Below is a communication I sent to real estate agents this week regarding changes to Fannie Mae guidelines that will impact escrows and closing if no attention is paid to the new policies:

Fannie Mae has launched its "Loan Quality Initiative" (LQI) to reduce the number of compliance issues that are discovered after a mortgage has been funded and shipped to Fannie Mae. As part of the LQI we will be experiencing some major changes to the mortgage approval and funding process. As Fannie Mae has stated in its Lender Letter "over the next few months, Fannie Mae will release a number of Selling and Servicing Guide announcements and release notes." Which means: don't get too comfy as we will continue to make changes to how we do business. I will do my best to keep you informed.

As real estate professionals you need to be aware of many of these changes as they can, and most likely will, affect the closings on some of your escrows. Since I only deal with the buyer and have a certain amount of control and communication with that buyer, I feel confident in minimizing some of the negative impacts these guidelines may have, provided the buyer listens and understands the instructions up front. You and your listing clients however will have more exposure to circumstances beyond your control. Knowledge is power however, the power to have a positive impact on your transactions and ensure the agent and his/her clients on the other side of a transaction are aware of the guidelines and don't do anything silly that could negatively impact your transactions.

Areas of major change I will cover below: credit reports, social security numbers, condos and changes in FICO score and loan to value limits.

• Pre-funding credit verification. While the final ruling has not been issued yet as to exactly what pre-funding credit verification is, we are anticipating some lenders will take this to mean pulling a credit report on every file just before funding to see if any new credit obligations or inquiries appear--just like in the old days! To be safe it is advisable that borrowers/buyers do not open any new credit accounts after we obtain our initial credit report for the application until after escrow closes unless they clear the obligation with us so we know they will still qualify. This means no buying new appliances or furniture prior to close to be delivered after close unless clearing the purchase first with us. Even car shopping and lender seeing a lot of inquiries from Auto Row can cause delay. If a new obligation appears the loan will have to go back through underwriting, then if still approved go back through docs and then funding.
• Enhanced social security verification. Fannie Mae has gone into great detail in its announcement regarding verifying social security and residency; obviously it is a major issue with their current portfolio and defaults. It is my opinion that to properly satisfy this condition and avoid delays Fannie Mae loans will need to be treated the same as FHA loans and borrowers will need to provide a copy of their social security cards at time of loan application. As well there is a social security verification form that lenders use to match the numbers with the applicants, I will be having these signed by all borrowers as part of the standard application package moving forward.
• Condo Unit Numbers. Evidently Fannie has had some issues with unit numbers on condominiums not matching from the offer to the application to the appraisal to the title prelim to the mortgage note. Please verify with title the correct and legal unit number of the condo unit prior to listing and any offers. We will use the unit number from title not what is on the door of the unit or mailbox.

• New Loan To Values and FICO scores. Besides the final credit report this one is a biggie. "Conforming" designates loans to $417,000 (SFR), "Hi-Balance" designates SFR loans above $417,000 to regional limit ($625,500 or $729,750 depending on county). Note criteria below is for purchase transactions, refinance transactions may have different criteria. Call for criteria for units.

Note that limits are different for transactions involving multi-units. These limits are in effect June 19, 2010.

If you, or your clients, have any questions about any of this information please do not hesitate to contact me. I look forward to assisting you with your purchase transactions and helping families with their dreams of homeownership!

Dennis C. Smith

Broker/Co-Owner
Stratis Financial

CA DRE Broker's Lic #00966315
Direct (562) 472-1118

Mobile (562) 243-6912

Fax (562) 684-4316

DennisCSmith.com