Fannie Mae's Loan Quality Initiative

If you haven’t heard of Fannie Mae’s Quality Initiative that was implemented last month then you may want to read this as it may impact closings. In an effort to eliminate “bad loans” Fannie is requiring, among other things, for a borrower’s credit to be re-reviewed prior to closing. In essence, a loan can be clear to close but if the new credit report pulls a new tradeline or increase in balances of existing credit, the loan has to be re-run through the automated underwriting system to determine if it is still approved. That could kill the deal if ratios are exceeded. Also, if the credit score drops below a certain threshold that can be enough to get the loan denied. Bottom line is stick to the “old school” method. Do not apply for any credit and do not buy the furniture for the new house! Again, it doesn’t matter if the loan is clear to close, it can potentially be a deal killer.