Credit Check and Fannie Mae Loans

By: Mariana Byrd

A recent article in The Washington Post (http://www.washingtonpost.com/wp-dyn/content/article/2010/07/15/AR2010071504045.html) talked about how lenders feel regarding the second credit check that is “required” by Fannie Mae before closing.

In May of this year lenders received word that Fannie Mae was, as of June 1, 2010, going to require a second credit check right before closing.  In the past, the credit check was done at the time of application and not pulled again unless something suspicious was found the first time.  If the lender was going to sell any loans to Fannie Mae then this second credit check needed to be pulled 1-5 days before closing.

In theory, this sounds like a good idea.  According to a study done by Fannie Mae, borrowers whose properties had been foreclosed upon had accrued additional debt before closing that was not known about because a second credit check had not been pulled.  Fannie Mae argued that had a second credit check been pulled, the additional debt would have been disclosed and thus, the lender may have not made the loan (due to a lower credit score or a higher debt to income ratio).

Lenders state that one of the problems with pulling a second credit check right before closing is that credit is not meant to be stagnant.  Credit scores are ever changing and, thus, are likely to change from one month to the other.  Another problem is that the credit is being pulled days before closing which is one of the most hectic times in a real estate transaction.  Time and money, both from the seller and buyer, will be lost if the source of the debt cannot be verified in time and the closing has to be delayed.

According to The Washington Post article, a month after Fannie Mae told lenders that a second credit check was required they have pulled that information from their website and are now saying that it is only a suggestion and not a requirement.

Nonetheless, as a buyer, it is always a good idea to not receive any inquiries into your credit (other than the necessary credit checks done by the lender and potentially a homeowners insurance company) during the home buying process.  Any good real estate agent and mortgage lender will always tell their clients that they should not open any new credit cards or buy any large item(s) on credit (furniture, cars, etc) at any time before closing on their new home.  It seems that this is sound advise even if a second credit check is required or not.

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