Lending News!

By Dava • June 17th, 2010

Lending News!

On June 1st, Fannie Mae instituted a new lending rule that is affecting all Conventional loans that could make the lending process take a little longer.

Fannie Mae Loan Quality Initiative:

For ALL new Conventional loan applications taken ON or AFTER June 1st 2010, the following will be required:

  • Lenders will be required to pull an additional credit report prior to funding (closing) the loan. The purpose of this report is to specifically look for any new credit inquiries, new debt accounts, or increase in any existing debt accounts.
  • If there are any new inquiries since the original credit report date, the buyer/borrower will have to submit a written explanation for those inquiries and whether any new debt was opened. The lender will have to also confirm whether any new debt was opened with any vendor for which there was a new inquiry.
  • If any current liability balances (debts) have INCREASED since the first credit report, or if any new debts appear, the loan will need to be reviewed to confirm that the buyer still qualifies for the loan (a recalculation of debt-to-income ratios will need to be done).
  • Any changes (as listed above) for either increased debt or inquiries will have to be sent back to underwriter for sign-off before final documents (loan papers needed for closing) can be sent to the title company.

Conclusion:

In light of these changes, it is really important that the buyer (or someone in the process of a refinance) avoid creating situation where additional inquiries on their credit (other than for homeowner’s insurance) are made… and even more important to NOT incur any additional debt.

From a practical standpoint, many people use credit for buying gas or food, and most people pay that off quickly. This probably won’t cause any issues, unless the client is right on the edge of whether they qualify or not. The main caution is to counsel clients to pay cash for major purchases … refrigerator, new home items, etc, if they plan to make a purchase during the loan process. Even better, hold off on those types of purchases until after closing, keep credit use at a minimum and hold on to your cash.

Any significant jumps in debt balances that show on the final credit report will have to go back to underwriting, and that will delay closing and could affect an approval.

This is a Fannie Mae rule, Freddie Mac’s rules are typically the same as Fannie’s and most lenders take the Fannie/Freddie guidelines and adopt them, even if they don’t sell the loans immediately.

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