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Tuesday, December 18, 2012

Fannie Mae's Underwriting Rules Are Driving Buyers to Credit Unions

[Published Dec. 20, 2012, in the Denver Post and in four Jefferson County weekly newspapers]

Credit Unions are too often overlooked by buyers as a place to obtain a home mortgage, but they are becoming increasingly attractive — in part because of the underwriting nightmare created by Fannie Mae and Freddie Mac.

I have written in the past about how most loans are sold to Fannie and Freddie, and if the lender’s underwriter fails to meet those entities’ underwriting guidelines, the lender could be forced to buy back the mortgage. Buying back just one big mortgage can put a small lender out of business, because they must sell their loans to free up capital to make new loans.

As a result, the underwriters at mortgage companies commonly make absurd demands on their clients to meet the absurd demands of Fannie/Freddie underwriters, such as to document every deposit to their checking account, no matter how small.  A client told me that he was asked to document a $50 deposit to his account from several months ago. Can't blame the underwriter for making the request -- if Fannie Mae found in a post-closing audit that this hadn't been documented property, they could make the lender buy back the loan.

Here’s where credit unions provide a refreshing change — that’s because, typically, they make what are called "portfolio" loans, meaning that they hold their loans instead of selling them to someone else. Thus, they are freed from that underwriting tyranny and can use that rare commodity — common sense. They are non-profit, too. They deserve buyers’ consideration -- and are getting it.

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