Beginning with applications dated June 1st, Fannie Mae is implementing the “Loan Quality Initiative” (LQI) guidelines. All Fannie Mae lenders must adhere to these guidelines. In a nutshell, the LQI guideline changes are:
Credit re-verification the day of funding: Fannie Mae will require the borrower’s credit to be repulled the day of funding. If the credit obligations change by more than 2%, the loan is required to go back to underwriting for approval. Peoples Mortgage will reverify credit obligations on the borrower’s credit report (this will not be a hard pull of credit and will not affect their credit score; it is simply a verification of all current obligations). Buyers should be made aware of this rule so they know they should not purchase any large ticket items or have their credit pulled during the escrow process. This could end up disqualifying them from buying their home at the very last minute. This has always been true, but some lenders were not in the practice of pulling credit toward the end of escrow. Now it will be mandated- Excluded Party Lists: Fannie Mae will require all parties to the transaction be checked against the “excluded party” lists, which are managed by HUD and by the General Services Administration. These federal lists cover a broad array of risk categories, including fraud, gross negligence, and lack of business integrity. Individuals have been placed on these lists for both mortgage-specific and non-mortgage-specific activities. Government loans have always used the GSA list to exclude anyone included. This will not impact most borrowers. Those borrowers who are on the list are aware they are on the GSA list;
- Social Security Number Validation: The borrower’s social security number must be validated. Depending on the findings of the credit report pull and “Desktop Underwriting”, the borrower may be requested to show their valid social security card or additional documentation; in some cases the underwriting lender may be requested to contact the Social Security Administration to verify a SSN.
- Validation of Intent to Occupy: Fannie Mae is requiring all investors to verify the borrower’s intent to occupy the property. This may include employing 3rd-party services that specialize in investigating occupancy information, reviewing the hazard insurance policy or utility bills to confirm occupancy of the property following funding of the loan. This has been an issue for years with buyers claiming they intend to occupy the premises in order to obtain a lower interest rate, with the full intention of using the property as a rental.
Please speak with your Lender for more information and details or visit Fannie Mae Loan Quality Initiatives Frequently Asked Questions.
I feel these are all positive changes. A little like closing the barn door once the horse has escaped...but positive changes nonetheless. What do you think?
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