One of the concerns a customer has after experiencing a bankruptcy, foreclosure, or short sale (known as a "preforeclosure sale" by Fannie Mae) is the power to get credit to purchase another home.
I. Fannie Mae Credit Guidelines
Question 1. How long is the time period after a foreclosure before a consumer can be accepted to obtain credit to purchase a home?
5 years from the date the foreclosure sale was completed. Extra necessities that apply after 5 years and up to 7 years following the completion date are as follows:
- The purchase of a principal residence is authorized with the minimum 10 % down-payment and minimum representative credit report of 680.
- Purchase of a second home or investment property isn't permitted.
- Limited cash-out refinances are authorized for all occupancy types pursuant to the suitability requirements in effect at that point.
- Cash-out refinances are not authorized for any occupancy type. (Source: FNMA Statement 08-16, 6-25-08)
Question 2. Why do the extra requirements for repos in Question 1 only apply from 5 to 7 years following the foreclosure finish date?
According to Fannie Mae policy in Part X, Section 103 of the Selling Guide, Fannie Mae needs only a 7-year history to be reviewed for all credit and official record info. The 7-year timescale also aligns with the info provided by the borrower on the loan application relative to discovery of a past foreclosure action. (Source: FNMA Selling Guide, 4-1-09.)
Question 3. Does a shorter period of time apply if the borrower has "extenuating circumstances" that led straight to the foreclosure?
Yes. 3 years from the date the foreclosure sale was completed. The same additional necessities apply as listed in Query 1 apart from the minimum credit history of 680 is not required. (Source: FNMA Statement 08-16, 6-25-08.)
Query 4. What are"extenuating circumstances"?
Fannie Mae describes "extenuating circumstances" as follows:
Extenuating circumstances are nonrecurring events that are beyond the borrower's control ending up in a unexpected, important, and extended reduction in earnings or a catastrophic increase in financing responsibilities.
If a borrower claims that derogatory info is the result of extenuating circumstances, the lender must substantiate the borrower's claim. Examples of documentation that may be used to support mitigating circumstances include documents that confirm the event (such as a copy of a divorce decree, doctor's bills, notice of job layoff, job severance papers, for example.) and documents that show factors that made a contribution to the borrower's inability to resolve the Problems that resulted from the event (like a copy of insurance papers or claim settlements, listing agreements, lease agreements, taxation statements (e.g, covering the periods prior to, during, and after a loss of employment).
The lender must get a letter from the borrower explaining the importance of the paperwork. The letter must support the claims of extenuating circumstances, confirm the character of the event that led on to the insolvency or foreclosure-related action, and illustrate the borrower had no reasonable options apart from to start defaulting on his or her finance obligations. (Source: FNMA Selling Guide, 4-1-09 at 391.)
Question 5. How long is the time period after a deed-in-lieu of foreclosure before a consumer can be accepted to get credit to get a property?
A 4 years from the date the deed-in-lieu was executed. Additional requirements that apply after 4 years and up to 7 years following the finish date are as follows:
- Borrower may buy a property secured by a principal residence, second home, or investment property with the greater of 10 p.c minimum deposit or the minimum down payment required for the exchange.
- Limited-cash-out and cash-out refinance transactions secured by a principal residence, second home, or investment property are permitted pursuant to the eligibility requirements in effect at that point. (Source: FNMA Announcement 08-16, 6-25-08.)
Question 6. Does a shorter time period apply if the borrower has. "extenuating circumstances" that led on to the deed-in-lieu of foreclosure?
Yes. 2 years from the date the deed-in-lieu was executed. The same further necessities apply as listed in Query 4 after 2 years up to 7 years. (Source: FNMA Announcement 08-16, 6-25-08.) See Question 4 for the dictionary definition of "extenuating circumstances."
Question 7. How long is the time period after a "preforeclosure sale" before a consumer can be suitable to obtain credit to purchase a property?
Two years from the completion date. No exceptions are permitted to the 2-year period due to extenuating circumstances. (Source: FNMA Announcement 08-16, 6-25-08.)
Question 8. What's a "preforeclosure sale" discussed in Question 6 and is that the same as a short sale?
