Credit Technologies, Inc.

June 8, 2010

As expected, FNMA has issued further clarification since our June 1st LQI letter. The LQI FAQs have been updated regarding Undisclosed Liabilities and the use of a “refreshed” credit report. These clarifications are a result of hundreds of requests for guidance from lenders nationwide and from further direct discussions with the FNMA LQI team. Pertinent excerpts from Fannie Mae LQI FAQs and Fannie Mae Lender Tips are provided below with Updates and emphasis noted…

“As part of the qualifying and underwriting process, lenders are accountable for the accuracy of all information in the loan file up to and concurrent with closing, including changes in borrower circumstances.

Q4. How would a lender confirm that undisclosed liabilities are not present in a transaction, through the closing of a transaction?

The lender is responsible for implementing practices to identify undisclosed liabilities in a transaction. It is the lender’s responsibility to develop and implement its own business processes to support compliance with Fannie Mae’s requirements on loans delivered to us. Although many lenders already have such processes in place, Fannie Mae provides lender tips on eFannieMae.com regarding practices that may provide insight as to the presence of undisclosed liabilities. Some examples include: 

• Updated Retrieving a refreshed credit report just prior to the closing date and reviewing it for additional credit lines.
• Updated Direct verification with a creditor that is listed on the credit report under recent inquiries to determine whether a prospective borrower did in fact enter into a financial arrangement with the creditor, which may not be listed on the loan application.
• Running a Mortgage Electronic Registration System (MERS®) report to determine if the borrower has undisclosed liens or another mortgage is being established simultaneously.

Q5. If the lender obtains a new credit report or “refreshes” the current credit report prior to closing and discovers new liabilities or identifies differences in the information, must the loan be re-underwritten with the information from the new or “refreshed” report?

Fannie Mae’s updated policy requires that lenders determine that the borrower has not established additional debt on or prior to the closing date. If additional liabilities are discovered, lenders must consider any such additional debts of the borrower in the qualification.

If the lender is using Desktop Underwriter® (DU®) and identifies differences between the new and/or refreshed credit report and the credit report used when underwriting the loan casefile through DU, the lender must take appropriate action when information that was not considered by DU might result in a recommendation other than that returned by DU.

Examples of situations in which loan casefiles should be resubmitted to DU:

• If additional debt has been incurred and the inclusion of the additional debt would increase the total expense ratio to a level outside the tolerance specified in section B3-2-10, Accuracy of DU Data, DU Tolerances, and Errors in the Credit Report, of the Fannie Mae Selling Guide.
• Updated If new derogatory information is detected and/or the credit score has materially changed.

An example of a situation in which the lender should not have to resubmit the loan casefile to DU would be if credit balances have changed slightly but the change in the total expense ratio remains within the DU Tolerances policy (referenced above).

Q6. If the lender pulls a new credit report the day before closing and no differences are found compared with the original credit report, is the lender relieved of representations and warranties for undisclosed liabilities?

No. Although pulling a new credit report may reduce the lender’s risk exposure related to its representations and warranties on undisclosed liabilities, lenders remain responsible for any and all borrower debt up to and concurrent with closing.”

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 Credit Technologies LQI solutions are in place and currently available. As these guidelines remain subject to lender interpretation, no single solution is applicable for all, as individual lenders will provide additional clarification as to their specific requirements, You have the ability to create a FNMA “Refresh” report utilizing hard or soft inquiries (no FICO score impact) customized to your specific needs (number of bureaus, with/without scores…)

Note – There has been much confusion regarding the use of ”hard” vs. “soft” inquiries. There is no difference as to the content of the report, cost, nor impact on existing FICO scores. FNMA offers no guidance as to the type of inquiry used to create the refresh report however; there is a significant limitation placed on the use of “soft” inquiries. Current repository restrictions limit the use of reports based on soft inquiries, specifically, a report comprised of soft inquires cannot be reissued through any AUS including FNMA DU which may limit the use of certain refresh reports. Credit Technologies provides access to both types of reports on a case-by-case basis allowing you to satisfy varying lender requirements.

The development of our best-practice LQI solutions is based on careful review of the LQI guidelines and direct discussions with the LQI team.

≥Comply provides the bundled resources needed to meet FNMA guidelines along with FACTA and Red Flag requirements in a turn-key, easy to deploy solution including,

• LQI Comparison Report dramatically simplifies compliance with FNMA Undisclosed Liabilities guidelines. Comparative data points include,
• Existing tradelines including public records and collections
• Balances, payment amounts enabling easy recognition of DTI changes
• Inquiries
• FICO scores
• Data Set (borrower names, addresses, Soc Sec, DOB…)
• Level One Authentication – Provides the needed ID verification and fraud detection tools and meets FNMA requirements for the initial validation of applicant social security numbers.
• EasyRed Flag – Simple to deploy detection and response tools, training and support learn more…
• FACTA Notice Compliance Certificate Service – Automates the required FACTA consumer disclosures
• Exclusive access to the LQI STAT Team – Most importantly, as a ≥Comply subscriber, when last minute issues are detected (often within 72 hours of closing) any update, inquiry clearance or rescore requests are handled by our specially trained LQI STAT team and receive the very highest priority learn more…

To add a ≥Comply subscription to your account, please call 800.445.4922, option 1, or simply subscribe via email.

