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As many LGBT borrowers have heard through recent media reports, the huge mortgage agency Fannie Mae might get scrapped later this year. Whether or not that will adversely affect LGBT home buyers, LGBT homeowners wanting to refinance, or LGBT sellers hoping that their buyers qualify for a mortgage is suddenly a big concern. Meanwhile Fannie Mae instituted much more stringent underwriting policies in February, requiring banks and other lenders to take a closer look at borrower credit and debt profiles. These higher standards could potentially have a significant impact on the mortgage loans of many consumers, especially those who are not aware of how to successfully respond to them in 2011..
Fannie Mae (the nickname for the Federal National Mortgage Association) participates in the majority of home mortgages that are made in the USA. But Fannie Mae is not a direct mortgage lender. Instead it underwrites and insures mortgages that banks and other lenders can then provide to Americans at less expensive rates. But the agency was poorly managed during the years leading up to the subprime mortgage crisis and it has been hemorrhaging money ever since. Now officials are talking about closing down the inefficient Fannie Mae and letting private banks and lenders handle Fannie Mae’s responsibilities..
First of all, breathe easy and rest assured. The troubles at Fannie Mae should not directly affect LGBT borrowers. No matter what changes are enacted regarding that agency it will have little impact on the average buyer or seller. Congress cannot risk jeopardizing the real estate economy by doing anything that would interfere with the smooth running of USA mortgage markets. .
But there is, on the other hand, a recent development at Fannie Mae that does matter to LGBT borrowers. Fannie Mae has begun requiring its lenders to more carefully scrutinize borrower debt loads. The newly imposed underwriting standards affect all Fannie Mae loans, and the policy was in full force as of February 1st..
Here’s how it works. Lenders are now told to examine 120 days of credit bureau files in the days leading up to a loan application. They used to only check back 90 days. What they are looking for is evidence that the borrower applied for new credit or loans that may not have showed up yet in their credit reports, but will be included in reports later – after the borrower’s loan has already been processed. These add extra debt to the borrower’s budget, so if Fannie Mae discovers that new loans have slipped past them they may decide to retroactively update the loan application before funding. Doing so could potentially result in a lowering of the originally approved mortgage amount – and that could, in turn, affect the financing on a home purchase that has not yet closed..
But what is even more drastic is that Fannie Mae has also instituted a policy of tracking credit behavior between the time that mortgage loans are approved and the actual closing date. It typically takes anywhere from 30 to 60 days to process a loan and close on a house purchase, but if the borrower’s files show evidence of new debt accrued during that timeframe Fannie Mae may trigger a new examination of the loan. If the borrower’s new debts are significant enough the lender might change the original terms of the mortgage and could even decide to raise the interest rate. Should that occur the day before closing, for example, buyers and sellers may have to unpack the moving vans and reschedule their closing – and there is even an outside chance that the whole deal could fall apart in the 11th hour..
But there is nothing for LGBT borrowers to worry about, as long as they take simple and deliberate steps to avoid all of this potential chaos. The main culprit is new debt. So as long as LGBT borrowers do not take on any extra debt during the 120 days leading up to the loan application – plus the month or two between loan application and the final closing transaction where they pay for the house and get the keys from the seller – there will be no red flags. .
Avoid taking out auto loans, student loans, personal bank loans, or applications for new credit cards. Don’t make any major purchases on credit cards or do anything else that could add to debt levels. Hold off on loans to fix up the new house and don’t accept offers for department store credit cards to get a clothing discount. Postpone those furniture and home appliance purchases, for example, until after the deal has closed. Then there won’t be any cause for underwriting adjustments or mortgage revisions. .
LGBT borrowers who follow these straightforward guidelines and do not increase their debt during that 6-month window will be just fine, and their Fannie Mae approved loans should sail through without a hitch and without unexpected last minute surprises..