We were warned that as foreclosures increased, that Guideline changes would follow. So the new Fannie Mae Guidelines for Foreclosures, Short Sales, and Bankruptcies should not come as a surprise. Those that have tried to justify Strategic Defaults need to seriously rethink their position, because as these voluntary defaults increase the number of foreclosures, additional Guideline changes will follow. As you will see in the changes below, Fannie Mae is not really making a distinction between foreclosures where the homeowner can no longer make the mortgage payments, and voluntary defaults such as Strategic Defaults (extenuating circumstances are very hard to prove to the satisfaction of Fannie Mae). The end result will be that those that have already felt the hardship of losing their home, will continue to experience more hardship in the future. Even Short Sales will be affected the same as foreclosures, which I feel is unfair because they at least try to minimize the loss to the bank, and the bank is involved in the decision.
So here are the changes, effective with applications dated on or after 10/1/2010 Fannie Mae is updating the waiting periods. Fannie Mae Guidelines for Foreclosures, Short Sales, and Bankruptcies will change to the following:
These changes will 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.) and 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 (covering the periods prior to, during, and after a loss of employment), etc.).
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.
If your curious as to what the present Guidelines are you can find them on two blogs that I wrote back on May 15th and May 18th.
DEED-IN-LIEU FORECLOSURE and Short Sale UPDATES Fannie Mae
Fannie Mae Guidelines for Foreclosures and Bankruptcies
If Fannie Mae is making these changes how long do you think before FHA does the same?
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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, gsouto@mccuemortgage.com, or visit my McCue Mortgage Homepage.
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