(Originally published October 3, 2010.)
Back in May, 2010, I reported that under FNMA’s Loan Quality Initiative, lenders are now required to confirm that all debts and liabilities incurred up to the date of the mortgage closing are included in the qualification process. Read this article by clicking, Don’t Buy That New Furniture Yet! FNMA Requiring SECOND Credit Check Before Closing. Lenders throughout the mortgage industry interpreted this as requiring a second credit report be pulled prior to closing, in order to confirm no additional debt has been incurred.
Fannie Mae (FNMA) and it’s government-sponsored sister, Freddie Mac (FHLMC), purchase home loans from lenders and package them into collateralized mortgage securities which are resold as investments in the secondary market.
Ron Gitter, NYC real estate attorney and creator of www.coopandcondo.com, brought to my attention a recent press release issued by FNMA meant to clarify their earlier directive.
In their press release, FNMA “clarified” this guideline, stating, “Lenders should have pre-funding quality control in place to discover undisclosed debt.”
Huh? Umm, I’m sorry Fannie Mae, but could you clarify that clarification?
“Every mortgage delivered to Fannie Mae has to be underwritten to establish that the borrower is able to repay that debt,” said Deborah Slade-Horsey, Fannie Mae’s vice president for single-family risk policy.
Does that clear things up? No? So then what does this all mean?
For the past few years, Fannie and Freddie have been aggressively fighting with lenders about buybacks. Buybacks are loans that have been found after the fact to not explicitly meet Fannie or Freddie “guidelines” not just in spirit – but to the letter. Lenders have been forced to “buy back” these loans, thus forcing lenders to portfolio loans they never intended to keep.
Therefore, this “clarification” does nothing to calm lender apprehension concerning buybacks. So until FNMA further clarifies their clarification, or until lenders come up with new ways to verify additional liabilities, most lenders will likely continue to run last-minute credit reports in order to ensure their loans comply with Fannie Mae’s Loan Quality Initiative.
But wait! Recently, lenders have instituted a new investigative procedure that I’d describe as ominous, disturbing, and definitely not in the best interests of the borrower. I’ll disclose this to you in my next newsletter. Stay tuned…
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products and wealth-creation strategies.