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New Fannie Mae Guideline Increase Waiting Period to 4 Years

Fannie Mae has made changes to a number of policies pertaining to significant derogatory credit events.

Waiting Period after a Preforeclosure Sale or Deed-in-Lieu of Foreclosure
The current requirements that apply to waiting periods following a preforeclosure sale (short sale) or deed-in-lieu of foreclosure provide for different waiting periods of 2 years or 4 years and set out different maximum loan-to-value ratios (LTV) for those timeframes. These requirements are being updated to remove the LTV restrictions tied to different waiting periods, and establish a standard 4 year waiting period, with a 2 year waiting period permitted if a borrower has extenuating circumstances.

Charge Off Accounts – Mortgage Debt
A new policy has been established to specifically address charge-offs of mortgage accounts by requiring a 4-year waiting period following this derogatory credit (2 years if the borrower can demonstrate extenuating circumstances). In addition, the existing charge-off policy in the Selling Guide has been relabeled as “non-mortgage charge-offs” to clearly differentiate the two policies.

Waiting Period for Mortgage Debt Discharged through Bankruptcy
The Selling Guide has been updated to indicate that if a mortgage debt has been discharged through bankruptcy, even if a foreclosure action is subsequently completed to reclaim the property in satisfaction of the debt, the borrower is held to the bankruptcy waiting periods and not the foreclosure waiting period. Lenders must obtain documentation to verify that the mortgage debt in question was in fact discharged as part of the bankruptcy.

Extenuating Circumstances
Fannie Mae defines extenuating circumstances as nonrecurring events that resulted in sudden/significant reductions in income, or a catastrophic increase in your financial obligations.

For example, job loss, long-term illness, divorce, or another significant event beyond your control that forced you to miss payments and experience default.

You’ll also need to document the event with things like a copy of the divorce decree, medical reports and/or bills, notice of the job layoff, and so on. And explain why it contributed to your inability to resolve the problem and stay good on your previous mortgage.

Lastly, you will have needed to re-establish good credit since the event that caused your credit to take a hit.

Assuming you can do all that, you might still be able to qualify for a mortgage with Fannie Mae just two years after experiencing a short sale, but it’s certainly no guarantee.

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