New FNMA Rules - they could void your transaction!

When is a mortgage commitment not a commitment?

New FNMA rules regarding your client’s credit could trigger a rejection.  FNMA's Loan Quality Initiative could affect your clients who are buying or selling a home. The new rules could result in the voiding of a mortgage commitment immediately prior to closing! Here is what you must know.

Under new rules issued as part of the Initiative, FNMA requires Lenders to make sure that they pick up any new debt incurred by the borrower prior to closing.  As a practical matter, Lenders will be forced to rerun the borrower's credit report immediately (within about one week) prior to closing.  If the rerun credit report manifests new debt or even recent credit inquiries, the borrower will be asked to explain the new facts and the loan will be sent back to underwriting.  In the event your client incurred significant new debt, that new debt could push your client's ratios out of qualification.  So, even if the loan had been approved previously, the loan would now be rejected. 

Left undefined for now is what happens if the borrower's credit score change materially. Imagine that a particular program requires a 720 FICO score.  Imagine further that your client had a 725 score which drops to 710 during this pre-closing credit rerun.  Will the lender deny the loan on the basis of the new credit score?

The requirement for debt re-verification will adversely affect the time it takes to close a loan.  Particularly in times like the present, when lenders are stretched due to high volume, the re-verification could add weeks to the time required to close a loan. 

What can you do to protect your clients? Communicate the importance of managing their credit in the period immediately prior to closing. Advise them not to incur new debt before closing and stress the importance of timely bill payment during the stressful pre-move period.

We, at Summit Funding, have procedures in place to make your life easier. We already communicate to our clients the urgency of maintaining their credit through closing. And, we communicate with attorneys in instances where clients have borderline credit, so that the you can tailor the mortgage contingency language to the circumstances.

Contact: David Steinberg (NMLS #67325)
dave@summitfunding.com
800-281-1155
Summit Funding
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Registered Mortgage Broker (NMLS #52081) New York State Department of Banking
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Summit Funding Inc, Your Mortgage Professionals  Licensed Mortgage Broker (NMLS #84943)  State of Connecticut Department of Banking