Credit Reports – more talking points for our clients

You may have see the article in the Seattle Times last week regarding coming changes in Fannie Mae underwriting.

I just received notification that the change will be effective on loan applications June 1, 2010 and after. 

Summary:

FNMA is requiring the implementation of their Loan Quality Initiative.

  • Requires a more comprehensive review of the initial credit report for alerts to confirm customer identity.
  • Second review of Customer credit prior to funding to ensure there are no new liabilities that could affect qualification for the loan.
  • This will increase the cost of credit reports.

Key Points/Details:

  • A Red Flag Level One Authentication of social security numbers and other Customer information will be attached to the initial credit report on a separate page.  LO’s and Processors should review the report and follow standard Credit Alert Procedures.
  • We will now need to secure signed letters of explanation for all credit inquiries showing on the credit report.  (The letter can be signed by the Customer at closing).
  • The Processor will run a second credit report on the day the file is being prepared for loan documents.  The Processor will compare the second report to the initial report using a comparison tool developed by ARC. The second report will not update credit scores.
  • Changes to the total debt ratio that exceed 2% will require that we update the credit information in LQ and rerun DU.  This could change the DU decision.  Any new inquiries that did not show on the initial credit report will require another letter of explanation from the Customer.

To Dos:
Let your Customers know about the new credit requirements and carefully coach them not to increase their debt during the mortgage transaction.

There has always been some possibility of a quality control audit pulling a new credit report on our clients just prior to closing.  We should all be in the habit of telling our clients not to spend any money or borrow any money during the entire pre-approval thru closing process.  This change in underwriting means that a second credit report in no longer a possibility but a certainty.

Courtesy of:
Dave Craig   |  
Branch Manager/Mortgage Consultant
Windermere Mortgage Services Series LLC/Northwest