Fannie Mae has changed the required length of time that borrowers who experience a pre-foreclosure event must wait before obtaining a new loan. A pre-foreclosure event includes a short sale or a deed-in-lieu of foreclosure.
‘The 'waiting period' – the amount of time that must elapse after the pre-foreclosure event – is changing and may be dependent on the [loan-to-value] ratio for the transaction and whether extenuating circumstances contributed to the borrower's financial hardship (for example, loss of employment),’ the government-sponsored enterprise explained in a Seller Announcement Wednesday.
Previously, borrowers had to wait four years after a deed-in-lieu or two years after a pre-foreclosure sale before obtaining a new Fannie Mae loan. The new requirements call for uniform timelines, regardless of whether the pre-foreclosure event was a short sale or a deed-in-lieu. Now, 80% maximum LTV borrowers must wait two years, and 90% max LTV borrowers must wait four years. For higher LTVs, borrowers might have to wait up to seven years.
Fannie Mae is also replacing its requirements related tot he number of credit references and applicable payment histories with the waiting periods and other criteria. Now, after a bankruptcy, foreclosure, deed-in-lieu or short sale, a borrower's credit will be considered re-established if all of the following requirements are met:
- The waiting period and related requirements are met.
- The loan receives a recommendation from Desktop Underwiter that is acceptable for delivery to Fannie Mae (or, if manually underwritten, the loan meets the minimum credit-score requirement).
- The borrower has traditional credit as outlined in Fannie's Selling Guide B3-5.3. In other words, nontraditional credit or ‘think files’ are not acceptable.
SOURCE: Fannie Mae