The Federal National Mortgage Association is reminding its lenders that it can buy loans to consumers who have a previous bankruptcy or foreclosure.
Just because a prospective borrower has experienced a significant derogatory credit event doesn’t mean that they can never qualify for a Fannie Mae loan.
Such derogatory credit events can include foreclosures, short sales and deeds in lieu of foreclosure. They also include the filing of a bankruptcy.
Washington-based Fannie issued a fact sheet that discusses what it takes for prospective borrowers to qualify for the maximum loan-to-value ratio on its loan products.
“To be eligible for a mortgage loan, Fannie Mae requires borrowers to demonstrate that they have re-established credit following a significant derogatory credit event,” the fact sheet states.
The secondary lender has established minimum waiting periods for such events.
For borrowers who have filed a chapter 7 or chapter 11 bankruptcy, the waiting period
is four years.
However, when there are extenuating circumstances — “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” —
the minimum waiting period is reduced to two years.
On chapter 13 filings, the minimum waiting period is two years from the discharge date or four years from the dismissal date — though the dismissal could have been only two years prior with extenuating circumstances.
But if the applicant has had multiple bankruptcy filings during the past seven years, the waiting period is extended to five years. With extenuating circumstances, the waiting period can be reduced to three years.
People who have had a foreclosure need to wait seven years to qualify for the secondary lender’s programs. For borrowers with extenuating circumstances, the waiting period can be cut to three years — though the LTV ratio is limited to 90 percent, purchase-money loans are only allowed on a principal residence, and cashout transactions are limited.
The waiting period is four years for applicants who have had a deed-in-lieu of foreclosure, a short sale or a charged off mortgage account. With extenuating circumstances, the wait is just two years.
In the event that the prospective borrower had both a bankruptcy and a foreclosure — and the foreclosure was not discharged through bankruptcy — the length of time needed is the greater of the applicable bankruptcy or foreclosure waiting periods.
