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:
DEED-IN-LIEU FORECLOSURE and Short Sale UPDATES Fannie Mae
Fannie Mae Guidelines for Foreclosures and Bankruptcies
Original Post: "Fannie Mae Guidelines for Foreclosures, Short Sales, and Bankruptcies" September 10, 2010
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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 gsouto@mccuemortgage.com
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