Denied from Fannie/Freddie for "overall credit profile"?

Question

Never good to get a surprise call that Fannie/Freddie is pulling the plug on you. Was wondering if anyone has heard of this kind of situation - Credit Score is 730+, Reserves are plenty, and DTI is well within range (37%)... My lender just called me and said underwriting rejected my applications due to "not liking my overall credit profile".

The lender is reputable (KW mortgage) and I've done a few deals with him before. Says he's never seen anything like it and is unable to get more detail. His only guess is I've done too many conventional loans in a short time frame (5 in a year).

It appears my only option now is to go the portfolio lender route on a short timeline to close (or hard money but that would impact my margins pretty significantly). Has anyone else ever heard of this? This is putting me at risk of losing both deals and the lack of information is frustrating.

Chris Mason · Answer

Fannie and Freddie treat their exact approve/deny algorithms as a trade secret. Sometimes getting the green light from the automated underwriting system is a matter of fiddling with it, documenting additional reserves (that checking account you haven't used in 6 years that still has $733 in it might make the difference, this is why we ask for bank statements for ALL accounts), lowering the interest rate, getting the insurance cost down, playing with the down payment a bit, etc. This is a case where you could probably be pretty transparent with the LO who has given up, "hey I want to give it a whack elsewhere, no skin off your back since you've given up anyways... will you shoot me the 3.2 file?" <--- "3.2 file" is a standard mortgage industry format used to transmit the data in loan files.

Chris Mason · Answer

You could certainly say the same thing about the FICO algorithm. There have been cases where LOs swear up and down that they have a perfect file, granted not the strongest borrower, but nonetheless it's approved when the address is "TBD" with a certain zip code, all the way through formal underwriting, whole 9 yards, and then you replace "TBD" with "123 Main Street" with that same zip code and everything else (nothing changed but "TBD" was replaced with an actual street address), and boom you get the "ineligible" mark of death. Never personally had it happen to me, but there are folks who swear up and down it's happened. Your interpretation of that would be the cynical interpretation, optimists and apologists will point to the giant Fannie Mae database of appraisals, a database that did not exist to be cross referenced, as is currently the case, 5 or 10 years ago.

Chris Mason · Answer

While the algorithm is a secret (the algorithm inside ANY software that isn't free and open source is a secret [I used to be a big linux nerd]), the use of the software is not. You can get the same license I have (it's relatively cheap) and sign up to be a user of Fannie Mae's Desktop Underwriter, and Freddie Mac's Loan Sifter. If you're playing with your own scenario and your own credit report that you pulled on yourself, you only get a few minutes before it realizes the loan originator and borrower are the same person and locks you out, guess how I know. :P

Scott Mac · Answer

Personally, the secrecy thing makes me think there may be things built into there (which may change from time to time based on political factors) to favor certain individuals (and dis-favor other certain individuals) based on things other than purely financial considerations. I'm sure they can come up with a host of reasons that it needs to be secret, but I say this because the Federal government seems to do this type of thing openly (and secretly as in the IRS secret denial of 501(c) non-profit status to certain types of people) with so many other programs.And as long as it's secret--we will never know.Just my 2 cents.

Ryan Weimer · Answer

@Sue K. My utilization is < 10%, and no accounts are near their limit. The only reason I can reasonably think of is there is some ambiguity involved in determining how fast I can accumulate properties under Fannie/Freddie that I nor other lenders are aware of...

Jerry Padilla · Answer

@Ryan Weimer Was your loan approved in the system? Either through LP or DU? Are you sure it wasn’t denied when it went to underwriting? Maybe the lender doesn’t want the exposure? It is worth taking a look with another lender. @Odie AyagaFannie & Freddie allow up to 10 conventional mortgages. Not all lenders allow this, but they are available.

Ryan Weimer · Answer

@Chris Mason thanks Chris. He is putting together the file for me so I can send it off - appreciate the help!

Account Closed · Answer

I just finished reading "Your Score" by Anthony Davenport. His website : https://anthonymdavenport.com/I actually just checked it out from my local library.According to what he says, something must have changed in your credit profile, as opposed to your credit score. Maybe one of your credit accounts is too close to the limit, for instance.

Scott Mac · Answer

Then why must it be "Secret"?The Taxpayers pay for Fannie/Freddie, yet the process is a black box of secrecy.

Alan Lacey · Answer

@Ryan Weimer I would ask to see how they calculated your income and if you are flipping a property how that is impacting your income. There is no concern about Time period over which properties acquired. That you are approve ineligible it means credit qualifies but some other factor does not. My guess if it is t your ratios it is meeting the reserve test for rentals. It should say very clearly in du findings why it is ineligible. If what you are seeing doesn’t ask for full copy. I am honestly it sure how a lo wouldn’t be able to tell you.