Logan Utah Mortgages and Real Estate

FNMA Pushing Lenders to Pull New Credit Reports Right before Closings!

The lending world just keeps getting tougher.

As of June 1, 2010 FNMA guidelines now require lenders to pull a new credit report right before closing a loan in addition to the credit report pulled at application.

This new required practice will take some time for homebuyers and industry professionals to get used to.  Unfortunately, it'll become more common for purchase transactions to fall apart at the last minute.

How?

Let's say a homebuyer barely has the credit score required to qualify for their mortgage.  They get pre-approved for a conforming mortgage, find a home they like, sign a purchae contract and apply for their mortgage.  So far, so good.  Then, sometime during the approval process, they innocently charge a tank of gas for their car on a credit card.  That small transaction could drop their credit score enough to kill their deal.

Or a homebuyer could go out and open a new account at Best Buy and purchase their new appliances ahead of time.  The additional credit payments could exceed the debt tolerance they were initially approved for and again kill their transacation at the last minute.

The least controllable situation - the new credit report pulled before closing discloses something a homebuyer did BEFORE they even applied for their mortgage.  It's easy to forget that information can take up to 90 days to appear on a credit report.  So, an innocent credit transaction leading to an increased balance could pop up  and kill a transaction.

So homebuyers need to be VERY prudent about what they do with their credit when buying a home.  Here are some tips:

• Turn in all your credit card statements from the last 90 days when applying for a mortgage.
• Review your credit report with your Loan Officer and compare what's reported to what's on your credit card statements.
• Consider paying down account balances where there's a discrepency.
• Disclose any recent new credit accounts opened or large charges.
• If you're credit is borderline, consider an FHA mortgage (which isn't requiring the additional credit pull yet)
• Be very careful with the use of credit accounts before the closing of your home purchase.

Real estate agents also need to be more aware of this new requrement and start educating homebuyers about it as soon as they start showing them homes.  There will definitely be transactions affected, but throwing a temper tantrum and making the problem 100% the lender's fault will not solve anything.  Be professional and part of the solution, not part of the problem!

I do not wish that ugly situation on anyone and I'm dreading when it occurs on one of my transactions.

A more in depth explanation of the new requirement

It's important to note that FNMA hasn't come out and required lenders to pull new credit reports right before closing.  What they've done is introduce a new requirement called, "Loan Quality Initiative" (LQI) and that is forcing lenders to take this action to meet the LQI requirements.  

Here's the language from FNMA leading to lenders pulling new credit reports right before closings:

Lender must determine that borrower liabilities incurred up to, and concurrent with, closing are disclosed and evaluated in qualifying the borrower for the loan. 

Why is FNMA doing this?  Well here's as excerpt from FNMA's announcement 2010-03 about LQI released February 26th that supposedly explains why: 

Historically, many issues related to compliance with Fannie Mae selling policies are not detected until after loans are delinquent or through the foreclosure process. Loan repurchase requests to lenders have increased in the past three years, highlighting the need for an improved approach for working with lenders to deliver loans that meet Fannie Mae's underwriting and eligibility guidelines. Fannie Mae conducted an extensive analysis to determine the primary drivers of repurchase requests and is launching the Loan Quality Initiative (LQI) to identify and implement policy, process, and technology enhancements to improve the compliance with underwriting and eligibility guidelines and mitigate repurchase risk. 

Working with its lender partners, Fannie Mae is implementing the LQI enhancements to promote improved loan delivery data that is complete, accurate, and fully reflective of the terms of the mortgage. The LQI will also help ensure that the loan meets the credit and eligibility standards, pricing guidelines, and other requirements of the Selling Guide or negotiated variances. A primary focus is on capturing critical loan data earlier in the process and validating it before, during, and immediately after loan delivery. 

This updated approach is designed to stand the test of time across market cycles and risk tolerances, thus supporting market stability and reducing investor and lender risk. Changes introduced under the LQI are intended to reduce repurchase requests through improved data integrity and consistent and early feedback on policy compliance while maintaining the current business model of relying on lenders to make appropriate decisions in accordance with Fannie Mae's guidelines.

The announcement actually covers a lot more items than just pulling new credit before closings. 

Lenders now also have to:

• Confirm the identity of all borrowers
• Verify all borrowers have a valid social security number
• Verify a borrower intends to owner occupy a property
• Validate all parties to a transaction and make sure they're not on any government exclusion lists
• Reporting & validation of mortgage insurance coverage
• Credit scores must be 620 or higher (with some exceptions)
• ..and more.

FNMA's vagueness about LQI caused such an uproar in the industry that they had to release a clarification statement March 29th.

Oh but wait, it get's better!  Because their bureaucratic mumbo jumbo is so clear, FNMA had to publish additional clarifying statements on April 7th and again on June 7th. 

FNMA has also created an index page on their website to assist lenders with understanding what they're after.

Is it any wonder why it's seems so difficult to get approved for a mortgage these days? 

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY 

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Interest only loan

My borrowers bought a beautiful second home here in Tucson at the end of May, and wanted to make the smallest possible monthly payment until their retirement in a few years.

The loan that they chose has an Interest Only feature that reduced their payment by many hundreds of dollars when compared to a fully amortized payment.  They paid 20% at closing, and financed 80%.

Fannie Mae continues to tighten credit guidelines

Today, FNMA reduced the maximum LTV/CLTV (loan to value / combined loan to value) to 70% on all interest only loans.  Had my clients waited a month, they would have had to come out of pocket another 10%!

