Under a new Loan Quality Initiative by Fannie Mae, a last minute credit review could change your loan terms.
In an effort to remedy the tsunami of foreclosures since 2007, Fannie Mae is putting more responsibility on the lenders and putting them on the hook if things go bad.
In other words, according to loan officer Dan Green, “the program shifts the onus of mortgage guidelines compliance away from the government-backed group and to the individual banks responsible for making loans.”
Green goes on to explain that consumers will notice very little difference – except for one thing. And that one thing is BIG.
“In the new LQI environment, Fannie Mae wants lenders to verify that an applicant’s credit profile did not change while the loan was in underwriting. If the profile did change and the lender happens to “miss” it, Fannie Mae might then refuse to buy the loan, burdening the bank with a loan (and possibly a loss).
Because of this added risk, it behooves banks to take each mortgage applicant’s credit report in hand, and do a complete re-pull just prior to closing.
To make sure the loan is saleable to Fannie Mae, banks will look for evidence of any of the following events occurring while the
loan was being underwritten:
- Did the applicant apply for new credit cards?
- Did the applicant run up existing cards?
- Did the applicant finance an automobile, or other major purchase?
If the more recent credit report reveals inconsistencies versus the original credit report, the mortgage is subject to a complete re-underwrite and a possible turndown.” In other words, a last minute credit review could change your loan terms.
These three question should be “no brainers.” I have always told my clients to wait – just wait – until they are in their house before doing anything that would change their credit report.
This new action by Fannie Mae simply emphasizes the need to be financially prudent before signing on the dotted line.
For a full explanation of the new Fannie Mae initiative, visit Dan Green here. And in the meantime, don’t do anything to jeopardize your loan terms