Do You Need a New Credit Report Before Closing??? - Fannie Mae Clarifies Its Position

Mortgage and Lending with Guaranteed Rate NMLS# 2611 NMLS #151088

Fannie Mae clarifies its position on requiring a second credit report just before closing.

Borrowers sometimes think that once they get their underwriting approval, that they now have the green light to go shopping for everything from new furniture to appliances to maybe even a new car.  However, that is far from the truth.  At closing, the borrower must sign the loan application which lists all of their income/asset information.  Signing this form attests to the fact that there has been no significant change in the information listed.  Any major purchase would be a significant material change.

How exactly to prevent this undisclosed debt became a source of debate earlier this year.  At the beginning of March, Fannie Mae unwittingly caused a lot of confusion in the mortgage industry with one of its announcements regarding credit.  To clarify their stance, Fannie Mae issued  Announcement SEL-2010-11 which was released on August 13, 2010. 

"In Announcement SEL-2010-01, Selling Guide Updates for the Loan Quality Initiative, Fannie Mae updated the policy related to undisclosed liabilities. The Announcement reiterated that the Selling Guide requires every mortgage loan delivered to Fannie Mae be underwritten to establish that the borrower has the willingness and ability to repay the debt. It also stated that lenders delivering mortgage loans to Fannie Mae should have mortgage loan underwriting standards in place that recognize a variety of factors when evaluating a borrower’s ability to repay a loan, including (but not limited to) an assessment of the borrower’s debts and all liabilities that may affect the borrower’s ability to fulfill the mortgage payment obligation."

"Additionally, the update required lenders to determine that all debts of the borrower incurred or closed up to and concurrent with the closing of the subject mortgage are disclosed on the final loan application and included in the qualification for the subject mortgage loan.”

This original announcement has led to confusion in much of the lending community.  Fannie Mae states that "an unintended consequence of Announcement SEL-2010-01 was the misinterpretation by some lenders that Fannie Mae was implementing a new requirement that the borrower be re-qualified up until closing.  Therefore, many lenders believed this required a new credit report just before the closing of the loan. This was not Fannie Mae’s intent, and as previously stated, the intent was and continues to be to reinforce lender's existing representations and warranties outlined in the Selling Guide and MSSC, and to emphasize the need to employ the processes outlined above."

Fannie Mae now states that "the lender is not required to obtain a new credit report to verify the additional debt(s)."  This statement finally gives clarity as to Fannie Mae's stance on the issue. 

Why the big concern?  According to the Washington Post, "home loan applicants failed to mention -- or loan officers failed to detect -- up to $142 million in auto loan payments during mortgage underwriting in first mortgage files reviewed by Equifax last year alone, according to the credit bureau. Those loan accounts had average balances of $361 per month -- more than enough to disqualify many borrowers on maximum debt-to-income ratio standards required by Fannie Mae, Freddie Mac and major lenders."

From the time of loan application until the actual closing, there should be no new credit inquires, no major purchases, etc.  Appliances, furniture, etc can wait until after closing to be purchased.  It doesn't matter how great the sale, don't do it.



If you do not heed this advice and make a purchase anyway, instead of signing this,


you may find yourself signing one of these.





Be smart, do make any major  changes to your employment or credit prior to your closing.

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Loan Survivor Real Estate Financing Expert
Purchases, First Time Buyers, Pre-Approvals, Refinance - Birmingham, MI

Rodney - you call that a clarification by FNMA? LOL!  Yes they said lenders don't have to pull a new credit report to meet the new requirement, but they are still holding lenders responsible to do their due diligence that no new debt has been created since the origination credit pull. They also conveniently offered no other direction or options for lenders. So, what do you you think lenders are going to do? They're going to continue to pull new credit reports to be safe, so they don't get hit with a buyback - especially since all the agencies are out for blood when it comes to buybacks.

Sep 20, 2010 01:15 AM #1
Rodney Mason
Guaranteed Rate NMLS# 2611 - Atlanta, GA
VP of Mortgage Lending - AL, FL, GA, SC, & TN

Drew....Yes, at least it now gives clarity that a new credit report is not mandatoryas some lenders may have previously interpreted it.  Essentially, they were just bringing the existing policy to the spotlight once again.  I think that many lenders are getting a letter of explanation from the borrower about each inquiry made and whether or not new credit was granted as a result of it. 

Sep 20, 2010 03:27 AM #2
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