Fannie Mae post-shortsale guidelines changing
With the updated release of Desktop Underwriter (DU) to version 9.1, Fannie Mae has implemented some changes to the automated underwriting system, which should be followed by changes to their selling guide, and therefore the guidelines of every lender in the industry that underwrites conventional loans.
The pertinent changes are:
Foreclosure with less than 7 years seasoning (good news)
If a borrower has had a foreclosure withing the previous 7 years from the date of application, it will now be possible to receive an approval through automated underwriting IF the foreclosure was a result of extenuating circumstances. Previously, these files would have to be downgraded to manual underwriting, which more often than not meant a rejection. With an automated approval, files have a much better chance of making it to the closing table. It is important to note that an automated approval will only be possible in the event of major extenuating circumstances, which will need to be documented.
Charged off Mortgages (meh, not really news)
If a mortgage is reported as charged off on a borrowers credit, that borrower will need to wait 4 years to obtain a mortgage eligible for sale to Fannie Mae.
Getting a Mortgage Post-Short Sale (not good news)
With the release of DU version 9.1, post-short sale guidelines are the most drastic change we'll see. Fannie Mae is getting rid of their seasoning/LTV scale and implementing a policy that will require borrowers to wait 4 years after a short sale to obtain a new mortgage. Previously, a borrower could obtain a new mortgage 2 years after a preforeclosure sale with 20% down. The good news is that the 20% down requirement is gone, but the bad news is that the waiting period will now be 2 years longer. In the event that extenuating circumstances caused the preforeclosure sale, the waiting period is 2 years.
This rule change applies to all preforeclosure sales, whether they be short sales or deed-in-lieu. Hopefully, portfolio lenders and private investors will still be able to accomodate financing for those with less than 4 years seasoning on preforeclosure sales, but conventional financing will no longer be an option, so chances are things will be tougher for those with recent short sales.
All of these rule changes are for DU casefiles submitted OR resubmitted to automated underwriting on or after the weekend of August 16, 2014. With the "Or resubmitted" verbiage in play, it's important to ensure any borrowers that need to get a loan under the old parameters (2 years seasoning with 20% down or 4 years seasoning with 10% down) close on their loan prior to the August 16 weekend.
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