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In an effort to support overall market stability and reinforce the importance of borrowers working with their servicers when they have difficulty repaying their[IMAGE]
debt, ""Fannie Mae"":http://www.fanniemae.com/kb/index?page=home has updated several policies regarding borrowers' future eligibility to obtain a new mortgage loan after experiencing a pre-foreclosure event, including a deed-in-lieu of foreclosure, pre-foreclosure sale, or short sale.
Under these new policies, Fannie Mae is changing the waiting period required for a borrower to be eligible for a mortgage loan after a pre-foreclosure event. The waiting period, which commences on the completion date of the pre-foreclosure event, may now vary on the loan-to-value (LTV) ratio for the transaction, occupancy of the property, and whether extenuating circumstances played a part in the borrower's inability to pay his or her mortgage.
Current waiting-period requirements are four years for a deed-in-lieu of foreclosure, two years for a pre-foreclosure sale, and no policy currently exists specific to short sales. But under the new guidelines, waiting periods will be determined by LTV ratios, not the type of pre-foreclosure event.
Borrowers with 80 percent maximum LTV ratios will be required to wait two years to obtain a new mortgage, and
[COLUMN_BREAK]90 percent maximum LTV borrowers will have to wait four years. Borrowers with LTV ratios higher than 90 percent may have to wait seven years.
The new policies also include waiting-period exceptions for borrowers with extenuating circumstances. Borrowers with 90 percent maximum LTV ratios will only have to wait two years before becoming eligible to obtain a new mortgage if they can prove extenuating circumstances, such as loss of employment, contributed to their financial hardship.
In addition, Fannie Mae is updating the requirements for determining that borrowers have re-established their credit after a pre-foreclosure event. Borrowers must meet three specific requirements before their credit will be considered re-established:
* The waiting period and the related requirements must be met.
* The loan must receive a recommendation from Desktop Underwriter (DU) that is acceptable for delivery to Fannie Mae or, if manually underwritten, meets the minimum credit score requirements based on the parameters of the loan and the established eligibility requirements.
* The borrower must have traditional credit as outlined in Fannie Mae's Selling Guide. Nontraditional credit or ""thin files"" will not be considered acceptable.
These policies are effective immediately. Fannie Mae's DU will be updated in June to reflect the deed-in-lieu of foreclosure policy changes, but the new policies for pre-foreclosure sales and short sales will not be included, as they cannot be identified by DU at this time.
However, effective for loan application dates on or after July 1, 2010, lenders will be required to determine during their review of the credit report if there is a pre-foreclosure sale or short sale and must manually apply the new policies to all loan case files underwritten through DU.
