Fannie Mae Rolls out New Loan Quality Initiative (LQI) Program – Tightens underwriting requirements and aims to reduce borrower fraud.
These rules could derail some closings for buyers who rack up purchases or even take out new store credit cards before their home sales have closed.
Part of the LQI requires any lender that sells its mortgages to Fannie Mae to determine that “borrower liabilities incurred up to, and concurrent with, closing are disclosed and evaluated in qualifying the borrower for the loan.”
But exactly how lenders go about doing this is up to them. In many cases lenders will be checking for “undisclosed liabilities”, such as new credit lines for autos or credit cards and they will verify the borrower’s employment status.
Last-minute “refreshed” credit reports could be pulled to find out whether a borrower has obtained or shopped for new debt between the date of the loan application and the closing.
Borrowers who have 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 – risk having their closings put on hold pending additional research by the lender.
If a borrower has taken out new loans that are sizable enough to affect his debt-to-income ratio calculations used in his original mortgage approval, the added debt load could render him ineligible for the mortgage. In other words, the buyer’s loan approval may be in jeopardy if their credit status has changed before the loan closes.
Under the terms of the standard purchase and sale agreement, a borrower who loses his financing just days before the closing due to LQI issues could potentially forfeit his deposit. Buyers’ attorneys should think about how to address this in their purchase contract.
The bottom line for borrowers is that these last-minute credit checks could result in a closing delay, pricing adjustment, or, worse, loan approval cancellation.
The best rule for borrowers to follow is to avoid obtaining or applying for new credit, or even increasing utilization of existing credit, before their closings.
As the real estate industry adjusts to the dynamic changes in the economy, it is more important than ever to seek out professional, knowledgeable advice; call or e-mail me when starting the process of obtaining a St. Louis home mortgage or if you have questions about St. Louis Mortgage rates.
St. Louis Mortgage Interest Rates – July 28, 2010 *
- 30-year fixed-rate mortgage 4.375% no points
- 15-year fixed-rate mortgage 4.000% no points
- 5/1 adjustable rate mortgage 3.50% no points
- FHA/VA 30-year fixed rate mortgage 4.50%
- Jumbo 5/1 ARM 4.125% no points
- Jumbo 15 year fixed rate mortgage 4.625%
For more information or if you have questions on mortgage rates in St. Louis you may contact me by phone at my direct line, (314) 372-4319, email at rfishel@paramountmortgage.com or you can visit our company website at http://www.paramountmortgage.com.
*Note- The above rates are based upon a typical sale price of $187,500 with a 20% percent down payment leaving a loan amount of $150,000 to a borrower with a 720 credit score for a loan with no discount points charged. Rates and terms will vary depending upon loan amount, home value, credit and income of borrower.
This information is provided by this author and this site for informative purposes only and is not warranted or guarteed in any way.
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