Fannie Mae's Loan Quality Initiative : Repulling Your Credit Just Before Closing

A new loan quality initiative from Fannie Mae is making it harder for Duluth home buyers and refinancing homeowners everywhere to close on a mortgage.

Beginning June 1, 2010, with all new applications, Fannie Mae wants lenders to verify that borrowers have not taken on new debt during the underwriting phase of the mortgage. 

If new debts are found, the mortgage is subject to a re-underwrite and a possible turndown.

For Fannie Mae, the goal is to reduce the number of loans that go bad because of new, non-disclosed debt. Lenders have the freedom to verify in whatever manner they wish, but in most cases, the verification process will amount to a credit re-pull made just prior to closing.

The underwriters will be looking for 3 things in particular -- even after your loan is approved.

First, your updated credit report will show your current credit card bills and minimum monthly payments.  Those numbers will replace your original numbers made at the time of application.  If the debts exceed a certain threshold, your loan will be denied.

Second, underwriters will be looking at your updated credit score. If your FICO has dropped below minimum lending standards, your loan will be denied. Or, you may be subject to a new loan-level pricing adjustment. 

Loan level pricing adjustments are mandatory loan fee based on your credit score.

And, lastly, underwriters will be looking at your credit report's Credit Inquiry section. The goal is to see if you've been applying for credit elsewhere. Underwriters can use this information at their discretion.

Fannie Mae's Loan Quality Initiative is just one more way that the government-backed group is trying to improve its loan pools. Unfortunately, it'll mean more turndowns for mortgage applicants.

Therefore, take extra care of your credit between the time of application and the time of closing. Don't buy new cars, don't buy new appliances, and -- most definitely -- don't open new credit cards.  Be extra safe with your credit because a mortgage application that's supposedly cleared-to-close can be revoked at the eleventh hour.

When in doubt, talk to your loan officer about what may or may not trigger the Loan Quality Initiative.  Your loan approval is at stake.

Consumer Confidence Hints At Higher Home Prices And Higher Mortgage Rates, Too

The Consumer Confidence Index is rising, a potentially double-edged sword for residents of Atlanta and for Americans, in general.

According to The Conference Board, economic confidence is as high as it's been since August 2007 -- 4 months before the start of the recession.  Americans are optimistic again.

Confidence matters to the economy because as confidence increases, in theory, consumer spending follows.  Consumer spending accounts for 70 percent of the U.S. economy.

It's why Wall Street is responsive to confidence data.

When consumer confidence is rising, households start to make big-ticket purchases they may have otherwise put off indefinitely.  Maybe it's a replacing old appliances; or, trading in an old automobiles; or, splurging on a vacation.

Rising confidence can also spur real estate sales.

When confidence is rising, a growing family that chose to "make do" in their 3-bedroom, 1.5-bathroom starter home may opt to move-up to a 4-bedroom, 3-bath instead at a slightly higher monthly carrying cost.  And there are families in every city in every state making those same decisions.

As a result, the housing market gets a boost -- especially in the mid-to-upper price ranges. Values rise on higher demand for homes.

The downside is that growing confidence tends to push conforming and FHA mortgage rates up.  This is because an expanding economy draws investment dollars away from bonds and into stocks -- including mortgage bonds. 

The reduced demand for mortgage-backed bonds leads bond prices to fall and mortgage rates to rise.  Sometimes by a little, sometimes by lot.

So, if you're buying a home or thinking of a refinance, rising confidence in the economy may be a signal to act sooner rather than later.  Talk to your real estate agent and/or your loan officer about next steps and get your plan in place.

What's Ahead For Mortgage Rates This Week : June 1, 2010

Mortgage markets worsened last week as concerned of a global debt crisis lessened and stock markets rebounded. The gains in stocks came at the expense of bonds -- including mortgage bonds. 

Conforming and FHA mortgage rates rose in Georgia for the first time in 5 weeks, pulling mortgage pricing off its best levels of the year.

The best mortgage rates of last week were locked Tuesday morning.

This week, mortgage rates may rise even more. In addition to the release of May's jobs report and consumer confidence data, fears of broader economic slowdown appear to be easing.

 

Day-by-day, the chances of rates rising are real. 

On Tuesday, a consumer confidence survey is released. Consumer confidence is linked to economic growth because 70 percent of the economy is based in consumer spending. In theory, as consumer confidence grows, the economy should, too. 

Therefore, a strong reading should push mortgage rates higher.

Then, on Wednesday, Pending Home Sales and Auto Sales data is released for last month. Both items are "big ticket" and, again, reflect on consumer confidence. Strong readings should be rough on rates.

Next, on Thursday, jobless claims data hits the wires along with worker productivity stats.  Normally, these two releases don't carry much weight, but with the jobs market in focus this year, markets will be watching for clues about Friday's big report -- the May Non-Farm Payrolls.

Anything can happen when the jobs report is released. 

In April, an estimated 290,000 jobs were created and, in May, economists think more than a half-million people re-entered the workforce.  This is good for the economy, of course, but can drag on mortgage rates.  If job growth even comes close to the 500,000 marker, mortgage rates could zoom higher.

Mortgage rates moved higher last week but are still very low. If you've been thinking about refinancing your mortgage, you probably shouldn't put it off much longer.  Talk to your loan officer today -- the longer you wait, the more that rates can rise.