Suddenly, the phrase "cleared to close" doesn't mean so much.

Because of a new Fannie Mae policy, a mortgage lender's commitment to fund isn't final until it's final.  Lenders have reason to revoke a person's mortgage approval all the way up until the point of funding.

Scary, scary stuff.

Fannie Mae's "Loan Quality Initiative"

It's called the Loan Quality Initiative. In an attempt to minimize "bad loans", Fannie Mae has told lenders to take more responsibility for their files, and has put them on the hook if loans go bad.

The Loan Quality Initiative is Fannie Mae's response to surging foreclosures. The program shifts the onus of mortgage guideline compliance away from the government-backed group and to the individual banks responsible for making loans.

The LQI scope is broad, taking 9 pages in summary and, for the most part, mortgage applicants won't be bothered with the changes. It's just a lot of extra work for the bank -- things like Social Security Number validation checks and borrower occupancy standards.

There is, however, one major consumer hurdle. And it's a doozy.

Beware The 11th-Hour Credit Score Repull

In the new LQI environment, Fannie Mae has lenders that an applicant's credit profile did not change while the loan was in underwriting.  If the profile did change and the lender "misses" it, Fannie Mae can then refuse to purchase the loan for securitization, burdening the bank with loan on its books (and possibly a loss).

Therefore, it behooves banks to take each mortgage applicant's credit report in hand, and do a complete re-pull just prior to closing -- just to make sure nothing changed.

Banks wants Fannie Mae to buy their loans so they're looking at the re-pulled reports for evidence of any of the following events that might have occurred while the loan was in underwriting:

• Did the applicant apply for new credit cards?
• Did the applicant run up existing cards?
• Did the applicant finance an automobile, or other major purchase?

If the updated credit report doesn't match the original credit report, the mortgage is subject to a complete re-underwrite and a possible loan turndown.

The 3 Things An Underwriter Will Scrutinize

When banks re-pull credit just prior to closing, there are 3 things for which an underwriter is looking, and specific actions the bank will take.

What the bank will do: Recalculate debt-to-income ratios using your "new" minimum payment due figures. If the DTI exceeds Fannie Mae's maximum threshold, the loan will be denied.

What you should do about it: Don't run up credit cards prior to closing -- even for layaway items. Consider paying more than the minimum due, just in case.

What the bank will do: Use your new credit score to assess loan-level pricing adjustments or outright denials for when scores fall below Fannie Mae's minimum credit score requirement.

What you should do about it: Follow the basic rules of keeping your credit score high -- pay your bills, don't let things go into collection, and don't look for new credit unless necessary. myFICO.com has a terrific series on credit scoring you can review.

What the bank will do: Look at the Credit Inquiry section of your credit report to look for "non-disclosed liabilities". If items are found, the bank will ask for supporting documentation on the inquiry, and will use the information to re-underwrite your mortgage.

What you should do about it: Don't go looking for new credit until after your loan is funded.  Period.  Now re-read that first sentence, please, to help it sink it.

And remember -- this is all happening after your loan has reached "final approval" status.

Loan Approvals Are Tougher, But Not Impossible

Fannie Mae started its Loan Quality Initiative is to improve its loan pool's performance.  Better loan quality can help keep conforming mortgage rates down and reducing taxpayer burden from foreclosures simultaneously.  That's two big wins.

Unfortunately, the LQI will also lead to additional mortgage turndowns and a lot of busted closings.

Be extra careful with credit between your application date and your closing date, therefore.  If you must buy something big, think about paying cash.  Anything that goes on a card can be used as grounds for revoking an approval.

Even if your loan is cleared-to-close.

For help with your mortgage approval, or questions about the Loan Quality Initiative, . I am happy to walk you through it.

In February 2009, Fannie Mae rolled back a rule that kept real estate investors from financing more than 4 properties at a time.  The limit raised the maximum number of financed properties to 10.

The program provides bona fide investors with an avenue to add to their respective real estate portfolios.

Yes, You CAN Finance With 5-10 Homes

In its official announcement, Fannie Mae said upping the financed-property limit would help stabilize housing nationwide.

"Experienced investors play a key role in the housing recovery", it said.

15 months later, however, finding a bank that offers the 5-to-10 Properties Financed program is proving to be a challenge. Unlike the traditional 15-year fixed rate mortgage, most lenders are not offering the 5-10 Properties program as a matter of policy.

It's cause for consternation among the real estate investment crowd.  Fannie Mae says it will buy the loans; banks should be willing to do them.

