Yikes! Fannie Mae is Cracking Down!

By
Mortgage and Lending with The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. NMLS #241555

There are some new rules going into effect shortly that will have an enormous effect on some mortgage transactions. Here's the biggest one:

Effective for all loan applications dated June 1, 2010 and later, Fannie Mae is "requiring 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."

Here's what it means. If a borrower opens a new account or increases the balance on an existing account between the time of application and the closing, the new debt has to be included. The best case is that the closing gets delayed. The worst case is that the borrower no longer qualifies for the loan and the deal is dead.

Fannie Mae provides the following "tips for lenders to consider" when attempting to find undisclosed liabilities. That's Fannie Mae Speak for "Do these things or else!"

- Refreshing a credit report just prior to closing may uncover additional debt or credit inquiries.

- Credit inquiries found on the credit report should be investigated to determine whether the borrower did in fact open additional debt resulting in repayment obligations. In some cases, it is possible to obtain a direct verification with the creditor associated with the inquiry.

- Fraud-detection tools are available through multiple vendors that assist lenders in identifying undisclosed mortgages or other potentially fraudulent scenarios.


Fannie Mae is not requiring these things until June 1, but lenders are allowed to implement them earlier. Many lenders probably will.

Be prepared! The mortgage industry has changed and continues to change. Being in the industry for 20 years means nothing if you don't stay up to date with all the changes. If your current lender has not already told you about these new rules, ask him why he hasn't. Maybe it's time to change lenders.

close

Re-Blogged 7 times:

Re-Blogged By Re-Blogged At
  1. Mirela Monte 03/04/2010 06:26 PM
  2. Lew Corcoran 03/04/2010 06:30 PM
  3. Donald Bradbury 03/04/2010 08:31 PM
  4. Kari A. Battaglia 03/04/2010 08:58 PM
  5. Roland Woodworth 03/04/2010 11:15 PM
  6. Damon Gettier 03/05/2010 09:39 AM
  7. Wendy Cutrufelli 03/05/2010 10:24 AM
Topic:
Lending / Financial
Location:
Colorado
Groups:
Realtors Needing the services of the Lending Powers
Mortgages
Colorful Colorado
Colorado Realty Bloggers
Colorado Real Estate
Tags:
mortgage tips
fannie mae
liabilities

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Rainmaker
160,829
Jenna Dixon
DRA Homes (Atlanta, GA) - Marietta, GA
Associate Broker - Let's Talk Atlanta Real Estate

Thanks for the heads up.  I tell all of my clients that they are financially frozen until the closing takes place.  No new credit! 

Mar 05, 2010 09:09 AM #62
Rainer
115,826
Kyle Jan
Scottsdale, AZ
Phoenix AZ Homes for Sale

The key is to stay up to date with what is going on.  As far as switching lenders if they haven't informed the Realtor of upcoming changes, why?  That logic makes no sense.  This is just a check and balance being reinforced by Fannie Mae.  Think about the guideline, is it really a change?  Haven't we always had to address inquires and document that no new debt has accrued?  Haven't lenders pulled new credit from time to time prior to closing or not allowed you to use your report?  Seems like we will just be held accountable for things that we were expected to address previously.  Educate your customer in the beginning.  Develop a list of "do's" and "don'ts".

Mar 05, 2010 09:11 AM #63
Rainmaker
566,783
Michele Cadogan
Fillmore Real Estate - Brooklyn, NY
917-861-9166 - Brooklyn Real Estate Home Sales

Thanks for sharing. 

Mar 05, 2010 09:36 AM #64
Rainmaker
351,538
Damon Gettier
Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert - Roanoke, VA
Broker/Owner ABRM, GRI, CDPE

Thanks for writing this blog.  While I always urge buyers to not buy anything between contract and close....it is nice to show reference to someone esle saying it. I re-blogged.

