2nd Credit Report May Be Pulled Before Closing

Credit ReportGetting a loan is much harder in todays economy.  With the crazy number of foreclosures and short sales, government requirements have tightened up to the point of nearly ridiculous. 

Or so it seems …



I just heard that lenders are now requiring a second credit report be pulled right before closing occurs and that if the score is lower that the borrower’s loan approval might be withdrawn. Can you tell me more about this new requirement?


Fannie Mae’s new Loan Quality Initiative (“LQI”), which took effect June 1, 2010, is part of the mortgage giant’s effort to improve loan quality, cut down on shoddy underwriting and, ultimately, make it unnecessary for there to be so many loan repurchases.

It’s essentially another measure to tighten underwriting standards. Part of the LQI requires any lender that sells its mortgages to Fannie Mae to determine that “borrower liabilities incurred up to, and concurrent with, closing are disclosed and evaluated in qualifying the borrower for the loan.” But exactly how lenders go about doing this is up to them. In many cases, it will entail a “refreshed” credit report pulled immediately before a borrower’s closing date.

The last-minute credit report will be designed to find out whether the purchaser/borrower has obtained – or even shopped for – new debt between the date of their loan application and the closing. If they have made applications for credit of any type – for furnishings and appliances for the new house, a car, landscaping, a home equity line, a new credit card, you name it – the closing could be put on hold pending additional research by the lender. If the purchaser/borrower has actually taken out new loans that are sizable enough to affect the debt-to-income ratio calculations used in the original mortgage approval, the whole deal could fall through. The added debt load could render the purchaser/borrower ineligible for the mortgage because they suddenly appear unable to handle the payments without a strain on their household budget.