Those of you on the hunt for a home loan, get ready to jump through a whole new set of hoops to get to your dream house. The mortgage giant Fannie Mae recently unveiled its new Loan Quality Initiative, which forces homebuyers to obtain mortgages based on “refreshed” credit reports, or run the risk of having their closings canceled and, in some states, their deposits completely forfeited.
What that basically means is, a potential home buyer is not officially approved for a mortgage until not just one, but TWO credit reports are obtained and approved. That’s right, you know all those hoops you originally had to jump through to get the keys to your new pad? Fannie Mae just set them all on fire. And moved them further apart.
Everything was going so well…
Say you’re in the market for a home loan. You fill out the application and list 3 good credit cards. The lender looks at your credit report, confirms that the 3 cards listed are indeed in good standing, and so approves your mortgage loan request. You’re feeling so good about yourself, you decide you deserve something nice.
You stop by Sears on the way home to look for some sweet appliance deals and notice their offering some nice new incentives to sign up for a Sears credit card. You figure why not? You shop here a lot – moreso now that you’ve got a new home to fill up – and more open lines of credit look good on your report, right? So why wouldn’t you take advantage of a deal like this?
…When suddenly, without warning…
Closing time is coming and you’re all excited to begin moving into your new home. You’ve already begun packing, and have been to your new digs to figure out the feng shui of the place, and what needs to go where.
Meanwhile, the mortgage lender pulls your credit history up one more time before closing to make sure there aren’t any radical changes that pop up. They look over the refreshed report, only to find that you’ve applied for a Sear’s card, and now because of that, your score has dropped a couple of points. Lenders call this finding an “undisclosed liability,” and that doesn’t look good for you.
Because of this new liability, under the Loan Quality Initiative, the lender can delay the closing, require a larger down payment, increase the interest, or outright cancel the closing. Depending on the state you applied in, you could even lose your deposit.
How to make sure this doesn’t happen to you
One method for avoiding this type of runaround should already be pretty clear: Don’t apply for new lines of credit when you have a pending mortgage approval in the wings. As for other ways to avoid this minefield? Many lenders are guessing homebuyers will be better coached on what not to do before they sign the dotted line. "What lender, mortgage broker or real estate broker isn't going to use every communications tool available to make sure the buyer does not even think about using available credit, much less apply for more during the 'refreshing' period?" asks Gail Stanley, a mortgage lender from Orlando.
Others agree that the mortgage lending business is heading for a serious overhaul, with quality service and counseling replacing rate shopping. "Homebuyers need to work with loan officers who clearly understand the new guidelines and can help the buyer understand the importance of complying with them. Mortgage financing is incredibly important in personal financing now and it needs to be understood and protected," says Brian Cavanaugh, the senior mortgage consultant for MetLife Home Loans.
Responsible lending? Now there’s an idea….
For more information about home loans, including info on credit repair and debt relief, call a certified specialist at My Credit Group.
