The sometimes shell-shocked players in the mortgage industry are continuously scrambling to meet the exceptional challenges they face almost daily. Seemingly, not a week goes by without one of the major home loan organizations - government or private - announcing a new policy it deems necessary to better handle the real estate market's peaks and valleys. Lately it has been more valleys - the ones that ruin weekends - than the other kind.
Fannie Mae is now updating its rules on borrower eligibility after he has undergone a pre-foreclosure process, usually meaning a deed-in-lieu of foreclosure, a pre-foreclosure sale or then a short sale.The waiting period required before an applicant will again be eligible for a new mortgage currently is four years in deed-in-lieu of foreclosure cases and two years for pre-foreclosure sales. Short sales aren't presently governed by a set policy.
The waiting period is amended in this round of changes. It starts when the pre-foreclosure procedure is closed and will rely heavily on the LTV, or loan-to-value, ratio. A mortgage applicant with a LTV up to 80% will have to twiddle his thumbs for two years before being good to go for a new one. LTV reaching up to 90% freezes eligibility for four years and for LTV above 90% the wait could stretch out to seven years. Obviously Fannie Mae figured that when mortgage borrowers put, say, 20% down, it's worth risk-wise to allow them to become homeowners again after a 2-year sabbatical. Following the same train of thought, if someone plunked down 40%, he should be eligible for a new loan immediately. Anyone who has that much money in play would be a nearly risk-free mortgage borrower.
The other factors weighing on the length of the waiting period are the occupancy status, owner-occupancy winning here hands down, and whether extenuating circumstances were involved in the mortgage recipient's failure to make his payments, resulting in the pre-foreclosure process. For instance, if an applicant can prove his hardship was due to a loss of a job, considered an extenuating circumstance, as a 90% maximum LTV borrower his wait would be only two years.
Modifying the policy on restoring credit after the pre-foreclosure procedure was also on Fannie Mae's agenda. These changes will add clarity to what type of mortgages the agency will accept from those with a pre-foreclosure case on their record. A sizable down payment will allow an aspiring home loan candidate to escape the doghouse in a mere two years. Money talks.
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