Increasingly stringent new regulations and recommendations are simply a fact of life for today’s mortgage professionals. Whether the focus of your business is on meeting the needs of repeat customers or you are actively seeking to introduce yourself to new clients, when it comes to compliance, we’re all in the same boat. And right now, that boat is sailing in uncharted waters.
This summer, mortgage professionals have been familiarizing themselves with the ins and outs of Fannie Mae’s new Loan Quality Initiative (LQI) and the impact it is going to have on their interactions with applicants. Fannie Mae issued these requirements and recommendations in an effort to improve compliance with its eligibility and underwriting guidelines, having determined that compliance will help curb the rise in loan repurchase requests to lenders.
Mortgage professionals now are expected to take a number of additional verification and qualification steps as they work with their applicants to reduce the risk of buybacks. They are now digging deeper, starting with the prospective borrower’s identifying information, gathering more detailed information about the property and appraisal, and scrutinizing the applicant’s credit profile both at the time of application and again just before closing.
Changes we are seeing include:
►A borrower’s identity now must conform to federal documentation requirements. He or she must have either a valid Social Security Number or individual taxpayer identification number.
►A property unit number must be provided if the property on a mortgage application is part of a multi-unit development like a condominium.
►All debts incurred by the borrower up to the mortgage closing date must be disclosed on the applicant’s final application and included in the loan qualification. It also is up to the mortgage professional to have systems and controls in place to evaluate those liabilities.
►Mortgage professionals’ quality control process requirements have been revised, including the timing of quality control reviews after closings. Offices now are expected to audit their quality control process, review their prefunding quality controls, and have written procedures in place for how third-party originators will be approved.
►The Desktop Underwriter now looks for discrepancies between data elements and elements at loan delivery in more than a dozen additional warning areas.
Additional challenges
Mortgage professionals also must take into account the more stringent selling requirements that Freddie Mac announced in its Aug. 16 bulletin which applies to mortgages with settlement dates on or after Dec. 1, 2010. A key provision of the updates outlined in Bulletin 2010-19 revises requirements for inquiries on a borrower's credit report amongst others.
Lenders now will be required to look into the borrower's credit report inquiries made in the previous 120 days, rather than the 90 days previously required. If the borrower was granted additional credit, the lender will be required to obtain verification of the debt, and include the debt in qualifying the borrower. This revised requirement will apply to all loans, not only manually underwritten loans.
These required extra steps have the potential to slow down applications and weigh down a time-strapped office’s productivity unless the most up-to-date resources and a smart plan of action are in use.
Fortunately, the credit-information industry has also been evolving rapidly this year, introducing a variety of tools to help mortgage professionals successfully navigate today’s compliance environment. These new technologies and enhanced tools enable mortgage professionals to stay compliant and, at the same time, keep their profitability on track.
Detailed reports, rapid response times
One of the most valuable tools for ensuring compliance is a report that allows mortgage professionals to easily compare a credit report that was pulled during origination to one pulled at the time of closing. These reports can be delivered in just seconds and include such important details as a credit score comparison, credit score factor comparison, trade line comparison, public record comparison, inquiries comparison, and information sources comparison. General information also is included, as is a convenient quick-reference summary section. Manual inquiry verifications also are helpful in this regard because they can help determine new account information, as are soft code inquiries, which are available for pre- and post-funding reviews.
The tax return verification remains a helpful resource for comparing the income-related lines of a borrower’s tax return with the same lines on file at the Internal Revenue Service (IRS), ensuring that the original IRS figures have not been tampered with. These reports also can highlight any discrepancies with Social Security Administration files. Verifications are invaluable in the fight against mortgage loan fraud, a crime with an impact that runs into billions of dollars.
A number of other tools are also available to check an applicant’s Social Security Number, address, phone number, employment information, liabilities and the property’s history. These reports also can highlight fraud and other alerts on an applicant’s file.
The speed with which mortgage professionals can obtain these reports is a huge advantage in quickly identifying and resolving possible red flags. The ability to order and receive delivery of appraisals electronically is another valuable time-saver.
Ensuring an accurate credit score
Fannie Mae raised its minimum score requirement to 620 in the beginning of July. Even a few points can mean the difference in whether a mortgage applicant is approved or denied, so scoring tools are especially valuable to mortgage professionals in today’s market.
►Credit snapshot: The ability to size up an applicant’s creditworthiness at a glance is especially helpful, and a new credit report cover sheet is one product that does just that. It forecasts an applicant’s 30-day mid-score, warns if nominal increases in the revolving balance put that mid-score at risk, and highlights key indicators that require attention, such as accounts in dispute.
►Score analysis: It often is essential to get the story behind an applicant’s credit score. A proprietary product is now available to generate a detailed analysis of a credit score, scrutinizing both the positive and negative factors that influence that score. Separate analyses can be generated for one, two or three credit bureaus, as well as for a co-applicant. A summary report suggests actions for the applicant to reach his or her target score.
►Rapid rescoring: Mortgage professionals now have the ability to forward documents supplied by their applicants directly to the credit bureaus for rush investigation and rapid re-scoring. The process can quickly rectify misreported, inaccurate or outdated information; correct an account status or balance; remove derogatory information and accounts reported in error, and more. An updated report and score can be provided in as little as 72 hours, after each bureau has verified the documentation.
►Customized plan: Proprietary programs, such as Credit Plus Inc.’s Lending Hand program, has demonstrated that it can help as many as 83 percent of applicants who were declined due to not meeting score minimums to qualify for mortgage loans.1 A team of experts reviews the documentation to conduct an in-depth file analysis, then creates a customized action plan for the applicant. The program can even alert the mortgage professional with follow-up reports when an applicant has made progress and becomes a good candidate to close a loan.
Mortgage professionals need not feel lost at sea over recent industry changes as long as they have the proper tools at their disposal. These resources can, in fact, ensure smooth sailing that can weather any market conditions.
Greg Holmes is national director of sales and marketing at Credit Plus Inc., a leader in credit-information services since 1928. He may be reached by phone at (800) 258-3488 or by e-mail at
[email protected].
Footnote
1-A sampling of 500 declined loan applications due to not meeting score minimums that were re-reviewed using the Lending Hand or Lending Hand Express programs from Credit Plus Inc. showed 83 percent of borrowers reached their target credit score.
