A couple of weeks ago Fannie Mae (FNMA) announced yet another game changer to the mortgage and real estate industries. The FNMA LQI (loan quality initiative) was introduced to the mortgage world. Effective for loan applications originated on or after June 1, 2010 (my birthday) Fannie Mae will require a credit “refresh” within 72 hours of funding. The purpose of this credit refresh is to determine any change in a borrower’s debt load from time of application. Credit reporting agencies have made a credit comparison report available. The comparison report will be pulled within 72 hours of funding. If an increase in a borrowers debt capacity and/or undisclosed debts from time of initial application have been identified then a refreshed report will be issued and the file will be sent back through underwriting.
An increase in a borrower’s debt capacity may be a result of:
- A new debt
- Increase of minimum payment for revolving debt (credit cards, store cards, lines of credit)
- Student loans coming out of deferment
As you can imagine, this will inevitably cause delay in funding a loan when a borrower’s debt capacity has been impacted. If a borrower incurs new debt and does not disclose the outcome of loan approval may be changed. Fannie Mae’s primary goal is to insure a borrower’s ability to sustain homeownership. It’s important to look at a borrowers total debt capacity at time of final loan application.
Responsibility: The Lender – Lenders are responsible for accurately qualifying borrowers and assessing their ability to repay their loan. Sound underwriting are implemented to exercise due diligence throughout the entire origination process. The responsibility of the loan file begins at time of application and carries through to closing.
Responsibility: The Borrower – Borrower’s have the responsibility of providing the lender with accurate and complete information for the loan application. It’s always been important, but now is even more important for a borrower to notify the lender of any changes to their employment, income, debt obligations or other financial circumstances during the application process.
The bottom line: As you embark on your next financing transaction (purchase or refinance) make sure you fully disclose all debt at time of initial application. Any new debts that may not be reporting at time of application will surely reveal themselves and may cause you an issue in obtaining loan approval. Spending/borrowing on revolving accounts must be managed very carefully and/or completely avoided. Please remember that even a small change in one of these payments could potentially cause your debt capacity to increase and will result in a re-underwrite of your loan which will result in a delay of closing.
I am always here as a resource, in process or before you decide to make a move. Please give me a call (503.585.1105) or shoot me an email to inquire about your specific refinance or purchase questions.