Another "Agency Direct" Bonus
One of the loan products I love being able to offer is our agency-direct product. We sell these loans directly to Fannie Mae and/or Freddie Mac, and because of this, there are NO investor overlays. There are many, many benefits to a lender having this ability, and in the past I wrote a blog about some of the things we can do with our Fannie Direct program that many other lenders cannot.
Though I do a pretty good job of keeping up on my loan products and knowing everything we can offer, I do learn new things pretty often, and today was no exception. (This is because the agency selling guides, although very thorough in regard to what the agencies can offer, are less exciting to read than a dictionary, and over 1000 pages each, updated annually. Sorry folks, I can't keep up 100% with that kind of drudgery)
As it turns out, with our "Freddie direct" product, we are able to help borrowers obtain mortgage financing without regard to bankruptcy or foreclosure seasoning. Fannie & Freddie both have seasoning guidelines for different types of bankruptcy, foreclosure, and other guidelines for bankruptcies as a result of documented, extenuating circumstances, and in the past I believed these seasoning requirements were set in stone. For loans that go to Fannie Mae (and every investor I know of), I believe this is the case. However, I received clarification from Freddie Mac that seasoning guidelines are issued for manually underwritten files only. What this means is that if a file is run through Freddie Mac's automated underwriting system, LP, and is "Accepted", the loan can be funded regardless of a foreclosure or bankruptcy in the borrower's recent history.
What does this mean? Well, let's start with what it does NOT mean. It does not mean any borrower with a recent bankruptcy (BK) or foreclosure is going to be able to get approved. LP is a system with algorithms that are pretty good at determining if a loan file is a good risk. Most credit histories indicating a foreclosure or bankruptcy are not going to be found to be a good risk, and although there are no set guidelines on "compensating factors" to get LP to like the file in spite of a bankruptcy or foreclosure, it's safe to say it would have to be an extremely strong file aside from the BK/foreclosure to get an "Accept" issued.
What it does mean, though, is that a borrower with some really strong qualifications, such as a very low debt/income ratio, large down payment, high credit score, and a high amount of asset reserves should not be dissuaded from applying for a conventional mortgage just because of a somewhat recent bankruptcy or foreclosure. Admittedly, the Freddie direct program is the only option we'd have for someone in this position, so figuring out whether they're able to qualify would be a pretty quick process, but it certainly wouldn't hurt to try.
This isn't a game changer, as there are few borrowers going to get through LP with an "Accept" with a recent bankruptcy or foreclosure, but if you're one of the agents with a client that can take advantage, it would be good to keep in mind. Knowing this program exists can make you a superstar to someone that thinks they're automatically excluded from getting a conventional loan, or someone that's been declined elsewhere.
There are plenty of advantages to our agency-direct programs - if you'd like to know what they are, follow my blog as there's much to come, or shoot me an email and I'd be happy to share some of the more common advantages of the Freddie- and Fannie-direct loan programs.