If you’ve qualified for a conforming loan or intend to, there’s important information you need to know.
A conforming loan is one that participating banks offer that meets guidelines required by the secondary market for repurchase. In other words, the bank loans you money. It sells your loan to entities that buy loan packages. It uses the money it receives to make new loans, keeping the lending market fluid.
But recent problems with defaulting loans have shown that the loans that are sold to the secondary market are not consistent with guidelines, resulting in more risk for the secondary market buyers and investors. The result? Standards are tightening.
To better screen mortgage loans that are sold to the secondary market, the Federal Housing Finance Agency (FHFA) has announced that Fannie Mae and Freddie Mac, the government-sponsored entities that buy conforming loan packages from banks, will cooperate in requiring new loan standards under the Uniform Mortgage Data Program (UMDP.)
The UMDP will implement Fannie Mae’s Loan Quality Initiative (LQI), a means of collecting updated electronic appraisal and loan data. While the compliance requirements are directed toward banks and appraisers, consumers will also be widely impacted. See: https://www.efanniemae.com/sf/lqi/pdf/lqifaqs.pdf
Here’s how:
1. The LQI requires lenders to comply with new credit and eligibility standards, pricing guidelines and other criteria to meet Fannie Mae’s Selling Guide, another term for conforming standards.
2. If a loan doesn’t conform to Fannie Mae’s guidelines, the bank is unable to sell it in order to obtain funds to make a new loan. Theoretically, the loan would stay on the bank’s books, limiting the bank’s ability to make new loans and fees.
3. If the bank can’t sell the loan, it doesn’t want to make the loan. It could cancel your “approval” anytime without warning.
This is important because innocent actions on your part may disqualify you from the loan you thought you were qualified to receive.
For example, you may get a loan approval for a certain amount, but then you decide to buy new furniture to go in your new house so it won’t be bare when you move in. But that purchase could cause your credit score to dip enough to put you outside of conforming loan guidelines for income to debt ratios.
How does the bank know? It pulls your credit scores upon loan origination and again just before closing to make sure the data hasn’t changed for the worse. The bank has to do this before Fannie Mae catches any “undisclosed liabilities” or discrepancies with the LQI electronic data processing and refuses to buy the loan.
Banks identify undisclosed liabilities by “retrieving” a refreshed credit report just prior to the closing date and reviewing it for additional credit lines.
That means banks will retrieve your credit report twice - once to okay the loan, and again to make sure you still quality for a conforming loan.
The bank can also run a Mortgage Electronic Registration System (MERS®) report to determine if the borrower has undisclosed liens or another mortgage is being established simultaneously.
Resist the urge to use your credit cards or add new credit cards while you’re trying to buy a home. Pay your card balances per usual, and on time. Ask your lender what you can do to make sure your loan stays on track. So make that new dining table wait. It’s better to picnic on the floor for a few days or weeks, than lose the opportunity to buy a home.
|
