Fannie Mae recently released a report revising the waiting periods for distressed borrowers with a derogatory credit event such as a foreclosure, bankruptcy, short sale, or deed-in-lieu of foreclosure on their credit history to obtain a new loan.
For borrowers with a short sale or deed-in-lieu of foreclosure on their record, Fannie Mae's new mandated minimum waiting period to become eligible for a new loan is four years. The time is shortened to two years if there are extenuating circumstances. According to Fannie Mae, extenuating circumstances are defined as "nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations."
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If a borrower has a foreclosure on his or her credit record, the new minimum Fannie Mae waiting period is seven years. Under extenuating circumstances, that period is shortened to three years with some additional requirements for up to seven years.
For those with a bankruptcy (chapter seven or 11), the waiting period is four years (two years with extenuating circumstances). For distressed borrowers with a chapter 13 bankruptcy, the required waiting period is now two years from the discharge date and four years from the dismissal date. If there are extenuating circumstances, the waiting time from the dismissal date is shortened to two years.
If there are multiple bankruptcy filings on a borrower's record, the waiting period for a new loan is five years if there has been more than one filing in the previous seven years. Under extenuating circumstances, the waiting period is cut to three years from the most recent dismissal or discharge date.
Fannie Mae said in the report that it is "focused on helping lenders to provide access to mortgages for creditworthy borrowers while supporting sustainable homeownership" and that the new policy "provides opportunities for borrowers to obtain a loan to Fannie Mae’s maximum LTV (loan-to-value) sooner after the preforeclosure (short) sale or DIL."
The new policy is effective for loans with application dates on or after August 16, 2014.
Under the previous policy, the standard waiting period for borrowers with a derogatory credit event was two years with a maximum 80 percent LTV ratio; four years with a maximum 90 percent LTV ratio; or borrowers were eligible for a new loan after a standard seven-year waiting period. For borrowers with extenuating circumstances, the previous waiting period was two years with a maximum 90 percent LTV ratio.