Loan Quality Initiative

Fannie Mae has begun to require specific data and processes on all new loan undewrites as part of a Loan Quality Initiative (LQI). This LQI includes various changes that will be implemented at different times in the coming months.

For those that are not aware, Fannie Mae is the backer on roughly 80% of all residential mortgage loans in today's market. When you hear the word "conventional" loan, it means that there is an 80% chance that the loan will be underwritten to Fannie Mae's standards no matter what lender you are using.

The first hurdle in the LQI is labeled as "undisclosed credit and liabilities". In order for a loan to close the underwriters and lender will have to represent and warrant the fact that the loan was underwritten with all of the borrower's credit and liabilities taken into account.

This means all loans will be closely analyzed for credit inquiries that could have resulted in new deb that has not found it's way onto a credit report and the time of applicaiton. A written statement fomr the borrower may be required, itemizing out the inquiries and the reason for the inquiries. If the borrower states they have obtained new debt, the loan will need to be underwritten based off of the new debt load as well as the new credit score.

BOTTOM LINE: WHEN YOU APPLY FOR A MORTGAGE LOAN AND GET AN APPROVAL, DO NOT GO BUY ANYTHING ON CREDIT, USE YOUR CREDIT CARDS, OR APPLY FOR NEW CREDIT. IF YOUR SCORE DROPS YOU COULD BE IN BIG TROUBLE OR AT LEAST IT WILL COST ADDITIONAL TIME AND CONDITIONS.

Please call me if you have any questions!

Rates rise, then come back...but for how long?

Consumer borrowing costs moved higher yesterday morning but were able to recover from weakness later in the day after stocks experienced a late session sell-off that pushed investor funds back into the bond market. A decline in bond yields led mortgage-backed securities prices higher and allowed lenders to reprice for the better.

A flight to safety happens when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate money into risk-free U.S Treasury debt to provide a safe-haven AND an investment return. To remind readers, as benchmark Treasury yields fall, prices of mortgage-backed securities move higher, which allows lenders to offer lower mortgage rates. As Treasury yields rise, mortgage-backed security prices are led lower, which generally forces lenders to push mortgage rates higher.

Rates are still at the lowest points in history. What does that mean? It means that based on 60 years of historical data rates only have one way to go, and that is up. But when?

We are in a period of very little economic activity on the calanders. When this happens the prices of bonds and mortgage backed securities take their cue from the stock market. Bad day in stocks, expect small to no gains on interest rates. Good day in the stock market, expect an increase in borrowing costs to keep rates the same (i.e. points). please remember that rates move up a lot faster than they move down.

Please call me with any questions! I hope you have locked in your rate becasue it may be a wild ridde!