LA Times, May 16, 2010
Changes taking effect June 1 are part of Fannie Mae's 'loan quality initiative' to cut down on slipshod underwriting and fraud by borrowers.
If you're thinking about applying for a home mortgage this year, here's some important news: Beginning June 1, your lender is likely to order a second full credit screening immediately before closing.
The last-minute credit report will be designed to find out whether you've obtained - or even shopped for - new debt between the date of your loan application and the closing. If you've made applications for credit of any type - for furnishings and appliances for the new house, a car, landscaping, a home equity line, a new credit card - the closing could be put on hold pending additional research by the lender.
If you've taken out new loans that are sizable enough to affect the debt-to-income ratio calculations used in your original mortgage approval, the deal could fall through. The added debt load could render you ineligible for the mortgage because you suddenly appear unable to handle the payments without a strain on your household budget.
The June 1 changes are part of a new effort by mortgage giant Fannie Mae to cut down on slipshod underwriting by lenders and frauds by borrowers. Fannie's so-called "loan quality initiative" will require lenders not only to pull two credit reports for each mortgage transaction but to perform additional verifications of borrower occupancy plans for the property, Social Security numbers and Individual Taxpayer Identification Numbers, among other changes.
Doug's Take: If you are buying a home or going to be buying a home in the near future, be vary aware of this. I've heard nightmare stories and even been a part of deals where the buyers credit was fine when they first applied, they got into escrow and everyone was ready to close the deal. Well, in the mean time, the buyer went out and bought a new car or was late on a credit card payment. The lender for their mortgage ran the credit before they were going to fund and their score went down to not allow them to qualify for the loan.... Be vary cautious of how you are using credit before and during a home purchase.
clear skies,
_doug reynolds
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