Borrowers who walk away from their upside-down mortgages even though they had the ability to pay will have to wait longer to get a loan under new guidelines from Fannie Mae.
Existing guidelines allow a borrower to finance through a conforming loan no sooner than seven years after a foreclosure. However, in certain circumstances, the waiting period could be reduced to five years.
But in Announcement SEL-2010-08 issued today, the secondary lender clarified that the five-year exception was eliminated, and the minimum waiting period for all foreclosed borrowers is now seven years.
Still, if “the foreclosure was the result of documented extenuating circumstances,” the Washington, D.C.-based firm said the waiting period can be reduced to three years. In this case, cashouts are limited, purchase transactions must be owner-occupied and the maximum loan-to-value is 90 percent — though it could be lower based on the eligibility matrix.
Today’s announcement also clarified waiting periods for borrowers with prior bankruptcies.
While the waiting period for borrowers with a prior Chapter 7 or Chapter 11 bankruptcy is four years, it can be reduced to two years with extenuating circumstances.
On Chapter 13 bankruptcies, the waiting period is two years from the discharge date or four years from the dismissal date. But under extenuating circumstances, a new loan can be closed within two years of the dismissal date.
The waiting period for borrowers with multiple bankruptcies is five years, though it can be cut to three years with extenuating circumstances.
Fannie said the changes will be reflected next week in Selling Guide, B3-5.3-07, Significant Derogatory Credit Events – Waiting Periods and Re-establishing Credit.
The new requirements are effective for applications dated Oct. 1.
In April, Fannie Mae issued Announcement SEL-2010-05 indicating that borrowers with a deed-in-lieu of foreclosure, a pre-foreclosure sale or a short sale during the past two years can qualify for an 80 percent loan-to-value mortgage, while 90 percent LTV could be available after four years with extenuating circumstances.
