loan doesn’t get denied at the last minute. First, don’t shop for new credit until after closing. Don’t even buy a pack of gum (ok, that’s extreme, you can buy gum). You get the picture. Don’t make any large purchases; don’t charge more to your credit cards; and go over your current report to ensure your loan officer has accurate information. Second, use a lender that only pulls an LQI report before closing and not a full credit report, like Arbor Mortgage.
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- Arbor Mortgage
- Arbor Mortgage is a Michigan based mortgage lender that has been providing mortgage solutions for more than a decade. Since 1998, Arbor Mortgage has helped more than 20,000 people purchase or refinance their homes. Arbor offers a variety of mortgage programs including FHA, USDA Rural Development, VA, Conventional and Alternative loans.
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