"A preforeclosure sale involves the sale of the property by the borrower to a third party for a bit less than the amount owed to satisfy the behind mortgage, as agreed to by the bank, investor, and mortgage insurer" (Source: FNMA Statement 08-16, 6-25-08). Although the terms preforeclosure sale and short sale have been employed indistinguishably, there is a serious difference for purposes of obtaining credit. For Fannie Mae purposes, a preforeclosure assumes that the borrower has been delinquent in paying his or her mortgage and the bank agrees to accept a lesser amount to circumvent the expense and time of a foreclosure action. A short-sale nonetheless , can also refer to situations in which the lender of the mortgage consents to a payoff of a smaller amount than is essentially owed, even on a current mortgage, to facilitate the sale of the property to a 3rd party. (Source: FNMA Announcement 08-16 Q&A, 8-13-08.)
Query 9. Does a shorter time period apply if the borrower has "extenuating circumstances" that led straight to the preforeclosure (short) sale?
No. There are no exceptions to the 2-year period of time. (Source: FNMA Statement 08-16, 6-25-08.)
Question 10. If a borrower sold their property as a short sale but was never behind on that mortgage and is now attempting to get a new primary residence, will Fannie Mae purchase the loan?
The loan will be accepted for delivery to Fannie Mae provided the borrower's previous mortgage history complies with Fannie Mae's unjustifiable prior mortgage delinquency policyâ€"that is the borrower hasn't got a few 60-, 90-, 120-, or 150-day delinquencies reported in the 12 months prior to the credit score dateâ€"and the borrower has not entered into any contract with the short sale lender to repay any amounts associated with the short sale, including a deficiency judgment. (Source: FNMA Statement 08-16 Q&A, 8-13-08; FNMA Selling Guide, Part X, Chapter 3, Section 302.09.)
Query 11. Are preforeclosure (short) sales and deed-in-lieu of foreclosure actions identified on a credit report?
Preforeclosure sales might be reported as "paid in full" with a "settled for a bit less than owed" remarks code, and the mortgage tradeline would indicate any up to date delinquency. A deed-in-lieu might be reported by a remarks code indicating a deed-in-lieu. (Source: FNMA Announcement 08-16 Q&A, 8-13-08.)
Question 12. How long is the period of time after an insolvency (all except Chapter 13) before a client can be eligible to obtain credit to purchase a property?
4 years from the discharge or dismissal date of the insolvency action (Source: FNMA Announcement 08-16, 6-25-08).
Question 13. How long is the period of time after a Chapter 13 insolvency before a purchaser can be accepted to get credit to purchase a property?
2 years from the discharge date and four years from the dismissal date (Source: FNMA Statement 08-16, 6-25-08).
Question 14. Does a shorter time period apply if the borrower has "extenuating circumstances" that led on to the bankruptcy (all actions)?
Yes. 2 years from the discharge or dismissal; however , no exceptions are permitted to the 2-year time period after a Chapter 13 discharge (Source: FNMA Statement 08-16, 6-25-08). See Question 4 for the dictionary definition of "extenuating circumstances."
Question 15. How long is the period of time after multiple bankruptcy filings before a customer can qualify to obtain credit to. Buy a property?
Five years from the most recent dismissal or discharge date for borrowers with over
one bankruptcy filing within the past 7 years (Source: FNMA Announcement 08-16, 6-25-08).
Question 16. Does a shorter time period apply if the borrower has "extenuating circumstances" that led straight to the multiple bankruptcies?
Yes. 3 years from the most recent discharge or dismissal date. The latest insolvency filing could have been the result of mitigating circumstances. (Source: FNMA Statement 08-16, 6-25-08.) See Question 4 for the meaning of "extenuating circumstances."
Question 17. What's the difference between a Chapter 13 bankruptcy and a Chapter 7 bankruptcy?
Chapter 13 authorizes a borrower with a regular income to propose a plan to pay back some or all his or her obligations over a period of almost five years. A borrower who files a Chapter 7 is permitted to keep exempt assets and receive a discharge of the borrower's debts. Chapter 7 is a relatively fast liquidation process that's often completed within 120 days. Chapter 7 cases are rarely dismissed. (Source: FNMA Statement 08-16 Q&A, 8-13-08.)
Question 18. What's the difference between a Chapter 13 dismissal and a Chapter 13 discharge?
