Home buyers got a rare break recently when mortgage behemoth Fannie Mae decided that new policies do not require mortgage lenders to obtain a second full credit report on borrowers immediately before a home closing or refinancing. Home buyers and home owners who are refinancing a mortgage loan do have to report new debts; but a formal, pre-closing credit report is no longer mandatory.
The clarification in its lending policies by America's largest mortgage lender allows loan officers to use in-house or commercial fraud-detection systems to track the credit activities of loan applicants. Many lenders regularly initiate fraud-detection systems to track an applicant's use of credit between loan approval and finalization. Fraud-protection systems alert lenders if an applicant makes any financial changes that could impact his ability to pay monthly mortgage payments.
From the moment of mortgage or refinancing application until completion of closing procedures, credit repair professionals caution mortgage applicants not to make any financial changes. Banks and mortgage lenders watch closely for any new debt or credit that might jeopardize a lender's ability to meet monthly mortgage payments. Even a minor change in a lender's debt picture can derail a mortgage loan.
Astute credit repair specialists recommend that loan applicants adhere to the following guidelines:
- Do not apply for, accept or obtain any new credit cards, including credit card accounts at retail or discount stores, gas stations or grocery stores.
- Do not accept offers to increase your available balance on existing credit cards until after closing.
- Do not make any large or unnecessary purchases until after closing.
- Do not buy a car or take out a personal or home improvement loan.
- Do not apply for or change personal lines of credit.
The bottom line is: Make no changes in your credit picture until after you close on your mortgage loan. Lenders have been soured by what had become a common practice in the pre-crash mortgage market. Borrowers who presented an acceptable income-to-debt ratio at application would go on a spending spree, incurring considerable new debt, the minute they passed their credit check. The double credit check was implemented to force buyers to be fiscally responsible. While Fannie Mae may have decided to loosen restrictions, they'll be watching to make sure borrowers and lenders behave.
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Matt
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