Verification of Insurance: Slowing Down the Buying Process
Verification of insurance is a requirement that many mortgage borrowers will face in the coming months. That’s because Fannie Mae has increased the requirements for lenders, who must verify this information before moving forward in the lending process. While verification of insurance seems like a logical step — it helps reduce the risk that the homeowner would not have adequate coverage — it also places a stumbling block in the way of consumers who want to buy real estate.
Extending the approval
One of the concerns with this verification requirement is the simple fact that it extends the time between loan approval and the close. This is a very tricky time for most lenders. During this window, which can last for up to 30 days, there is the risk that circumstances will change. The buyer’s risk level could change, as well, which would put the financial institution in a new area of concern.
The concern is that a borrower could easily add new tradelines during this time. Undisclosed liabilities could sneak into the picture, as well. A borrower with the likelihood of purchasing a home could easily open a new line of credit to purchase furniture, for example. This simple loan may weigh heavily on the individual’s ability to qualify for the mortgage.
Pre-close report isn’t enough
Some lenders think that they already have measures built in to protect against this risk: the pre-close report, which can provide some information but rarely enough. The report is pulled just before the closing process, but it doesn’t happen until the end. Should it produce a concern at this late stage in the approval process, the lender risks customer dissatisfaction by holding up the closing until such information is verified.
Undisclosed Debt Monitoring from Equifax is an ideal tool for financial institutions looking to avoid much of the risk. After approving the loan, the lender does not have to put off monitoring the financial actions of the borrowers until the pre-close report. Rather, the lender can keep an eye on the borrower’s finances during the closing period.
The report is more inclusive and comprehensive than traditional credit reports, allowing the lender to ensure that consumers don’t overstep their purchasing power to the point that they no longer qualify for the mortgage.
Undisclosed Debt Monitoring helps reduce some of the concerns lenders have with longer closing periods. By effectively monitoring the borrower’s credit activity during the closing period, lenders can step in and offer advice and counsel to borrowers before risk gets out of hand. This improves the closing rate and ensures customer satisfaction.
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