One more reason short sale makes sense instead of foreclosure

Fannie Mae Revises Foreclosure Guidelines

On April 14, 2010, Fannie Mae made changes to the timeframes required after a “PRE-Foreclosure Event” before someone could obtain new Fannie Mae financing. They have stated that since there are a variety of foreclosure alternatives available to borrowers who are having difficulty making their mortgage payments that the changes would highlight the importance of borrowers working with their servicers to avoid foreclosure. As a follow-up to that Announcement, yesterday Fannie Mae modified the waiting period that must elapse before a borrower is eligible for a new mortgage loan after a “foreclosure.” The combination of the waiting period policies for foreclosures and preforeclosure events continue to favor borrowers who work with their servicers to avoid foreclosure by allowing these borrowers to be eligible for a future Fannie Mae loan in a shorter period of time.



Under the new guidance, unless the foreclosure was the result of documented extenuating circumstances*, which only requires a three-year waiting period (with additional requirements of minimum of 10% down, primary residence purchase or rate/term refinance for all occupancy types), ALL borrowers will now be required to meet a seven-year waiting period after a prior foreclosure to be eligible for a new mortgage loan eligible for sale to Fannie Mae.



* Fannie Mae Definition of Extenuation Circumstances: These are nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations. If a borrower claims that derogatory information is the result of extenuating circumstances, the lender must substantiate the borrower’s claim. Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.) and documents that illustrate factors that contributed to the borrower’s inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns (covering the periods prior to, during, and after a loss of employment), etc.). The lender must obtain a letter from the borrower explaining the relevance of the documentation. The letter must support the claims of extenuating circumstances, confirm the nature of the event that led to the bankruptcy or foreclosure-related action, and illustrate the borrower had no reasonable options other than to default on their financial obligations.

Heads-up! Buyer credit changes could sabotage your closing.

Financing Alert: Fannie Mae Loan Quality Initiative

June 1, 2010 marked the beginning of Fannie Mae's "Loan Quality Initiative." If you're not familiar with the initiative, now would be a good time to become familiar with it. Why? Well, one of the provisions in the initiative is "credit re-verification" on the day of funding. If your borrower's credit changes more than 2%, it's back to underwriting for approval! You need to know how to help buyers protect their financing by making smart moves between first and second verification. There are several other important considerations to the initiative as well.

The following articles will help you wrap your head around Fannie Mae's LQI:

Fannie Mae's loan quality initiative: another potential snag with financing
http://bit.ly/cX5Y6P
(BostonGlobe.com)

Borrowers: Beware the Second Credit Report
http://bit.ly/c9hCI6
(SmartMoney.com)

Fannie Mae "Loan Quality Initiative" begins June 1, 2010. How will this affect home buyers?
http://bit.ly/9cevT7
(Amy Jones, RE/MAX Excalibur, Arizona)

For the fine print, don't miss Fannie Mae's page dedicated to the initiative:
https://www.efanniemae.com/sf/lqi/index.jsp