Second Credit Report May Delay Closings

This is a great article by The Mortgage Experts from Denver, Colorado. They make the loan process easy to understand!

Second Credit Report May Delay Closings
by Chris and Debbie Thomas

The new Fannie Mae rules for credit have officially taken effect. They WILL change the way you do business.

These new rules affect all conforming (non-government) loans that are sold to Fannie Mae.

Here's what you need to know:

-- Shortly before the closing, the borrower's credit report must be "refreshed". A refreshed credit report shows the borrower's accounts, the balances, the minimum monthly payments, and the number of credit inquiries (the number of times the borrower has applied for credit).
-- If the borrower's total minimum payments increase enough to make the debt-to-income (DTI) ratio 2% higher than it was using the original credit report, the loan must go back to underwriting!
-- If there are any new credit inquiries, the loan must go back to underwriting!
-- Example #1: The original credit report shows monthly payments of $1,000. New housing payments are $1,500. Total monthly payments are $2,500. If the monthly payments go up by $50.00 (2% of $2,500) or more on the "refreshed" credit report, the loan must be underwritten again.
-- Example #2: After the lender pulls the initial credit report, the borrower applies for a new account, or applies for an increase in the credit limit on an existing account. This will result in a new credit inquiry on the refreshed report and the loan must be underwritten again.

There is a very big chance that the loan will not close on time if it has to be underwritten again 3 days before the closing. The loan will still close (provided the borrower still qualifies), but the closing will probably be delayed.

If you are a real estate agent, here's what you need to do to minimize the impact of this new Fannie Mae rule:

-- Make sure you are using a lender who knows about the new credit rules, and make sure they are telling your buyers about it. No good lender will mind if you ask, so ask.
-- Write your contracts so the loan conditions deadline is as close to the closing date as possible - within a day or two. If the loan gets delayed because it has to go back to underwriting, your buyer is risking their earnest money. The loan conditions deadline does not have anything to do with the loan being approved. It is the last date that the buyer can get their earnest money back by objecting to the loan conditions. That means the buyer can get their money back if they say they don't like the interest rate or anything else about the loan. If you think the loan conditions deadline has something to do with the loan being approved, read the contract again to learn what it really means.
-- Repeatedly ask your buyers if they are using their credit cards or applying for new credit. If the answer is yes, you may have a problem.
-- Do not assume that these new rules will simply go away because they make life tough for lenders, real estate agents, buyers, and sellers. The intent of the new rules is to eliminate foreclosures, and they will go a long way towards doing that. These rules are probably here to stay for a very long time. Everyone needs to accept the new reality of the mortgage industry. The government is forcing us all to think strategically (long-term). Most of us only think about the short-term, and that way of thinking has resulted in the current economic mess, so they are forcing us to act differently.

The new rules are for all Fannie Mae loans. It does not matter which lender is used. If the loan is going to be sold to Fannie Mae, the lender must follow the rules. At the moment, the new rules do not apply to FHA or VA loans, but that doesn't mean FHA and VA will never adopt similar rules

Put Good Faith in New RESPA Rules for Clients

Business Building: Put Good Faith in New RESPA Rules for Clients
RISMEDIA, June 2, 2010--There has been some debate and confusion across the industry over the new RESPA rules from HUD that took effect Jan. 1 for lenders. While the key players iron out the wrinkles, you can focus on supporting the intent of the guidelines by bringing more clarity and transparency to your clients’ closings.

In November 2008, the Department of Housing and Urban Development added the new regulations to the Real Estate Settlement Procedures Act, including new Good Faith Estimate and HUD-1 forms, along with rules and timelines for their use. You may have noticed that some lenders implemented them last year. As of the first of this year, however, all lenders must comply with the new procedures for providing GFEs and transparent accounting of closing terms.

Your role as an adviser to buyers can include informing clients of their options and helping frame proper expectations from pre-approval to closing. That said, you should definitely understand these basic points in order to appropriately educate them:

3-day Rule
Lenders now must provide borrowers with a GFE within three days of receiving a loan application. HUD does allow lenders to provide general information worksheets in lieu of the GFE during the pre-approval process as long as no specific property is identified. If consumers ask for a GFE, however, one must be provided whether the borrow is ready to buy or not.

Fee Categories
The new GFE includes three categories of closing fees that your clients need to understand. They are (1) fees that cannot change at closing, such as origination fees (2) a group of charges that collectively can increase up to 10% only, such as government recording fees, and (3) costs that are permitted to change if a buyer chooses to shop around for services, such as homeowner’s insurance.

Checks and Balances
Consumers should confirm their lender’s compliance with the new RESPA rules by carefully reading and reviewing the GFE and HUD-1 forms. Remember, your expertise can be invaluable as buyers verify the fees and other information in preparation for their closing.

These items only scratch the surface of new RESPA rules and their impacts. HUD appears to be proactive in addressing any snags in the new process through Webinars and other training materials, and you can be proactive by taking advantage of these resources to expand your knowledge of the guidelines to better assist your clients. For more information, visit www.hud.gov/respa or search “RESPA” at www.realtor.org.

Margaret Kelly (CRB) is Chief Executive Officer of RE/MAX International, Inc. For more information, visit remax.com.