Mar 05, 2010 09:40 AM #65
Rainmaker
255,845
Jody Keating
Jody Keating Connective Realty,LLC, Bryan/College Station,TX - Bryan, TX
Broker/MM/Realtor, Bryan / College Station, TX

Chris,

Thanks for the information, however a real estate agent should always inform their borrower that once application has been filed and approval made not to increase credit limits, apply for any other type of credit or change jobs. After all, most borrowers are basing their ability to repay on their current situation so changing anything just makes no sense.

Even after closing changes to their credit can drastically affect their ability to repay.

:)

Mar 05, 2010 09:44 AM #66
Ambassador
438,360
Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTORĀ® - Oklahoma Investment Properties

I learned the hard way back in 1990 about not buying anything before closing that beats you to the courthouse. This is nothing new, but it is a great reminder and a cautionary tale. The no brainer home loan era is truly dead.

Mar 05, 2010 09:50 AM #67
Rainmaker
375,546
Bob Willis
Berkshire Hathaway Home Services California Properties - Whittier, CA
Whittier RealtorĀ® Sells Homes in Southern Cal

Thank you for the update.  Things continually change, and we need to keep up with them.

Mar 05, 2010 09:58 AM #68
Rainmaker
59,628
Justin Messer
Supreme Lending USDA, FHA, and Conventional Loans - Peachtree City, GA
Residential Loan Officer, USDA Rural Housing Loan

This will NEVER work.  It is completely understandable for NEW accounts.  However, balances change daily.  Plus, if you order a report, then most likely, there will be creditors that have not reported yet.  So, if a closing gets delayed 3 weeks, will the lender need to run another credit check?  If so, if the balances change again, does the cycle start over?  Or, if a borrower's credit score was just above qualifying, and the new report shows them one point below, does that disqualify them for a loan or change their rate?  Granted, this is for extreme balance increases, hopefully. Hmmm.

Thanks for the great post.

Mar 05, 2010 10:03 AM #69
Rainmaker
125,433
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. - Denver, CO

Hi All,

Very interesting to read everyone's comments.  It looks like there are a few distinct themes:

  1. "I already do this, so it's no big deal."
  2. "It's about time they started being sensible about underwriting."
  3. "This is just one more thing they're doing to kill the industry."
  4. "Not being kept up to date by my lender is no reason to change lenders."
  5. "Thanks, I didn't know this."

Here are my very jaded responses:

  1. I don't think too many people really are pulling a new report right before the closing and including the new minimum payments on the loan application, despite what they may say.  Pulling a new report is one thing.  Re-doing the loan application is an entirely different thing.  The new guidelines say the application must be re-done.  This is going to be a problem.  I'm not saying it's a bad thing, but it will be a problem, and I think in many more instances than most people think.
  2. This is the strategic view.  It might hurt now, but it will help us all in the long-term.  Couldn't agree more.
  3. All the new regulations are meant to improve the industry, not to kill it.  A decade of excess is finally being brought under control. 
  4. I hope your lender is paying for a lot of your marketing because if they don't tell you about what is coming down the pike, they are certainly short changing you when it comes to looking out for your long-term business health.
  5. You're welcome!

The purpose of the original post was to make people aware of the fact that there is a different attitude in the lending industry these days.  Common sense is coming back.  Unscrupulous lenders will be driven from the marketplace.  Real estate agents who insist on believing the glory days of sub-prime will return in their professional lifetimes are kidding themselves.

I couldn't be happier about these changes (and they are indeed changes, opinions notwithstanding).  Our country is in a very deep mess and the people who put it there are the loan sales people (retail and wholesale) who sold crappy loans, the agents who used the lying lenders, appraisers and inspectors, and the borrowers who believed anything we told them.  We are in for a very painful few years.  Regardless of what the NAR tells us, this mess is going to last for quite a while.  Be ethical and learn your job and you will weather the storm very easily.  Be self-serving, and you might not make it. 

