Underwriting Borrowers with a Prior Foreclosure
A variety of foreclosure alternatives are available to borrowers who are having difficulty making
their mortgage payments. In Announcement SEL-2010-05, Underwriting Borrowers with a Prior, Fannie Mae announced changes to the
Preforeclosure Sale or Deed-in-Lieu of Foreclosure
policies regarding the amount of time that must elapse after a borrower experiences a
preforeclosure event (preforeclosure sale, short sale, and deed-in-lieu of foreclosure). The
changes highlighted the importance of borrowers working with their servicers to avoid
foreclosure.
As a follow-up to that Announcement, Fannie Mae is now modifying the waiting period that must
elapse before a borrower is eligible for a new mortgage loan after a foreclosure. The
combination of the waiting period policies for foreclosures and preforeclosure events continue to
favor borrowers who work with their servicers to avoid foreclosure by allowing these borrowers
to be eligible for a future Fannie Mae loan in a shorter period of time.
This Announcement describes the policy changes in detail. The changes will be reflected in the
Selling Guide,
Credit, when it is updated on June 30, 2010.
Waiting Period After a Foreclosure
Currently, the waiting period that must elapse after a borrower experiences a foreclosure is
seven years. However, Fannie Mae allows a shorter time period - five years - if certain
additional requirements are met (e.g., minimum down payment and credit score, and occupancy
requirements). These requirements are being modified to remove the five year option. Unless
the foreclosure was the result of documented extenuating circumstances, which only requires a
three-year waiting period (with additional requirements), all borrowers will now be required to
meet a seven-year waiting period after a prior foreclosure to be eligible for a new mortgage loan
eligible for sale to Fannie Mae.
The additional requirements that apply to borrowers with documented extenuating
circumstances are also being updated to reflect a maximum LTV ratio of the lesser of 90% or
the LTV ratio per the Eligibility Matrix for all transactions.
The following table describes the waiting period policy changes for foreclosures 5 years
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