Recent changes have lessened the lending business. While guidelines have weakened slightly, requirements of verification have increased due to the release of Fannie Mae’s Loan Quality Initiative (LQI).

Previously lenders would ask borrowers to voluntarily disclose any new debts that do not appear on the borrower’s credit report. Fannie Mae’s Loan Quality Initiative now requires borrower’s to provide a written statement explaining recent inquiries that appear on the credit report. During the funding process, lenders will obtain another credit report to verify that the information on the application has not changed. The lender is primarily looking for any new debts or inquiries. Lenders may request verification directly from the creditor explaining the recent inquiry and current status of the inquiry. The new process is imperative and may not affect many borrowers however the verification process could pose potential problems for some.

I will be counseling my borrowers both in writing and in person to refrain from inquiring for new credit subsequent to the borrower receiving the first payment letter. If the borrower obtains new credit prior to closing, there could be a delay in the process which could lead to the borrower not qualifying for the loan. The lender is required to verify the terms for the new debt and the loan is then sent to underwriting to confirm the borrower still qualifies. The minimum payment on the new debt could prevent a borrower from qualifying for the loan as well. This step can delay the loan process 3 – 4 days. Recent inquiries not resulting in new credit will also delay the loan process because the lender will need to verify the status of the account directly with the lender. This may be a difficult task due to the creditor not wanting to provide a letter for a borrower who was not able to open an account. To avoid any delays or hinder your chances of qualifying for a new loan, I urge borrower’s not to apply for new credit until after the first payment letter has been received.

Conventional lenders, loans which are not FHA, VA, or USDA, are verifying that borrower’s are not financing undisclosed property. To verify, lenders are obtaining a report from the Mortgage Electronic Registration System (MERS) database. This report provides lenders with a list of loans currently held in the borrower’s name. This information ensures that different lenders are not providing a home loan simultaneously preventing a possible foreclosure in the future. Conventional lenders are also utilizing some government guidelines through GSA and LPD. GSA is the Federal General Services Administration excluded party list and LPD is HUD’s Limited Denial Participation list. Both GSA and LPD are reports which provide name’s of borrower’s who owe the Federal Government money, are past due on federal debts, or have had a lost to HUD.  All Government loans, FHA, VA, or USDA, must check the borrower against both lists. Conventional borrowers will also be checked again the GSA and LPD lists to prevent borrowers from obtaining a home loan if they are in debt to the federal government.

Final changes that will affect borrowers are regarding 3 and 5 year ARM loans. The borrower is no longer required to qualify for an interest rate that is 2% above the initial rate. Fannie Mae will also limit Interest Only loans to borrower’s purchasing a primary residence or refinancing the balance on the primary residence. The loan must have a minimum of 30% equity, 70% loan to value (LTV) or less, and the borrower must have a credit score of 720 or better.

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