Underwriting Borrowers with a Prior Foreclosure

A variety of foreclosure alternatives are available to borrowers who are having difficulty making their mortgage payments. In Announcement SEL-2010-05, Underwriting Borrowers with a Prior Pre-foreclosure Sale or Deed-in-Lieu of Foreclosure , Fannie Mae announced changes to the policies regarding the amount of time that must elapse after a borrower experiences a pre-foreclosure event (pre-foreclosure sale, short sale, and deed-in-lieu of foreclosure). The changes highlighted the importance of borrowers working with their servicers to avoid foreclosure.

As a follow-up to that Announcement, Fannie Mae is now modifying the waiting period that must elapse before a borrower is eligible for a new mortgage loan after a foreclosure. The combination of the waiting period policies for foreclosures and pre-foreclosure events continue to favor borrowers who work with their servicers to avoid foreclosure by allowing these borrowers to be eligible for a future Fannie Mae loan in a shorter period of time.

This Announcement describes the policy changes in detail. The changes will be reflected in the Selling Guide, B3-5.3-07, Significant Derogatory Credit Events – Waiting Periods and Reestablishing Credit, when it is updated on June 30, 2010.

Waiting Period After a Foreclosure

Currently, the waiting period that must elapse after a borrower experiences a foreclosure is 7 years. However, Fannie Mae allows a shorter time period – 5 years – if certain additional requirements are met (e.g., minimum down payment and credit score, and occupancy requirements). These requirements are being modified to remove the 5 year option. Unless the foreclosure was the result of documented extenuating circumstances, which only requires a 3-year waiting period (with additional requirements), all borrowers will now be required to meet a 7-year waiting period after a prior foreclosure to be eligible for a new mortgage loan eligible for sale to Fannie Mae.

The additional requirements that apply to borrowers with documented extenuating circumstances are also being updated to reflect a maximum LTV ratio of the lesser of 90% or the LTV ratio per the Eligibility Matrix for all transactions.

The following table describes the waiting period policy changes for foreclosures:

Derogatory

Event

Current Waiting Period Requirements

New Waiting Period Requirements

Foreclosure

5 Years

Additional requirements apply after 5 Years up to 7 Years

7 Years

No additional requirements apply

Exceptions to Waiting Period for Extenuating Circumstances

Foreclosure

3 Years

Additional requirements after 3 Years up to 7 Years:

  • Purchase, Principal Residence with maximum LTV ratio of lesser of 90% or maximum per the Eligibility Matrix
  • Limited cash-out refinance, all occupancy types, LTV ratios per the Eligibility Matrix

3 Years

Additional requirements after 3 Years up to 7 Years:

  • Lesser of 90% LTV ratio or maximum per the Eligibility Matrix
  • Purchase, Principal Residence
  • Limited cash-out refinance, all occupancy types

This New Policy is effective for manually underwritten Mortgage Loans with Application Dates beginning October 1, 2010.

ALL WAITING PERIOD REQUIREMENTS

The following table summarizes the waiting period requirements for all significant derogatory credit events.

Derogatory

Event

Waiting Period Requirements

Waiting Period with Extenuating Circumstances

Bankruptcy – Chapter 7 or 11

4 Years

2 Years

Bankruptcy – Chapter 13

  • 2 Years from Discharge Date
  • 4 Years from Dismissal Date
  • 2 Years from Discharge Date
  • 2 Years from Dismissal Date

Multiple Bankruptcy Filings

5 Years if more than 1 filing within the past 7 Years

3 Years from the most recent Discharge or Dismissal Date

Foreclosure

7 Years

3 Years

Addition requirements after 3 Years up to 7 Years:

  • 90% maximum LTV ratios
  • Purchase, principal residence
  • Limited cash-out refinance, all occupancy types

Deed-in-Lieu of Foreclosure

  • 2 Years – 80% maximum LTV ratios
  • 4 Years – 90% maximum LTV ratios
  • 7 Years – LTV ratios per the Eligibility Matrix
  • 2 Years – 90% maximum LTV ratios

Pre-Foreclosure Sale

Short Sale

More information is being released and will be updated. For immediate and confidential information call Scott Rickards at 941-954-1000. We are here to assist you with many options.