Why Some Banks Won't Offer The 5-10 Properties Program

So, why don't all bank participate in the 5-to-10 Properties Financed program?

The probable answer is that underwriting a 5-property-owning investor's mortgage application is hard work.  "Traditional" homeowners submit for loan approvals with just a basic W-2 and paystub for an approval.  Bona fide real estate investors, on the other hand, submit for approval with complex tax returns, REO schedules, and a ton more details to reconcile and verify.

It's far quicker to underwrite and approve a standard loan as compared to a 5-10 Properties program loan. However, both loans are valued the same when bundled for Wall Street securitization.

In other words, the 5-10 Properties program is more work for same profit.  It's no wonder most banks don't do it.

Thankfully, a few of the nation's banks will.  You just have to know where to find them.

And you have to meet their guidelines.

The 5-10 Financed Properties Program Criteria

In order to purchase and finance a home through Fannie Mae with more than 4 existing financed properties, investors must meet all of the following criteria:

• Own between 5-10 residential properties with financing attached
• Make a 25 percent downpayment on the property; 30 percent for 2-4 unit
• Minimum credit score of 720
• No mortgage lates within the last 12 months on any mortgage
• No bankruptcies or foreclosures in the last 7 years
• 2 years of tax returns showing rental income from all rental properties
• 6 months of PITI reserves on each of the financed properties

For refinances, loan-to-value is capped at 70% for all property types.

And then, as a last step to reduce fraud, Fannie Mae's multiple property program requires applicants to sign a 4506-T -- a form giving lenders permission to verify your submitted-with-the-loan tax returns against the official, IRS-filed version of the same.

Where To Get A 5-10 Properties Program Mortgage

If you own more than 4 financed properties and want to purchase a new one, or refinance one you already own, let your first call be to your personal loan officer or bank.  Ask for help -- you can't know if your banks offers the 5-10 Properties program until you ask.

If that call gets you nowhere, you call me directly or .

I offer mortgages for investors with 5 or more properties financed. I'd be happy to get you started.

As the federal home buyer tax credit nears its April 30 end-date, there's a lot of would-be home buyers in Cincinnati, Chicago and elsewhere working hard to get under contract.

What's A Re-Pre-Approval?

If you're among them, a piece of advice : If your pre-qualification and/or pre-approval letter is more than 8 weeks old, get yourself "re-pre-approved". Mortgage guidelines have been in flux and your original lender letter may now be invalid.

As examples, over the past half-dozen months, the majority of lenders have reduced risk tolerance with respect to:

• Maximum debt-to-income ratios : Now capped at 45%
• Minimum allowable credit scores : Heavy penalties starting below 740
• Calculation of "assets in reserve" : Only 60% of some assets can "qualify"

For buyers of condominiums and certain townhomes, even the subject property itself comes under tougher scrutiny.

You Only Get One Chance To Claim The $8,000 Tax Credit

Today's mortgage applicants need to be a complete package. It takes more than just good income and credit to get approved anymore and today's buyers would be prudent to revisit their qualifications.

What passed underwriting in January may not pass in May.

Being pro-active brings other advantages, too. If a mortgage re-pre-approval does unearth an issue, addressing and correcting it up-front will be simpler than trying to clean it up once a home's already under contract. If things fall apart after the April 30 deadline and you lose your claim on $8,000 -- tough noogies.

How To Get Re-Pre-Approved For Your Mortgage

Talk to your loan officer about a pre-qualification/pre-approval letter before you bid on a home. The loan you save may be your own. Or, request a lightning-quick pre-approval from my mortgage office .

I pre-approve mortgages via email and telephone.

(Post licensed and adapted from Bring the Blog)

For the second time in 10 weeks, Fannie Mae is toughening its mortgage guidelines again.  Again.

According to an internal Fannie Mae document, a review of the group's current "risk appetite, eligibility requirements, mortgage insurance options, and pricing" spawned changes spanning credit scoring, income requirements, loan-level pricing adjustments.

The Fannie Mae guideline changes are summarized, in part, below:

• Minimum credit score requirement raised to 620
• Total debt-to-income levels may not exceed 45 percent, except by exception
• Loan-level pricing adjustments for loans with "minimum" PMI coverage

It's the loan-level pricing adjustment part that's most interesting.

