Lenders won’t have to run a second full credit check before closing on mortgage, by Kenneth R. Harney, Washington Post


Despite earlier reports to the contrary, it turns out that your mortgage lender will not have to pull a second full credit report on you hours before closing on your home purchase or refinancing.

In a clarification of a policy announced earlier this year, mortgage giant Fannie Mae now says that applicants will need to come clean about any debts they have incurred since they submitted their mortgage application — or debts they never disclosed on the application. But a formal pre-closing credit report will not be mandatory to confirm creditworthiness.

Instead, loan officers can use other techniques to verify that you haven’t financed a new car, taken out a personal loan or even applied for new credit in any amount that might make it more difficult for you to afford your monthly mortgage payments.

Among the techniques Fannie expects lenders to use on all applicants: commercial or in-house fraud-detection systems are capable of tracking applicants’ credit files from the day their loan request is approved to closing.

Although Fannie made no reference to specific services in its recent clarification letter to lenders, some commercially available programs claim to be able to monitor mortgage borrowers’ credit activities on a 24/7 basis, flagging such things as inquiries, new credit accounts and previous accounts that did not show up on the credit report that was pulled at the time of initial application.

One of those services is marketed by national credit bureau Equifax and dubbed “Undisclosed Debt Monitoring.” Aimed at what Equifax calls “the quiet period” between application and closing — often one month to three months — the system is “always on,” the company says in marketing pitches to mortgage lenders.

Home loan applicants failed to mention — or loan officers failed to detect — “up to $142 million in auto loan payments” during mortgage underwriting in first mortgage files reviewed by Equifax last year alone, according to the credit bureau. Those loan accounts had average balances of $361 per month — more than enough to disqualify many borrowers on maximum debt-to-income ratio standards required by Fannie Mae, Freddie Mac and major lenders.

Why the sudden concern about new debts incurred after mortgage applications? It’s mainly because Fannie and others have picked up on a key type of consumer behavior that has helped trigger big losses for the mortgage industry in recent years: Some buyers and refinancers hold off on creating new credit accounts until they have cleared strict underwriting tests on the debt-to-income ratios and have been approved for a loan. Then they splurge.

Additional debt loads can run into the tens of thousands of dollars, executives in the credit industry say. Had those new accounts been in their credit files during the application process, borrowers might have been turned down for the mortgage, required to make a larger down payment or charged a higher interest rate.

Fannie’s new policy puts the burden of detecting these debts squarely on lenders or loan officers. Whether they pull additional credit reports — still an option allowed under the revised policy — or use some form of monitoring service, lenders must guarantee that the debt loads stated in any mortgage package submitted for purchase by Fannie Mae are scrupulously accurate as of the moment of closing. If not, the lender probably will be forced to endure the most painful form of punishment in the financial industry: a forced “buyback” of the entire mortgage from Fannie Mae.

Billions of dollars in buybacks have been demanded by Fannie Mae and Freddie Mac this year alone — a fact that is likely to make lenders even more eager to conduct some type of refresher credit check or continuous monitoring of all new loan applicants.

What does this mean if you’re planning to finance a home purchase or refinance your existing mortgage into a new loan with a lower interest rate? Tops on the list: Be aware that sophisticated credit surveillance systems are now being used in the mortgage industry.

Next, try not to inquire about, shop for or take on new credit obligations during the period between your application and the scheduled closing. If you seriously want that new loan, keep your credit picture simple — no significant changes, no additions — until you settle on the mortgage.

During the heady days of the housing boom, nobody was looking for debt add-ons before closings. Now they are scanning for them all the time.

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The War on Housing, Posted by Vince, Realtor Magazine


There is a “war on housing” brewing in Washington.  Homeownership seems to be under attack.  As 2010 NAR First Vice President Moe Veissi pointed out in his recentblog, ill-informed views on homeownership are appearing more and more in the media.

Last week, industry leaders, executives and policy makers gathered in Washington, D.C., for a housing conference sponsored by the Treasury to discuss the future of the housing finance system and the fate of Government Sponsored Enterprises (GSE’s) Fannie Mae and Freddie Mac.

The conference featured panels moderated by Treasury Secretary Timothy Geithner and HUD Secretary Shaun Donovan, as well as breakout sessions that focused on topics from the “Role of the Private Sector and the Government in a Reformed Housing Finance System” to “Managing the Process of Transition to a New Financial System”.

I was assigned to participate in the breakout session entitled, “Aligning Private Market Incentives in the Housing Finance Chain”, moderated by FHA Commissioner Dave Stevens.  In recent weeks, long-term fixed rate mortgages have come under increasing pressure from pundits who believe this product is partly the crux of the nation’s housing finance problem.

During the session, I had the opportunity to briefly share NAR’s views regarding the importance of maintaining the 30-year fixed rate mortgage, which is an extremely safe mortgage product.

While some at the conference, advocated the need to support a mortgage market for all types of housing, in all market conditions, other speakers questioned the level of government support for the housing industry. 

What did they say? 

They asserted that taxpayer money is better spent on other industries with the greater promise of job growth and productivity for our economy.

The debate we’re starting to see over the government’s role in housing touches on many issues:  over-housed citizens, the deficit, tax incentives (MID andcapital gains) the GSE’s, and other public incentives.  

Homeownership is not for everyone, surely.  But if you are prepared for its responsibilities, it’s an excellent way to invest your money and receive financial and social benefits in return.

At the conference, Secretary Geithner stated that: “Fixing our housing finance system is one of the most consequential and complicated economic policy problems we face as a country”.

REALTORS® know this to be absolutely true.  We recognized this early on.  In late 2008 we started formulating a reformation plan for the GSE’s.

While there is no clear consensus in Washington as to what needs to be done to fix Fannie Mae and Freddie Mac, participants at the conference generally advocated a need for some level of government support for the housing finance sector for the foreseeable future.

So as the Administration focuses its attention on the future of housing finance and the GSE’s, NAR-together with your support-will continue to espouse the virtues of homeownership and of providing a mechanism to ensure that qualifiedbuyers have access to the capital they need to become homeowners.  This is how we will respond to the “war on housing.”

While we face one of our greatest industry challenges, it does provide us with a tremendous opportunity to energize and engage homeowners and prospective homeowners in this housing debate.  Vince Malta, 2010 Vice President and Liaison to Government Affairs