A borrower who files a Chapter 13 can dismiss the case at any time (voluntary dismissal) or the case might be discharged by the court based on the borrower's failure to comply with the requirements of the Bankruptcy Code or to make the mandatory payments. If the borrower who files a Chapter 13 case makes all of the payments required by the plan, the borrower receives a discharge at the end of the plan. A borrower who does not make all the payment required by the plan may still receive a discharge if the court finds, among other things, that the borrower made a specific amount of the payments and the borrower's neglecting to make all of the payments was due to circumstances outside the borrower's control. (Source: FNMA Announcement 08-16 Q&A, 8-13-08.)
Query 19. What are the prerequisites to re-establish a credit report?
After an insolvency or foreclosure-related action, a credit history must meet the following
requirements to be considered re-established:
- It must meet the prerequisites for elapsed time (as discussed in this post).
- It must reflect that all accounts are current as of the date of the mortgage application
- It must include at least 4 credit references. One of the references must be a standard credit reference, and one of the references must be housing-related.
(1) A housing-related reference must cover the period following the bankruptcy discharge or dismissal, foreclosure, or deed-in-lieu, and can be in the form of home loan payments or rental payments.
(2) If rental payments were not reported to the credit repositories, the bank must get copies of bank records, cash orders, or canceled checks for the most recent 12-month period as a supplement to the rent verification.
- It must reflect 3 of the 4 credit references, including rental housing references, as active in the 24 months preceding the date of the mortgage application.
- It must include less than two installment or revolving debt payments 30 days past due in the last 24 months.
- It must include no installment or rotating debt payments 60 or more days past due since the discharge or dismissal of the insolvency or the completing of the foreclosure-related action.
- It must include no housing debt payments past due since the discharge or dismissal of the bankruptcy or the conclusion of the foreclosure-related action.
- It must include no new public documentation since the discharge or dismissal of the insolvency or the conclusion of the foreclousre-related action. Public documentation include bankruptcies, repos, deeds-in-lieu, preforeclosure sales, unpaid judgments or collections, garnishments, liens, etc. (Source: FNMA Selling Guide, 4-1-09 at 392.)
II. Bankruptcy, Foreclosure, and Short Sale and the Result on a FICO Score
I. Fannie Mae Credit Guidelines
Question 1. How long is the time period after a foreclosure before a consumer can be accepted to obtain credit to purchase a home?
5 years from the date the foreclosure sale was completed. Extra necessities that apply after 5 years and up to 7 years following the completion date are as follows:
- The purchase of a principal residence is authorized with the minimum 10 % down-payment and minimum representative credit report of 680.
- Purchase of a second home or investment property isn't permitted.
- Limited cash-out refinances are authorized for all occupancy types pursuant to the suitability requirements in effect at that point.
- Cash-out refinances are not authorized for any occupancy type. (Source: FNMA Statement 08-16, 6-25-08)
Question 2. Why do the extra requirements for repos in Question 1 only apply from 5 to 7 years following the foreclosure finish date?
According to Fannie Mae policy in Part X, Section 103 of the Selling Guide, Fannie Mae needs only a 7-year history to be reviewed for all credit and official record info. The 7-year timescale also aligns with the info provided by the borrower on the loan application relative to discovery of a past foreclosure action. (Source: FNMA Selling Guide, 4-1-09.)
Question 3. Does a shorter period of time apply if the borrower has "extenuating circumstances" that led straight to the foreclosure?
Yes. 3 years from the date the foreclosure sale was completed. The same additional necessities apply as listed in Query 1 apart from the minimum credit history of 680 is not required. (Source: FNMA Statement 08-16, 6-25-08.)
Query 4. What are"extenuating circumstances"?
Fannie Mae describes "extenuating circumstances" as follows:
Extenuating circumstances are nonrecurring events that are beyond the borrower's control ending up in a unexpected, important, and extended reduction in earnings or a catastrophic increase in financing responsibilities.
If a borrower claims that derogatory info is the result of extenuating circumstances, the lender must substantiate the borrower's claim. Examples of documentation that may be used to support mitigating circumstances include documents that confirm the event (such as a copy of a divorce decree, doctor's bills, notice of job layoff, job severance papers, for example.) and documents that show factors that made a contribution to the borrower's inability to resolve the Problems that resulted from the event (like a copy of insurance papers or claim settlements, listing agreements, lease agreements, taxation statements (e.g, covering the periods prior to, during, and after a loss of employment).
