Loans are much harder to obtain than in the recent past. In the go-go days just a few years ago, your lender needed a minimum of documentation to underwrite your home loan. The lender would close the loan and then it would very quickly be purchased on the secondary mortgage market by Fannie Mae who in turn would take these loan products, slice and dice them and then repackage them for sale to big money on Wall Street as Mortgage Backed Securities. All went swimmingly well until it didn’t. But that is a bigger, more difficult tale.

Today I am concerned with what reality we face in getting buyers approved for loans NOW. At this point, the mortgage backed securities are in the dumpster. Fannie Mae has been bailed out multiple times to the tune of $150 Billion, it’s future is a question mark, and they are under intense scrutiny. What does this mean for the end consumer?

It means that it is much harder to obtain a 30 year note on a home. Ultimately, underwriters (or who we euphemistically call the Holders of the Purse-strings) scrutinize every detail in a loan applicants financial picture. The BIG reason they are so much more rigorous in their scrutiny is that ultimately Fannie Mae when they are buying these loans on the secondary market are going through the files with a fine tooth comb and searching for any irregularities. A person closing on a house gets the loan closed but the file isn’t closed for these underwriters. They submit the file to Fannie Mae and if Fannie finds something then or even in the FUTURE, Fannie can make the company that originated the loan buy it back. For every dollar of loan on the lenders books, they have to have $4 in reserves. So if they have to buy many loans back–they could be run out of business very quickly. So in essence, many underwriters have this at the forefront of their mind when they are going through each file and they in turn will deny a loan for the slightest of reasons. One of the biggies that underwriters are telling me is that nothing can look untoward in the prospective buyer’s financial picture for 90 days prior to closing. What sorts of things? Big purchases, sales of stock, moving money from savings to checking accounts, gifts of money, weird deposits, and basically anything without a paper trail in triplicate and provided in advance.

Take aways: Expect the lending process to be much more involved and do not purchase big items or move money around 90 days before you want to close. Most importantly, work with a reputable lender that has the know-how to get the package down correctly, efficiently, and smartly. The days of comparing a couple of figures and rates and expecting the entire rest of the package to be the same is over. You might get a teaser rate that is hard to turn down–but if you are not smart, that teaser rate could give you serious heartburn.