Loan-level pricing adjustments are specific fees assessed for specific risks. Based on the current lender guidelines, if your credit score is low, you'll pay an extra fee to Fannie for your mortgage; if you're doing a cash-out refinance, you'll pay an extra fee to Fannie for your mortgage; if you live in a condo and have little equity, you'll pay an extra fee to Fannie for your mortgage.

LLPAs were first introduced in April 2008. Fannie Mae has upped them nine times since.

There's lot of ways to trigger the fees.

If the concept of risk-based fees seems weird, think of LLPAs like auto insurance. Base rates are the same based on product, but the driver of a sports car will pay for insurance versus, say, the driver of a minivan.  Higher risk to the insurer means higher premiums to the owner.

Mortgages work the same way.

At least with its latest LLPA revision, Fannie Mae gets a tiny bit democratic.  It gives its mortgage-insurance carrying homeowners a choice.

1. Pay for higher levels insurance coverage month-after-month, or
2. Pay for the "old" insurance coverage plus a one-time fee, due at  closing

For every borrower, there is a clear-cut, cost-effective solution but, regardless, in both cases, the costs to finance through Fannie Mae are going to be higher.

Fannie Mae set December 11, 2009 as its "effective date" for the changes.  All mortgage approvals after that date will be subject to the new minimum FICOs, expense ratios, and LLPAs.

Better to get a good rate today than to be ineligible for a great rate tomorrow.  If I can help you plan for an upcoming mortgage, call .

Mortgage approvals are getting more difficult.  Again.

After reviewing recent unemployment data and market fluctuations, plus patterns of mortgage fraud, Fannie Mae is making major mortgage guideline changes for the first time in more than 6 months.

The changes are broad, impacting 15 separate areas of the mortgage approval process as detailed in Fannie Mae's official announcement.

Across-the-Board Guideline Changes:

• Credit, income and asset documentation can't be more than 90 days old. The former guidelines allowed for 120 days.
• Lenders must compare actual federal tax returns from the IRS to a borrower's supplied income documentation. Previously, this review step was at the lender's discretion.
• "Tip" income must be verified.
• Trailing secondary wage earning is now prohibited. This means that P&G employees relocating to Cincinnati can't use a spouse's "expected" Cincinnati income until that spouse actually has a job.
• Stocks, bonds and mutual funds get assigned 70% of current market value. Formerly, this was 100%.
• Retirement assets get assigned 60% of current market value. Formerly, this was 70%.

By themselves, these bullet points would kick more than a handful of home loans out of the underwriting queue but of all the changes Fannie Mae is making, the most impactful one may new its new restrictions on mortgages for 2-unit properties.

Until now, Fannie Mae had treated duplex homes as somewhat "safe", granting them the same liberal underwriting policies as for a single-family home.  Because of defaults and fraud prevention efforts, though, Fannie Mae decided to make getting approved for a 2-unit property decidedly more difficult.

Minimum credit scores are higher and maximum loan-to-values are lower.

When your 2-unit is your Primary Residence:

• Purchase: Maximum LTV lowered to 80%; 640 minimum FICO.
• Rate-and-Term Refinance: Maximum LTV lowered to 80%; 640 minimum FICO.
• Cash Out Refinance: Maximum LTV lowered to 75%; 680 minimum FICO.

When your 2-Unit is an Investment Property

• Purchase: Maximum LTV lowered to 75%; 660 minimum FICO.
• Rate-and-Term Refinance: Maximum LTV lowered to 75%; 660 minimum FICO.
• Cash Out Refinance: Maximum LTV lowered to 70%; 680 minimum FICO.

Overall, Fannie Mae's new 2-unit guidelines restrict loan-to-value limits by as much as 15 percent and raise minimum FICOs by up to 40 points -- 2 major shifts in policy.  Because of it, going forward, fewer 2-unit mortgage applicants will qualify for mortgages and that should slow both purchase and refinance activity in the 2-unit market until the market returns to balance.

It's especially tough for owners of more than 4 financed properties.

Fannie Mae has said September 1, 2009, is the "effective date" for its underwriting changes so not every lender is underwriting to the new rules just yet.  It's expected that by August 1, all of them well.

Therefore, if you know that you have a 2-unit home to refinance, or that you need your stock and/or retirement portfolio to qualify for your mortgage, consider moving up your timeframe to the next two weeks.   Lenders often implement new guidelines without advance warning and that could leave you in the cold.

Better to get a good rate today than to be ineligible for a great rate tomorrow.  If I can help you plan for an upcoming mortgage, call or email anytime.