The lender must get a letter from the borrower explaining the importance of the paperwork. The letter must support the claims of extenuating circumstances, confirm the character of the event that led on to the insolvency or foreclosure-related action, and illustrate the borrower had no reasonable options apart from to start defaulting on his or her finance obligations. (Source: FNMA Selling Guide, 4-1-09 at 391.)
Question 5. How long is the time period after a deed-in-lieu of foreclosure before a consumer can be accepted to get credit to get a property?
A 4 years from the date the deed-in-lieu was executed. Additional requirements that apply after 4 years and up to 7 years following the finish date are as follows:
- Borrower may buy a property secured by a principal residence, second home, or investment property with the greater of 10 p.c minimum deposit or the minimum down payment required for the exchange.
- Limited-cash-out and cash-out refinance transactions secured by a principal residence, second home, or investment property are permitted pursuant to the eligibility requirements in effect at that point. (Source: FNMA Announcement 08-16, 6-25-08.)
Question 6. Does a shorter time period apply if the borrower has. "extenuating circumstances" that led on to the deed-in-lieu of foreclosure?
Yes. 2 years from the date the deed-in-lieu was executed. The same further necessities apply as listed in Query 4 after 2 years up to 7 years. (Source: FNMA Announcement 08-16, 6-25-08.) See Question 4 for the dictionary definition of "extenuating circumstances."
Question 7. How long is the time period after a "preforeclosure sale" before a consumer can be suitable to obtain credit to purchase a property?
Two years from the completion date. No exceptions are permitted to the 2-year period due to extenuating circumstances. (Source: FNMA Announcement 08-16, 6-25-08.)
Question 8. What's a "preforeclosure sale" discussed in Question 6 and is that the same as a short sale?
"A preforeclosure sale involves the sale of the property by the borrower to a third party for a bit less than the amount owed to satisfy the behind mortgage, as agreed to by the bank, investor, and mortgage insurer" (Source: FNMA Statement 08-16, 6-25-08). Although the terms preforeclosure sale and short sale have been employed indistinguishably, there is a serious difference for purposes of obtaining credit. For Fannie Mae purposes, a preforeclosure assumes that the borrower has been delinquent in paying his or her mortgage and the bank agrees to accept a lesser amount to circumvent the expense and time of a foreclosure action. A short-sale nonetheless , can also refer to situations in which the lender of the mortgage consents to a payoff of a smaller amount than is essentially owed, even on a current mortgage, to facilitate the sale of the property to a 3rd party. (Source: FNMA Announcement 08-16 Q&A, 8-13-08.)
Query 9. Does a shorter time period apply if the borrower has "extenuating circumstances" that led straight to the preforeclosure (short) sale?
No. There are no exceptions to the 2-year period of time. (Source: FNMA Statement 08-16, 6-25-08.)
Question 10. If a borrower sold their property as a short sale but was never behind on that mortgage and is now attempting to get a new primary residence, will Fannie Mae purchase the loan?
The loan will be accepted for delivery to Fannie Mae provided the borrower's previous mortgage history complies with Fannie Mae's unjustifiable prior mortgage delinquency policyâ€"that is the borrower hasn't got a few 60-, 90-, 120-, or 150-day delinquencies reported in the 12 months prior to the credit score dateâ€"and the borrower has not entered into any contract with the short sale lender to repay any amounts associated with the short sale, including a deficiency judgment. (Source: FNMA Statement 08-16 Q&A, 8-13-08; FNMA Selling Guide, Part X, Chapter 3, Section 302.09.)
Query 11. Are preforeclosure (short) sales and deed-in-lieu of foreclosure actions identified on a credit report?
Preforeclosure sales might be reported as "paid in full" with a "settled for a bit less than owed" remarks code, and the mortgage tradeline would indicate any up to date delinquency. A deed-in-lieu might be reported by a remarks code indicating a deed-in-lieu. (Source: FNMA Announcement 08-16 Q&A, 8-13-08.)
Question 12. How long is the period of time after an insolvency (all except Chapter 13) before a client can be eligible to obtain credit to purchase a property?
4 years from the discharge or dismissal date of the insolvency action (Source: FNMA Announcement 08-16, 6-25-08).
