Forewarn Your Clients,
Beginning June 1, all lenders will be obligated (required by government mandates through FNMA) to order a second full credit screening immediately before closing.
The last-minute credit report will be designed to find out whether your client has obtained -- or even shopped for -- new debt between the date of their loan application and the closing.
If your client has 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, you name it -- the closing could be put on hold pending additional research by the lender.
If they've actually taken out new loans that are sizable enough to affect the debt-to-income ratio calculations used in their original mortgage approval, the whole deal could fall through. The added debt load could render them ineligible for the mortgage because they suddenly appear unable to handle the payments without a strain on their 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 fraud by borrowers.
Fannie's "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.
The application will require: Re-qualification and may include, but is not limited to, obtaining a new credit report including an updated credit score which may impact the qualifying interest rate and pricing as well as the borrower’s ability to qualify based on current program guidelines.
NEW CHANGES TO INTEREST ONLY LOANS:
Interest only loans locked on or after Monday, May 24, will be subject to new guidelines. These changes include:
Maximum LTV/TLTV will be 70%/70%
Minimum credit score for all borrowers will be 720
The following will no longer be available with the interest only option:
cash-out refinances investment property