Additional resources,

Fannie Mae LQI Summary

Fannie Mae LQI FAQs

Fannie Mae Lender Tips for Identifying Undisclosed Liabilities

Credit Technologies ≥Comply

© 2010, Credit Technologies, Inc. – All Rights Reserved.

Much confusion surrounds the new Fannie Mae LQI “guidelines”, particularly regarding the standards for detecting undisclosed liabilities. Rather than establish set requirements or procedures, FNMA has instead published a set of best-practice guidelines and left it up to individual lenders to establish their own respective policies and requirements to mitigate repurchase risks. While LQI guidelines state that it is not a requirement that a “refresh” credit report be obtained, the “suggested” data comparisons can only be accomplished through the use of a credit report refreshed just prior to closing.

Varying lender interpretations and policies have made compliance difficult for correspondents and brokers. Perhaps most challenging is FNMA’s assertion that the comparison of the initial credit report and the refresh credit report be completed very close to the time of closing.

The following excerpts from FNMA’s LQI Lender Tips and FAQs provide an overview of the guidelines pertaining to undisclosed liabilities and example solutions…

“As part of the qualifying and underwriting process, lenders are accountable for the accuracy of all information in the loan file up to and concurrent with closing, including changes in borrower circumstances.

Lenders must take steps to proactively identify any and all undisclosed liabilities that may affect the loan approval in relation to underwriting guidelines, eligibility parameters, or pricing. It is the lender’s responsibility to develop and implement its own business processes to support compliance with Fannie Mae’s requirements on loans delivered to us. Although many lenders already have such processes in place, Fannie Mae is providing some tips for lenders to consider:

• Refreshing a credit report just prior to closing may uncover additional debt or credit inquiries.
• Credit inquiries listed on the credit report should be investigated to determine whether the borrower did in fact open additional debt resulting in repayment obligations. In some cases, it is possible to obtain a direct verification with the creditor associated with the inquiry.
• Fraud-detection tools are available through multiple vendors that assist lenders in identifying undisclosed mortgages or other potentially fraudulent scenarios.

Q5. – If the lender obtains a new credit report or “refreshes” the current credit report prior to closing and discovers new liabilities or identifies differences in the information, must the loan be re-underwritten with the information from the new or “refreshed” report?

 Fannie Mae’s updated policy requires that lenders determine that the borrower has not established additional debt on or prior to the closing date. If additional liabilities are discovered, lenders must consider any such additional debts of the borrower in the qualification.

 If the lender is using Desktop Underwriter® (DU®) and identifies differences between the new and/or refreshed credit report and the credit report used when underwriting the loan casefile through DU, the lender must take appropriate action when information that was not considered by DU might result in a recommendation other than that returned by DU.  

 Examples of situations in which loan casefiles should be resubmitted to DU:

 •           If additional debt has been incurred and the inclusion of the additional debt would increase the total expense ratio to a level outside the tolerance specified in section B3-2-10, Accuracy of DU Data, DU Tolerances, and Errors in the Credit Report, of the Fannie Mae Selling Guide.

•           If new derogatory information is detected and/or the credit score has materially changed.

An example of a situation in which the lender should not have to resubmit the loan casefile to DU would be if credit balances have changed slightly but the change in the total expense ratio remains within the DU Tolerances policy (referenced above).

 Q6. If the lender pulls a new credit report the day before closing and no differences are found compared with the original credit report, is the lender relieved of representations and warranties for undisclosed liabilities?

 No. Although pulling a new credit report may reduce the lender’s risk exposure related to its representations and warranties on undisclosed liabilities, lenders remain responsible for any and all borrower debt up to and concurrent with closing.”

###

 No single solution is applicable for all as individual lenders will provide additional clarification as to their specific requirements. Credit Technologies provides the ability to create a FNMA “Refresh” report utilizing soft inquiries (no FICO score impact) customized to your specific needs (number of bureaus, with/without scores…)

 In addition and based on our interpretation of the LQI guidelines including direct discussions with the LQI team, Credit Technologies has developed a suite of best-practice solutions that can be customized to your specific needs on a per case basis.

 ≥Comply provides the bundled detection resources needed to meet LQI guidelines along with FACTA and Red Flag requirements in a turn-key, easy to deploy solution including,

• LQI Comparison Report dramatically simplifies compliance with FNMA Undisclosed Liabilities guidelines. Comparative data points include,
  • Existing tradelines including public records and collections
  • Balances, payment amounts enabling easy recognition of DTI changes
  • Inquiries
  • FICO scores
  • Data Set (borrower names, addresses, Soc Sec, DOB…)
• Level One Authentication – Provides the needed ID verification and fraud detection tools and meets FNMA requirements for validation of applicant social security numbers.
• Red Flag – Simple to deploy detection and response tools, training and support
• FACTA Notice Compliance Certificate Service – Automates the required FACTA consumer disclosures

Most importantly, as a ≥Comply subscriber when last minute issues are detected (often within 72 hours of closing) any update, inquiry clearance or rescore requests are handled by our LQI STAT team and receive the very highest priority learn more…

To add  ≥Comply to your account, simply call 800.445.4922, option 1 or send your request us Via email

 Additional resources,

Fannie Mae LQI Summary

Fannie Mae LQI FAQs

Fannie Mae Lender Tips for Identifying Undisclosed Liabilities

Credit Technologies ≥Comply

© 2010, Credit Technologies, Inc. – All Rights Reserved.