Industry NewsMortgage

Borrowers face new set of credit checkups

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Mortgage giant Fannie Mae rolled out its Loan Quality Initiative (LQI) June 1, thereby forcing homebuyers to obtain mortgages based on "refreshed" credit reports or risk their closing being canceled and, in some states, their deposits forfeited. In other words, the buyer is not officially approved for the mortgage until the results of second credit report are approved. There may be other last-minute verifications of undisclosed liabilities, such as job status, that may be "refreshed" as well. Example: Buyer A listed his three credit cards on his loan application. The lender approved Buyer A's credit and approves the mortgage loan request, partially based on this information. Buyer A goes to Home Depot, applies for yet a fourth credit card. The day before the closing, while Buyer A's excitement is peaking, the lender refreshes his credit to make sure his credit score is still as good as it was when it was pulled the first time. The lender discovers tha...