Fannie Mae announced that they will no longer accept the following transactions with an interest only feature:

• Cashout
• FLEX mortgages
• My Community loans
• Investment properties
• Duplex to Four Family units
• Credit scores below 720
• Borrowers with less than 24 months reserves

 

I'm Mike in Tucson, your preferred Tucson Mortgage Lender.

NMLS #223495

SUNSTREET MORTGAGE llc ~ Mortgage Bankers, Not Brokers!
Offices in Scottsdale, Tucson, and Nogales, AZ, and Albuquerque, NM.

Reach me any time on my Blackberry (520) 349-9090

It baffles me the numbers of agents I talk with that are nervous about the possibility for a settlement to be delayed, even after the LO knows when the settlement date is, and agrees to do the loan.  In my opinion, ALWAYS closing the loan on time is the number one most important goal for any loan officer!   

When seeking a mortgage, you don't want clients to be stuck in-between two homes having to stay in a hotel for a week because your loan package has been delayed.  Or even worse the deal falls through...

The hardest part about trying to gain a Real Estate Agent’s trust and business really seems to be that they already have something that they know works most of the time, although it may not be the best, and they are hesitant to try something new.  aka: Why fix it if it isn't broken?

In my (Loan Officer’s) opinion, the top qualities of a loan officer and lending institution to meet the most important goal, the ability to ALWAYS close the loan on time, are:

Timely response to all requests from clients and agents Upfront about fees and expectations Accessibility of underwriting and processing staff Ability to connect with clients and provide a high level of service Specific subject knowledge and expertise about the loan process and programs Competitive interest rates Delivery of loan package early  Unique loan programs to meet certain clients’ criteria Ability to make business decisions on loans that don’t fit the exact mold  LAST: The very best interest rates

If you noticed, everything relating to physically ensuring that there will be no mistakes and the loan WILL in fact close on time is near the top, with the very best interest rates being at the bottom. 

What are your top qualities / goals for a Loan Officer?

 

Nick Pakulla / Loan Officer / First Place Bank / 301.585.RATE (7283)

Nick Pakulla - pakullalending.com

TYPES OF NEW CONSTRUCTION LOANS

Building a new home can be a very exciting experience. Knowing the right questions to ask and what to expect can help remove some of the uncertainty about whether to move forward with new construction.

What types of loans are available for new construction?

There are two general categories: Construction Perm Loans and End Loans

 

CONSTRUCTION PERM LOANS

Construction Perm Loans are a type of loan where the Buyer first buys the lot from the Builder, then begins the building process. The Buyer is carrying the cost of building the house, and monthly payments begin immediately, increasing each time the Builder draws money from the bank, until the last draw when the loan is converted to a permanent loan at the fully amortized payment for the term of the loan.

Prior to the lot purchase, the plans for the house are decided, and an appraisal is done to determine the value of the home when built, to arrive at a final loan figure. There is generally room for overages in the loan amount.

The number of draws and the work that must be completed with each draw is noted on a Schedule given by the bank. The bank should send an inspector to verify that the work has been completed before the draw is given. The Buyer should sign off on each draw, along with the bank representative.

Types of Construction Perm Loans

Conventional financing is the only type of loan for construction perm. Expect a 20% down payment plus closing costs.

Who uses Construction Perm Loans?

Custom homes and homes built on the buyer's own lot are usually construction perm loans.

Pros and Cons of Construction Perm Loans

Pros ~  The Buyer actually owns the land and the house as it is built. They have more control in the building process and are free to ask the builder to make changes, since they are paying for everything. The house costs the buyer less because the builder is not paying to carry the house during the building process.

Cons ~ There have been instances when builders have taken draws and not finished the work. If subcontractors have not been paid, they file liens against the house that the owner is responsible for, even though the builder received the money.

 

END LOANS

End loans are a type of loan where the Buyer's loan takes effect at the end of the building process, when the closing takes place and the Buyer moves in. Most new construction loans are end loans.

Types of End Loans

End loans can be FHA, VA, USDA, or conventional. Expect a deposit of $5000 or more to begin construction on a new home, even if it will be refunded later in the case of VA or USDA financing. An experienced new home sales Realtor® can help you negotiate the deposit, especially if there are special circumstances.

Who uses End Loans?

Most Production Builders in new home communities use End Loans. They realize that the Buyer is more comfortable with this type of loan and they have more control over the building process.

Builders typically have relationships with preferred lenders, or their own in-house lenders. There will be special incentives to use their lender. TIP: Buyers can let builder's lender know they are getting quotes from other lenders to keep them competitive.

Pros and Cons of End Loans

Pros ~ The Buyer has more choice for loans. FHA and VA loans are end loans. USDA is also an end loan that qualifies in some circumstances. The Buyer has no responsibility for the house until it is finished.

Cons ~ The Builder owns the house and therefore has control over the house during the building process. The Buyer has limited or no input regarding changes in construction. In some instances, the Builder can void the contract with the Buyer and return their deposit monies if the Buyer is making demands the Builder does not want to meet.

If you are considering building a new home, we strongly recommend having an experienced new home sales Realtor® by your side during the process. They know the situations when builders will negotiate and can help you get the best deal on your brand new dream home.

Click here for our Series on Buying a New Home in Jacksonville Florida.

 

  

To reach us, call or text us at 904-673-2308 or e-mail - sharon@teamalters.com

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