Former distressed borrowers may be able to jump back into home ownership sooner than they expected. Fannie Mae officials say the organization is overhauling its policy to change the minimum waiting period following a pre-foreclosure sale or deed-in-lieu of foreclosure, taking the standard wait-out period from seven years to four years or perhaps even shorter.
Under the new policy, Fannie has removed the LTV requirements. All loans with application dates on or after Aug. 16 now will have a standard waiting period of four years, and only two years under extenuating circumstances.To be eligible for a new mortgage loan, Fannie requires formerly distressed borrowers to show they’ve reestablished their credit after a foreclosure, bankruptcy, preforeclosure sale, or deed-in-lieu. The standard waiting period was two years with a maximum 80 percent loan-to-value ratio and four years with a maximum 90% LTV. Standard eligibility, however, is seven years. In some cases, such as extenuating circumstances where borrowers had a prolonged reduction in income that was beyond their control, they may only have to wait two years with a maximum 90% LTV to get a new mortgage again.
For example, a borrower who had a preforeclosure sale five years ago — not due to extenuating circumstances — would be eligible for a new loan with as low as a 5 percent down payment (they would not have been eligible prior to the change in the policy unless they at least had a 10 percent down payment). Also, a borrower with a deed-in-lieu two years ago that was due to extenuating circumstances would also be eligible for a new mortgage backed by Fannie with as low as a 5 percent down payment, in which they would not have been otherwise and would have needed at least a 10 percent down payment.
Other programs, such as the FHA's Back to Work program, are also available to formerly distressed borrowers and are curtailing the wait times even more, to as little as 12 months following a foreclosure or short sale.
Source: “Fannie Mae Widens Credit Box for Failed Home Owners,” HousingWire (Sept. 9, 2014)