TopMortgage Compliance Update (1)
  June 9, 2010
                                       Fannie: Credit Reports Prior to Closing  

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In this issue, we are introducing the opportunity for you to offer suggestions and comments, inquiry about our services, and ask questions relating to residential mortgage compliance.

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Under the new Loan Quality Initiatives guidelines, there is an affirmation that the lender is responsible for implementing "practices to identify undisclosed liabilities in a transaction."

Thus, it is the lender's responsibility to develop and implement its own business processes to support compliance with Fannie Mae's requirements  through the closing of a transaction

Fannie Mae has not changed the policy as it relates to credit reports. Credit documents, including the credit report, are valid for 90 days from the date of the report and may not be older than 90 days at time of closing (i.e., the date that the Note is signed by the borrowers).

However, the lender is responsible for confirming and factoring in the undisclosed liabilities that were not present in the loan processing reviews conducted prior to and through to the date of closing.

Therefore, if the lender pulls a new credit report the day before closing and no differences are found compared with the original credit report, the lender is not relieved of representations and warranties for undisclosed liabilities.

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.



  • Retrieving a refreshed credit report just prior to the closing date and reviewing it for additional credit lines.
  • New vendor services are becoming available to provide borrower credit report monitoring services between the time of loan application and closing - Equifax's Undisclosed Debt Monitoring™ is one example.
  • 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.
New P-T-C Credit Report Finds Undisclosed Liabilites

If additional liabilities are discovered prior to closing, the lender 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 case file 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 case files 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.
Example of a situation in which the lender should not have to resubmit the loan case file to DU would be if credit balances have changed slightly but the change in the total expense ratio remains within the DU Tolerances policy.

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Fannie Mae: Loan Quality Initiative (LQI) Program
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