June began a new requirement from Fannie Mae. Mortgage applicants must now have their credit checked 3 days before closing. If there are any significant changes, the terms may be adjusted or the mortgage may actually be cancelled. While this may sound harsh, it also makes sense.
When you apply for a mortgage, your credit, debt and assets are checked. The bank wants to verify that your credit history shows that you are a responsible person and your income, debt and assets are enough to allow you to comfortably carry the expenses.
Once you get your mortgage commitment, nothing should change. You should be just as credit worthy on the day you close as you were when you first applied for your mortgage. Fannie Mae is just checking to make sure.
Before the sub prime mortgage market existed, this was a normal part of the process. Fannie Mae found that a good number of people abused the system by being irresponsible or committing outright fraud. By requiring this verification just before closing, Fannie Mae is hoping to avoid such trouble.
In the past, some people actually took out other loans just before closing because they knew they’d never qualify once the mortgage closed and was on their credit record. So, they got a car on a loan, bought an appliance on credit etc. and sometimes even quit a job just before closing on a house. This sort of irresponsible behavior often ended up in foreclosure.
I agree with this. Fannie Mae is taking the right approach because this goes a long way to ensure the integrity of the mortgage system. It also protects buyers from over burdening themselves with debt. It does no one good when a home ends up in foreclosure. So is Fannie Mae making life impossible for buyers? Not at all.