Cleared to Close?

Suddenly this phrase does not really mean what it use to! A new quality control measure put into place by Fannie Mae and Freddie Mac have added yet again, another new guideline to our already overburdened process. This new requirement, called the LQI or Loan Quality Initiative, states that a new credit report must be obtained by the lender on all mortgage loans at the funding table, and minimum credit guidelines met. If your credit scores are borderline, this simple inquiry can mean a last minute denial of your loan application because frequent inquiries into your credit history can cost you points off your credit scores. The idea here is to determine whether you’ve opened any new accounts, increasing your debt load and thereby hampering your ability to qualify, or whether you have become delinquent on any debts during the processing of your loan, but the simple inquiry itself can be detrimental as stated above. Here is the actual LQI language from Fannie Mae.

Historically, many issues related to compliance with Fannie Mae selling policies are not detected until after loans are delinquent or through the foreclosure process. Loan repurchase requests to lenders have increased in the past three years, highlighting the need for an improved approach for working with lenders to deliver loans that meet Fannie Mae’s underwriting and eligibility guidelines. Fannie Mae conducted an extensive analysis to determine the primary drivers of repurchase requests and is launching the Loan Quality Initiative (LQI) to identify and implement policy, process, and technology enhancements to improve the compliance with underwriting and eligibility guidelines and mitigate repurchase risk.

Working with its lender partners, Fannie Mae is implementing the LQI enhancements to promote improved loan delivery data that is complete, accurate, and fully reflective of the terms of the mortgage. The LQI will also help ensure that the loan meets the credit and eligibility standards, pricing guidelines, and other requirements of the Selling Guide or negotiated variances. A primary focus is on capturing critical loan data earlier in the process and validating it before, during, and immediately after loan delivery.

This updated approach is designed to stand the test of time across market cycles and risk tolerances, thus supporting market stability and reducing investor and lender risk. Changes introduced under the LQI are intended to reduce repurchase requests through improved data integrity and consistent and early feedback on policy compliance while maintaining the current business model of relying on lenders to make appropriate decisions in accordance with Fannie Mae’s guidelines.