New rules for Borrowers with Foreclosures

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At the end of the month, Fannie Mae will adopt higher minimum down payments and credit scores for borrowers with a past foreclosure.

The government-sponsored enterprise already has boosted the time period for these borrowers to re-establish their credit to five years from four years.

While exceptions could be made for borrowers in hardship situations, Marianne Sullivan, senior vice president of single-family credit policy and risk management at Fannie Mae, says those who had the ability to pay but walked away from their homes should be treated differently than those who met their payment obligations.

Additionally, Sullivan says Fannie Mae will make it more difficult for borrowers to transform their current residences into rentals and purchase new homes to discourage them from walking away from the existing home after the transaction closes.

Fannie Mae is making these changes as Congress considers passing legislation that would allow struggling borrowers to refinance into FHA loans after their lenders write down a portion of their mortgages, and the mortgage industry is pushing for speculators to be barred from the program.

Former Mortgage Bankers Association chair Regina Lowrie asks, "Why should a servicer take a haircut or have a cram-down for any borrower that truly has the ability to pay?"

Source: American Banker, Kate Berry (04/22/08)

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