Mar 05, 2010 10:06 AM #70
Rainmaker
244,256
Christopher Watters
Watters International Realty, LLC. - Austin, TX
Austin Real Estate (512-298-4010)

Thos eare some great ideas. The undiclosed debts can really kill a deal. I'm going to forward this post to my loan officer!

Mar 05, 2010 10:25 AM #71
Anonymous
Angelo Cusinato

While I see the merit of making sure that the borrower still qualifies, any last minute disruptions of the closing reflect negatively on the mortgage broker.  I advise my client not to do anything that would change their credit profile but the concepts of "significant" and "material" are lost on some of the underwriters.  The dates of the initial and final credit report could affect balances and minimum payments.  Certainly an auto purchase/payment is both significant and material but I am afraid that some underwriters will feel the need to ask for an explanation of any line item that increases even if the resulting  ratio still fits within the guidelines.  If they want another cushion, build it into the automated underwriting system and better define what is a significant change in the credit profile.

Too much time is being spent on trying to score another "Gotcha!"

Have a great day!

Mar 05, 2010 10:26 AM #72
Rainer
21,224
Richard Glick
Kingsway Realty - Lancaster, PA

very interesting changes going on in the lending industry, and the reactions are just as interesting.  thanks for the post

Mar 05, 2010 10:46 AM #73
Rainmaker
147,182
Carol Pease
Pacesetter Properties - Cedar Park, TX
CRS, Broker-Associate 512-721-6320

Thanks for sharing this information.  I tell all my clients not to incur one dime of debt after we go under contract.  If they want to buy a car, wait until the house closes.  Don't buy the furniture before closing.  Wait, wait, wait.

Mar 05, 2010 12:54 PM #74
Rainer
154,608
Ted Tyndall
Davidson Realty Inc. - Saint Augustine, FL
FL Homes for Sale-Palencia, World Golf Village,Nocatee,St. Augustine

We have been doing this also. The banks have been checking for quite awhile with our customers.

I am like a lot of the others in that we always tell the customer not to do anything credit wise before closing.

Mar 05, 2010 02:00 PM #75
Rainmaker
325,147
Esko Kiuru
Bethesda, MD

Chris,

Things are a slowly tightening but it makes the mortgage industry much more stable in the long term. This should've happened a long time ago.

Mar 05, 2010 02:13 PM #76
Rainmaker
150,365
Kathy Opatka
RE/MAX CROSSROADS - Ocean City, MD
Serving Ocean City, MD, & The Delaware Beaches

Chris,

I think we need to tell our clients.... "Do not spend a penny, until your loan closes! No new cars, furniture, jewelry, etc. until you walk away from the settlement table!"

Mar 05, 2010 03:18 PM #77
Ambassador
457,403
Paul McFadden
Paratex - Seattle, WA
Pest Control, Seattle, WA.

Chris: Thanks for the update. Things aren't getting any easier that's for sure!

Mar 05, 2010 06:04 PM #78
Rainer
25,568
Dawn Coulter
Key Partners Realty, LLC - Bloomsburg, PA
e-PRO, One America

Loverly...

This will make it even more difficult for many of our buyers to get these loans that have been labeled as "ideal" for many due to the fact that they were eligible for loans. 

As another reader stated, "another day, another rule"....so true indeed!!!!

Mar 05, 2010 08:46 PM #79
Anonymous
Nick Pakulla

Thanks Chris.  This is for sure going to be a fun ride!

Mar 06, 2010 05:19 PM #80
Rainmaker
342,003
Don Wixom
RE/MAX Advantage Nampa, ID - Nampa, ID
"Looking out for your next move..."tm

Chris, thanks for the post!  Good information.  I just had a buyer become unqualified a week before closing.  He paid off a couple credit cards & they both pulled new reports to determine the remaining line.  His score dropped 8 points below eligibility.  Wow!

Mar 07, 2010 06:33 PM #81
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