Buyers beware: 11th hour credit scrutiny
From the “It’s not over until the fat lady closes escrow” file, this is something I’ve been meaning to post about for awhile. So as we all wish George Hamilton a happy 71st birthday, I will point you to an article by Dan Green, the Mortgage Machine, on Fannie Mae’s Loan Quality Initiative (LQI) as it relates to last minute credit reviews. From the Mortgage Reports:
In the new LQI environment, Fannie Mae has lenders that an applicant’s credit profile did not change while the loan was in underwriting. If the profile did change and the lender “misses” it, Fannie Mae can then refuse to purchase the loan for securitization, burdening the bank with loan on its books (and possibly a loss).
Therefore, it behooves banks to take each mortgage applicant’s credit report in hand, and do a complete re-pull just prior to closing — just to make sure nothing changed.
Banks wants Fannie Mae to buy their loans so they’re looking at the re-pulled reports for evidence of any of the following events that might have occurred while the loan was in underwriting:
- Did the applicant apply for new credit cards?
- Did the applicant run up existing cards?
- Did the applicant finance an automobile, or other major purchase?
If the updated credit report doesn’t match the original credit report, the mortgage is subject to a complete re-underwrite and a possible loan turndown.
The moral to the story is, if you are in escrow, don’t party until the deed is recorded.
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