How Foreclosures & Short Sales Impact Purchases On Fannie Mae Mortgages

Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

In recent years we have experience an increase in Foreclosures, and Short Sales, in fact presently Foreclosed and Short Sale properties make up a large percentage of the properties currently on the market for sale.  Borrowers that are going through a Foreclosure or Short Sale need to be informed of How Foreclosures & Short Sales Impact Purchases On Fannie Mae Mortgages.  In this blog I will go over the Fannie Mae Guidelines for Foreclosures, Short Sales, and Bankruptcies, and in the next blog I will address the FHA Guidelines.

Fannie Mae last revised their Guidelines for Foreclosures, Short Sales, and Bankruptcies in October 1, 2010 because of the increased number of Foreclosure and Short Sale activity.  Part of the reason for the increase in Foreclosures,  was due to what is generally referred to as Strategic Defaults. 

Fannie Mae does not make a distinction between Foreclosures where the homeowner can no longer make the mortgage payments, and voluntary defaults such as Strategic Defaults.  The end result is that those that lost their jobs, or had some other financial hardship that caused them to lose their home will be treated the same as those that voluntarily choose to lose their home.  This has always felt unfair to me, and in my opinion different penalties should be assess.

Also Fannie Mae does not make a distinction between a Foreclosure and a Short Sales.  Again in my opinion this is also unfair, because in the case of the Homeowner doing a Short Sale, the Homeowner at least tried to minimize the loss to the bank, and a Short Sale cannot take place without the bank approving it.

In the chart below are the changes that went into effective with applications dated on or after 10/1/2010. 

These changes apply to Conforming Fixed Rate, and Conforming Adjustable Rate Mortgage (ARM) Programs.  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.

If a borrower claims that derogatory information on their Credit Report is the result of extenuating circumstances, the lender must substantiate, and document it. Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.  Also documents that illustrate factors that contributed to the borrower's inability to resolve the problems that resulted from the event such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns that cover the periods prior to, during, and after a loss of employment.

The lender must obtain a letter from the borrower explaining the documentation. The letter must support the extenuating circumstance, confirm the nature of the event that led to the bankruptcy or foreclosure-related action, and illustrate the borrower had no reasonable options other than to default on their financial obligations.

The above chart will most likely be useful as we move forward, and as we start to see improvements in the Real Estate Market.  As this begins to happen we will most likely start to see more and more Buyers/Borrowers that have gone through a Foreclosure or Short Sale who would like to purchase their own home again. Unfortunately many of them will not be able to do so with a Fannie Mae Mortgage if they went through a Foreclosure or Short Sales in the previous 7 years.  FHA is presently more lenient on Foreclosures and Short Sales and I will cover those time periods in the next blog.  Both this blog and the next one should provide all the information needed in determining How Foreclosures & Short Sales Impact Purchases On Fannie Mae Mortgages, and FHA Mortgages.

If your curious as to what the previous Fannie Mae Guidelines were on Foreclosures, Short Sales, and Bankruptcies, the blogs below will provide you with that information

Other Related Blogs:


Fannie Mae Guidelines for Foreclosures and Bankruptcies

Original Post: "Fannie Mae Guidelines for Foreclosures, Short Sales, and Bankruptcies"  September 10, 2010



 Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or


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  1. Steven Cook 12/17/2012 03:58 AM
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Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

Thank you for sharing the the guidelines with all of us. You couldn't have presented the post any better.

Dec 16, 2012 06:58 PM #1
Frank Laisch
AmTrust Title Insurance Company - Chicago, IL
"The Insurance Guy"

George, great guidelines on the foreclosure & short-sales. The chart is an excellent reference for would be home buyers that have gone through a bankruptcy or a foreclosure

Dec 16, 2012 08:47 PM #2
Ginny Gorman
RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in North Kingstown RI and beyond

George, as always your guidance is extremely important for people who have gone through short sale or foreclosure...I am told USDA is much more lenient & I hope you cover that as well.

Dec 16, 2012 08:51 PM #3
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

George, your posts are always a wealth of information. Very good explanation!

Dec 16, 2012 09:35 PM #4
Gail Robinson
William Raveis Real Estate - Southport, CT
CRS, GRI, e-PRO Fairfield County, CT

George - Thank you.  I wish they wouldn't penalize Sellers who do Short Sales.  I know many people who need to sell their current home and move up as their family has grown.  For those who bought during the peak, there still isn't enough equity to do anything but a short sale.

Dec 16, 2012 09:36 PM #5
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Nicely done George...If you were local, I would take you to lunch my friend...thank you

Dec 16, 2012 11:04 PM #6
Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

George, with the drop in values in our area, with some towns losing as much as 47% of value to homes, the guidelines are going to hurt a lot of innocent people especially those that are literally forced to sell short.

Dec 17, 2012 12:44 AM #7
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Joe coming from you that means a lot

Frank I keep that chart close by and have used it more times than I would like.

Ginny I did not plan on doing that, but I will see if I can dust off my USDA guidelines and put something together

Thank you Michael

Gail I also find it unfair, but fairness does not seem to be a primary concern for all the GSE's these days

Richie may be someday in the future :)

Ed you are right.  The penalties were designed to hurt, but unfortunately there are some that do not deserve to by hurt that are trapped by these time periods.



Dec 17, 2012 12:56 AM #8
Joan Cox
Metro Brokers - House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

George, after so many homeowners either did a short sale or walked away in 2008 & 2009 some of these families are preparing to buy a home again in the coming year.

Dec 17, 2012 03:07 AM #9
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Joan, they will not be able to do a Fannie Mae Insured Loan, they will most likely have to go FHA.  I will be posting a blog on the FHA guidelines tomorrow.

Dec 17, 2012 03:30 AM #10
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

George -- thank you for putting this helpful information together in such a concise, helpful format.

Dec 17, 2012 03:57 AM #11
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Steven thank you, glad you found the information easy to follow.

Dec 17, 2012 09:40 AM #12
Nick T Pappas
Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, Huntsville AL - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource
George, I bookmarked a similar post that you did a while back...very good info the subject of which comes up much too often.
Dec 17, 2012 11:14 AM #13
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Nick this blog is similar to the one I wrote on 09/10/10, and it is part of the challenge that ActiveRain is doing this month for us to try to improve on 6 of our older blogs.  I think I improved it, as well as the 6th and last one in the challenge which I will post tomorrow.  You would think that it would be easier to re-write a blog than writing it from scratch, but I am finding it to be the other way around.  I spent more time on this one than I did on the original one back in 2010.

Dec 17, 2012 11:27 AM #14
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M
George - It looks to me that there is at least some hope of purchasing with conventional without waiting 7 years.
Jan 29, 2013 12:15 PM #15
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Christine there is always hope, but the exceptions are tough to meet.

Jan 31, 2013 01:03 AM #16
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