Changes To Mortgage Underwriting May Affect Many Buyers

If your Realtor hasn't said it yet, I will say it again.

If you are serious about purchasing a home and obtaining a mortgage, as a Buyer's Agent, it is my responsibility to guide you throughout the process.

From the very beginning, I want to impress upon you, the need for full and honest disclosure at the time of your loan application, during the loan process and at closing.

I advise all Buyer's NOT to apply for new credit during the process. Don't change jobs or charge to your credit cards. It is absolutely necessary that Buyers notify their Lender and their Realtor immediately if anything changes from the application stage to the closing stage.

Once again....

1. Don't buy any big ticket items while you are going through the mortgage process and up through the day of closing.
2. Make sure that you truthfully disclose everything about your financial situation during the loan process.
3. During the process, make sure you don't do anything that will affect your debt-to- income ratios from the time of your application through the day of closing.
4. Decline all credit card solicitations from the time you apply for a mortgage loan through the day of closing.

If you do not heed this advice, you might find your mortgage refused in the last minutes before closing or at the closing table.

The real estate industry and especially the mortgage industry have been overwhelmed with changes, regulations and consolidations recently. In the last few months, many transactions nationally have experienced delayed closings or worse as a result of new guidelines imposed by the government. These new guidelines affect everything -- APR, Good Faith Estimates (GFE), Truth in Lending (TILA) and condo project approvals to name a few.

There is one more issue that is critical for consumers purchasing a home or obtaining a refinance to understand. Effective with applications on or after June 1, 2010, Fannie Mae has issued new lender mandates (FNMALL-2010-03 Loan Quality Initiative) on a national basis that, if not understood properly, could have devastating consequences for many home buyers and sellers too.

The intent of the initiative is to assure that all applicant information is disclosed and is honest and accurate as of the moment of closing. Lenders will now be required to re-pull credit report information just prior to closing, re-verify employment, validate Social Security numbers, verify intent to occupy and verify that all parties to the transaction have been checked against the national "excluded party" list, which is managed by HUD and by the General Services Administration. Changes in any of these factors are likely to result in a re-underwrite, the need for additional documentation, or suspension of loan closing.

The most severe and perhaps time intensive is the credit re-pull in the final hours before closing. It is important that this is done as a "soft pull" so it doesn't show as an inquiry, which could potentially change the borrower's credit score. Firms will, however, have to match the outstanding debts and inquiries with the report used to approve the loan. By this time, typically 30 to 60 days or more have passed since the credit was first pulled in the pre-approval / pre-qualification process. Additional credit or increased balances that change the debt-to-income ratio more than 2% (or less if it now exceeds guidelines) will require the loan to be suspended and re-submitted to underwriting. This will delay the closing and perhaps even exclude the buyers from obtaining a mortgage loan.

Any additional delinquencies will result in a new, full credit re-pull and re-underwriting, utilizing the new credit. Any and all inquires from other lenders or credit suppliers must be verified by the credit bureau and certified that new debt did not occur. If new credit has been extended, the new debt must be included in the borrower's debt-to-income ratio and the loan must be underwritten.

While this new policy was implemented first by Fannie Mae, it is already a mandate of all national lenders and, based on experience will soon be required on every loan.

Sara Hibbard is a Realtor with Better Homes and Gardens Real Estate Metro Brokers in the Atlanta metro area. Sara will be happy to refer you to a qualified Lender specializing in your area of need when the time is right for you. Sara Hibbard can be reached at 770-399-8108 or e-mail her at sara@SaraHibbard.com or sara.hibbard@metrobrokers.com.