- Image by Phil Sexton via Flickr
“How long after a short sale can we qualify again?” It is a question often asked and until now the answer, with the exception of lender enhancements to Fannie Mae and Freddie Mac guidelines, has been much unchanged.
With the release of FNMA’s DU 8.1 comes some huge game changers.
“DU will be updated to incorporate the policy changes specified in Announcement SEL-2010-05, Underwriting Borrowers with a Prior Preforeclosure Sale or Deed-in-Lieu of Foreclosure, regarding prior deed-in-lieu of foreclosure actions. If a deed-in-lieu of foreclosure is reported within two years of the credit report date, the loan casefile will receive a Refer with Caution/IV recommendation.”
Translated into common language that means regardless of the amount of down-payment, debt-to-income ratio or credit scores the loan application will not receive the all cherished “Approve/Eligible” from the Fannie Mae automated Desktop Underwriter. Instead these files will all be subjected to manual underwriting and will result in longer underwriting times and closer examination.
For buyers looking to purchase who have normally qualified for FHA home loans after as little as two years the news is much less pleasing. For loans with down payments less than 10% DU will issue the dreaded Ineligible where any applicant has had a short-sale or deed-in-lieu of foreclosure within the last seven, yes 7, years. This effectively removes millions of buyers from the market for another 7 years. Your government hard at work.
Keep in mind these changes are to Fannie Mae’s underwriting engine and guidelines not to FHA or other sources. However with FNMA being the largest purchaser of mortgage securities today it greatly impacts the home sales market.
For home buyers with 10% down but less than 20% down the waiting period will be four years:
DU Version 8.1 will also include the following requirements that will apply to borrowers with prior deed-in-lieu of foreclosure actions that occurred two or more years, but within 7 years from the credit report date.
Loan casefiles submitted to DU with an LTV or CLTV greater than 80 percent where a borrower on the loan casefile has a deed-in-lieu of foreclosure action that was completed two or more years, but within four years from the credit report date will receive an Ineligible recommendation, and therefore ineligible to be submitted for loan approval and purchase.
Loan casefiles submitted to DU with an LTV or CLTV greater than 90 percent where a borrower on the loan casefile has a deed-in-lieu of foreclosure action that was completed four or more years, but within seven years from the credit report date will receive an Ineligible recommendation, and therefore ineligible to be submitted for loan approval and purchase.
This version of DU is implemented on June 19, 2010 and will affect all loans which need DU approval on or after that date. Generally the remainder of the market follows the lead of Fannie Mae in the event their loans may eventually be sold to Fannie.