Mortgage

Are mortgage lenders responsible for ensuring applicants have not taken on new debt?

From underwriting approval up until the loan closes?

Mortgage Quality Management and Research sent out its bi-weekly frequently asked questions paper earlier today and asked the following: Are mortgage lenders responsible for ensuring applicants have not taken on new debt?

It's a compliance hot topic as we all know that sometimes borrowers, upon applying for a mortgage, learn their credit score and then go try to buy a car, etc.

So are lenders responsible for tracking this?

MQMR answers: Yes, lenders are responsible for ensuring applicants have not taken on new debt, which may impact the applicant’s ability to qualify for the loan, from the time of underwriting approval until loan closing. Continuous monitoring through the use of undisclosed debt monitoring or a soft credit refresh to check for new debts should mitigate undisclosed debt and identify any new debt obtained by the applicant prior to closing. 

Ultimately, the lender is responsible for ensuring the applicant qualifies for the mortgage loan at the time of closing. Fannie Mae indicates that it “expects lenders to have in place processes to facilitate borrower disclosure of changes in financial circumstances throughout the origination process and prefunding quality control processes to increase the likelihood of discovering material undisclosed debts or reduced income.” Fannie Mae Selling Guide B3-6-02: Debt-to-Income Ratios (7/25/2017)

Undisclosed debt or new debt obtained by an applicant could negatively impact debt-to-income (“DTI”) ratios and could affect an applicant’s loan qualification. As such, Fannie Mae advises lenders that they may need to re-underwrite a loan if an applicant reveals or a lender discovers additional debt after an underwriting decision has been made. Further, Fannie Mae requires lenders to re-underwrite a loan if the new information causes the DTI ratio to increase by 3 or more percentage points up to the maximum allowed. “Re-underwriting means that loan casefiles must be resubmitted to DU with updated information; and for manually underwritten loans, a comprehensive risk and eligibility assessment must be performed.”

Additionally, in the event a loan goes delinquent or an investor selects a loan for quality control review, the investor may re-pull a borrower’s credit and review liabilities to ensure that the lender included all debt at the time of loan closing in the qualifying ratios. If an investor identifies new debt during the “gap” period between loan approval and closing, the loan may be subject to repurchase.  

Most Popular Articles

FHA loan limits increasing for almost all of U.S. in 2020

Thanks to increases in home prices in 2019, the Federal Housing Administration loan limit will increase for nearly all of the country in 2020.

Dec 05, 2019 By

Latest Articles

HousingWire is growing. Come join us

2019 has been a year of tremendous audience and product growth for HousingWire and we couldn’t be prouder. But we’re not ready to rest on our laurels. Far from it. In fact, 2020 promises to be an even bigger year for HousingWire.

Dec 06, 2019 By
3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please