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7/30/2014

Fannie Makes Credit Rules Tougher



Dive in the Water's Fine
Fannie Mae is tightening up on foreclosure and short sale
rules.
Worsening? Yes

Fannie Mae announced changes to seasoning requirements for major derogatory credit events. 
 

•             Effective immediately - If a mortgage debt was discharged through bankruptcy, borrower is held to the bankruptcy seasoning requirement and not a foreclosure seasoning requirement.  The lender must obtain appropriate documentation to verify that the mortgage obligation was discharged in the bankruptcy.  FYI - Chapter 7 bankruptcy seasoning without extenuating circumstance is 4 years.  This is an improvement to the previous 7 year wait period for a foreclosure within a bankruptcy.
EXTENUATING CIRCUMSTANCES IS HARD TO PROOVE
Docket summary (they will check what you wrote off) , proof of job loss, death certificate, proof of decline in value... about 40 pieces of paper

 

•             Effective with applications dated on or after August 16, 2014  - The seasoning for a short sale without extenuating circumstance is 4 years.  This has been worsened from what was a 2 year wait period for loans with LTVs at or below 80%, is no change for 80.1-90% LTV, and improves the waiting period for 90.1-95% LTV. 

 

•             Effective with applications dated on or after August 16, 2014 - A charged-off mortgage account occurs when a creditor has determined that there is little (or no) likelihood that the mortgage debt will be collected. A charge-off is typically reported after an account reaches a certain delinquency status, and is identified on the credit report with a manner of payment (MOP) code of “9.”  Fannie will require a 4 year seasoning for charged-off mortgage accounts.  This is new Fannie policy.

 Translation :  Mine Government is getting out of doing credit risk loans
Tougher to get a loan after short sale now...
Come on in the water's fine

Derogatory Event
Waiting Period Requirements
Waiting Period with Extenuating Circumstances
Extenuating circumstances are 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.  These circumstances must be documented within the loan file.
BankruptcyChapter 7 or 11
4 years
2 years
BankruptcyChapter 13
·         2 years from discharge date (payments made as agreed)
·         4 years from dismissal date (noncompliance with BK repayment plan)
·         2 years from discharge date
·         2 years from dismissal date
Multiple Bankruptcy Filings
5 years if more than one filing within the past 7 years
3 years from the most recent discharge or dismissal date
Foreclosure1
7 years
3 years
Additional requirements after 3 years up to 7 years:
·         90% maximum LTV ratios2
·         Purchase, principal residence
·         Limited cash-out refinance, all occupancy types
Deed-in-Lieu of Foreclosure, Preforeclosure Sale, or Charge-Off of Mortgage Account
4 years
2 years

1 When both a bankruptcy and foreclosure are disclosed on the loan application, or when both appear on the credit report, the lender may apply the bankruptcy waiting period if the lender obtains the appropriate documentation to verify that the mortgage loan in question was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting period must be applied.

2 References to LTV ratios include LTV, CLTV, and HCLTV ratios. The maximum LTV ratios permitted are the lesser of the LTV ratios in this table or the maximum LTV ratios for the transaction per the Eligibility Matrix.

 

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