Lenders Likely to Double Check Borrower Eligibility before Closing in Response to Fannie Mae Loan Quality Initiative
June 10, 2010
On March 2, 2010, Fannie Mae announced changes to its Selling Guide as part of its Loan Quality Initiative designed to improve the quality of loans it purchases. The Selling Guide has required that every mortgage loan delivered to Fannie Mae be underwritten in accordance with Fannie requirements to determine the borrower has the willingness and ability to repay the debt. Among numerous other changes, the update requires lenders to determine that all debts of the borrower as of the date of closing are disclosed on the final loan application and considered in underwriting the loan. In other words, borrowers who take on additional financial responsibilities after their loan is initially approved but before closing will be subject to a lender review to determine if they still qualify for the loan, probably based on an up-to-date credit report and score. If the lender fails to do so, Fannie may require the lender to buy back the mortgage, so lenders are expected to take this new guidance seriously.