Fannie Mae Waives Waiting Period on Foreclosure after Bankruptcy
On July 29th, 2014 Fannie Mae made an unprecedented move to loosen up waiting period for borrowers that included mortgage debt in a bankruptcy.
This update, effective immediately affects the waiting period for any foreclosure, short sale or deed in lieu of foreclosure that occurred after the mortgage debt was discharged through a bankruptcy.
In a lending environment where it seems banks are less and less willing to lend, this opens up a huge opportunity to the many victims of the economic downturn that began in late 2007, and somewhat continues even today.
Short Sale Waiting Period Changes
The removal of the waiting period for foreclosure, short sale or deed in lieu after bankruptcy seems to be slow to surface due to another “waiting period” change that is scheduled to take place over the weekend of August 16th.
Desktop Underwriter (DU) will be modified to remove the ability to buy again 2 years after a short sale or deed in lieu of foreclosure if you have a 20% down payment and a minimum 680 credit score.
The loan to value requirement will be removed, allowing borrowers to buy with as little as 5% down, however, the waiting period is extended from 2 years to 4 years.
This move creates consistency in Fannie Mae’s waiting period policy to 4 years across the board for any default included in a bankruptcy, short sold, or transferred back to the lender through a deed in lieu of foreclosure.
Borrowers No Longer Punished for Lender Delays
Mortgage debt included in bankruptcy, in the eyes of many, meant that you are “giving the house back to the bank”. The shocking reality was that most banks did not foreclose immediately, and in most cases, not for years.
For those that remained in the home, this seemed like a blessing in disguise because you were able to live in your home for years without making payments. The harsh reality of that soon crept into this scenario is that once the bank finally does “take the home back”, a new waiting period began from the date your name is removed from title.
I have seen this process take as long as 5 years after the bankruptcy discharge, and from the last payment was sent. What this meant was that now you’re adding an additional 7 year waiting period after already waiting 5 years from the bankruptcy discharge.
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In the above scenario, a hard working family that experienced a financial hardship is penalized for 11 years before they are able to become homeowners again.
Extenuating Circumstances
I guess this falls into the category of better late than never, and fortunately Fannie Mae had the good sense to understand that many of the challenges that homeowner’s had were not necessarily due to financial mismanagement, but financial hardship due to the implosion of the housing industry.
The above waiting period changes are cut in half to 2 years if the financial hardship was the result of a circumstance outside of the homeowner’s control. Examples of extenuating circumstances can include job loss, layoff, permanent disability or the death of a wage earner.
While extenuating circumstances are considered to be very difficult to prove, income reduction or loss due to economic conditions is not as difficult to document.
If you believe that your financial hardship can be documented, and you can show a series of financial hardships that led to an eventual bankruptcy, or inability to sell your home due to plummeting home values, you may have a case worth fighting for.
Exceptions to Waiting Periods
The waiting period after a foreclosure on a home that was not included in a bankruptcy is still subject to a 7 year waiting period from the date that your name was removed from title.
The elimination of the 20% downpayment option after 2 years will take effect on any loan applications taken after August 16th, 2014.
I understand that the timeline does not give you much time to prepare, but if you were considering buying 2 years from a short sale or deed in lieu of foreclosure, you need to complete a loan application before August 16th, 2014.
Finding an Experienced Lender
The biggest challenge we are seeing now is that most lenders do not understand this, or will not take the time to research this guideline. The simple fact is that for most lenders, this is a “one-off” scenario, and they do not thing it’s worth the time or effort to figure out how to help homebuyers with past financial hardship.
Do not take “NO” for an answer – I have a network of lender friends across the Country that understand these guidelines, and can help.
If you still have questions, leave me a comment below, shoot me an email or give us a call and we can point you in the right direction.
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i am self employed, how long can i be qualified to buy a home after discharge from chapter 7 bankruptcy in 2011.
adheiniger Thank you for the email, unfortunately, your broker is right. Depending on the type of loan you are trying to use to buy the new home will determine what your waiting period will be. If using Conventional financing, you would need to wait for 4 years from the BK discharge date before buying again. There is no separate timeline for the foreclosure, but you cannot be on title to the home if the mortgage is in default. Based on the above scenario – you are looking at either January 2017 to buy using conventional financing in both your names (if your husband can do short sale, DIL, or foreclosure), or if you qualify on your own, using only your income, you may be able to buy in March 2016 in your name only, using FHA financing (3 years from foreclosure date).
Hope this helps?
FBC Mortgage LLC out of Orlando Florida
In January 2017 four years past discharge, you will be eligible to apply for a mortgage. The broker that you are talking to must not understand the guidelines. Keep askong different brokwrs until you find one that does. I talked to 3 before I found one. Arm yourself with knowledge before you talk to them so you understand it yourself. My discharge was in march 2011. We are approved and our house is being built. Our home was still in our name when we applied but it didn’t matter because it was included in BK and says so on our credit report.
My husband and I filed bankruptcy chapter 7 and was discharged in January 2013. This was after trying to short sell and do loan modification for 2 years prior. We each owned a home from before we were married. We included both homes in the ch 7. My house was then foreclosed in March of 2013, however my husbands home has still not been foreclosed by the bank. Chase seems to be in no hurry to do anything. However, we would now like to be able to buy a new home, but was just told by our mortgage broker that until the house is foreclosed and taken care of we are unable to get a new mortgage even though our credit reports come back good (near 700) and both house debts show discharged. Will we be able to get a new mortgage sooner than waiting however many more years for Chase to foreclose. Can you guide me in the right direction? Thanks
Your BK papers should also show that is was discharged. The bank asked to these also so maybe that will work for you since 2 of the agencies report the discharge.
I was checking my credit scores/report 2 don’t list the mortgage the other says we are late and owe over 200k. I was going to see if I could get that removed cuz I thought since it was discharged it shouldn’t be there.
Starrhigs,
Can you please let us know which bank you used?
Thanks!
Starrhigs, what bank did you use?
Thanks
Good to hear it, Starrhigs! Nice to know you were not held captive. We are waiting, our day is in Oct this year. Waiting for our lender to approve pending short sale that started in August 2014 (can’t believe my buyer is hanging in that long). We are almost ready to do DIL if this continues.