New Rules From Fannie Mae

By: Millie Gil

Many who weathered the storm during this past recession and viewed their dreams go through short sales, modifications and foreclosures may have something to cheer about; relaxed loan guidelines for future Fannie Mae home loans.

Everyone who lost their home in one way or another believed they would really never qualify for another home or at least not qualify in the next 5 or so years but Fannie Mae has changed its rules and will allow those homeowners who experienced recession-era problems to qualify within 2 years.

Beginning with applications submitted after July 1 of this year, troubled homeowners that can present a 20 percent down payment will be eligible for loans within two years of a short sale or giving the deed back to the bank.
 
If a borrower can only put down 10 percent, the wait time will still be four years; and if less than 10 percent, it could be longer.

If borrowers can show there were "extenuating circumstances" in their situation, such as medical bills or layoff, they may qualify for a loan with 10 percent down in two years.

The other requirement, seen as more challenging, rests with credit rehabilitation. Fannie Mae expects borrowers to have rehabilitated their credit enough to gain passing grades from the company’s automated underwriting system. Fannie Mae also states that they will not consider applicants with "non-traditional" or "thin" credit.

Fannie Mae’s new credit criteria include a FICO score of a minimum 620 with debt-to-income ratio below 45 percent. The old criteria included a FICO score of 580 and were increased due to the amount of defaulted loans. Fannie Mae felt they should “step up” to a level that remained competitive with commercial lenders. And while this may be feasible, Fannie Mae still remains well below “normal” mainstream credit criteria, whereas most lenders now require FICO scores closer to 700 and above.

This is a great effort to reward troubled homeowners who through no fault of their own lost their home due to extenuating circumstances and continue to work with banks instead of just walking away from their property. However, when you consider that homeowners can buy a new home and come up with 20 percent down payment and revamped credit within two years, its questionable how many people will be able to take advantage of this program?

About the Author: Millie Gil is a licensed Real Estate Broker and Vice President of Bold Real Estate Group. For more information please forward email to communityinfo@comcast.net