Question 13. How long is the period of time after a Chapter 13 insolvency before a purchaser can be accepted to get credit to purchase a property?
2 years from the discharge date and four years from the dismissal date (Source: FNMA Statement 08-16, 6-25-08).
Question 14. Does a shorter time period apply if the borrower has "extenuating circumstances" that led on to the bankruptcy (all actions)?
Yes. 2 years from the discharge or dismissal; however , no exceptions are permitted to the 2-year time period after a Chapter 13 discharge (Source: FNMA Statement 08-16, 6-25-08). See Question 4 for the dictionary definition of "extenuating circumstances."
Question 15. How long is the period of time after multiple bankruptcy filings before a customer can qualify to obtain credit to. Buy a property?
Five years from the most recent dismissal or discharge date for borrowers with over
one bankruptcy filing within the past 7 years (Source: FNMA Announcement 08-16, 6-25-08).
Question 16. Does a shorter time period apply if the borrower has "extenuating circumstances" that led straight to the multiple bankruptcies?
Yes. 3 years from the most recent discharge or dismissal date. The latest insolvency filing could have been the result of mitigating circumstances. (Source: FNMA Statement 08-16, 6-25-08.) See Question 4 for the meaning of "extenuating circumstances."
Question 17. What's the difference between a Chapter 13 bankruptcy and a Chapter 7 bankruptcy?
Chapter 13 authorizes a borrower with a regular income to propose a plan to pay back some or all his or her obligations over a period of almost five years. A borrower who files a Chapter 7 is permitted to keep exempt assets and receive a discharge of the borrower's debts. Chapter 7 is a relatively fast liquidation process that's often completed within 120 days. Chapter 7 cases are rarely dismissed. (Source: FNMA Statement 08-16 Q&A, 8-13-08.)
Question 18. What's the difference between a Chapter 13 dismissal and a Chapter 13 discharge?
A borrower who files a Chapter 13 can dismiss the case at any time (voluntary dismissal) or the case might be discharged by the court based on the borrower's failure to comply with the requirements of the Bankruptcy Code or to make the mandatory payments. If the borrower who files a Chapter 13 case makes all of the payments required by the plan, the borrower receives a discharge at the end of the plan. A borrower who does not make all the payment required by the plan may still receive a discharge if the court finds, among other things, that the borrower made a specific amount of the payments and the borrower's neglecting to make all of the payments was due to circumstances outside the borrower's control. (Source: FNMA Announcement 08-16 Q&A, 8-13-08.)
Query 19. What are the prerequisites to re-establish a credit report?
After an insolvency or foreclosure-related action, a credit history must meet the following
requirements to be considered re-established:
- It must meet the prerequisites for elapsed time (as discussed in this post).
- It must reflect that all accounts are current as of the date of the mortgage application
- It must include at least 4 credit references. One of the references must be a standard credit reference, and one of the references must be housing-related.
(1) A housing-related reference must cover the period following the bankruptcy discharge or dismissal, foreclosure, or deed-in-lieu, and can be in the form of home loan payments or rental payments.
(2) If rental payments were not reported to the credit repositories, the bank must get copies of bank records, cash orders, or canceled checks for the most recent 12-month period as a supplement to the rent verification.
- It must reflect 3 of the 4 credit references, including rental housing references, as active in the 24 months preceding the date of the mortgage application.
- It must include less than two installment or revolving debt payments 30 days past due in the last 24 months.
- It must include no installment or rotating debt payments 60 or more days past due since the discharge or dismissal of the insolvency or the completing of the foreclosure-related action.
- It must include no housing debt payments past due since the discharge or dismissal of the bankruptcy or the conclusion of the foreclosure-related action.
- It must include no new public documentation since the discharge or dismissal of the insolvency or the conclusion of the foreclousre-related action. Public documentation include bankruptcies, repos, deeds-in-lieu, preforeclosure sales, unpaid judgments or collections, garnishments, liens, etc. (Source: FNMA Selling Guide, 4-1-09 at 392.)
II. Bankruptcy, Foreclosure, and Short Sale and the Result on a FICO Score
About the Author:
480.399.0500. Phoenix Credit Correction has been providing credit repair to the Phoenix, AZ area since 1993. To find out more about the easiest way to mend your credit be certain to drop by our internet site at www.PhoenixCreditRepair.org.
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