Orlando Mortgage Blog

If you are even considering walking away from a home mortgage...

On March 31, 2008 Fannie Mae (FNMA) put out a new announcement to lenders to address various current items of concern and policy changes, not the least of which are their guidelines for how to address a foreclosure action in the borrower's credit history since it "is evidence of significant derogatory credit and increases the likelihood of future default." 

FNMA currently requires four (4) years to elapse after a foreclosure before they will consider the borrower to have re-established credit history. This announcement increases that time period to five (5) years. They will continue to allow a lesser time period to elapse (three (3) years in lieu of the current two year requirement) for borrowers who can demonstrate documented extenuating circumstances that resulted in the foreclosure action. Underwriter will review whether it meets the seller guide definition, and will determine acceptability in all cases.

These manually underwritten loans must meet specific conditions

• Elapsed time is measured by comparing the application date of the new mortgage to the completion of the foreclosure action as reported on the credit report or other foreclosure documents provided by the borrower.
• After the requisite five year elapsed time period
• The borrower may obtain a new mortgage to purchase a principal residence with a minimum 10 percent down payment and minimum credit score of 680.
• The borrower may obtain a limited cash-out refinance mortgage pursuant to FNMA's eligibility requirements in effect at the time.
• The borrower may not obtain a cash-out refinance or obtain a mortgage secured by a second home or investment property for seven (7) years after the foreclosure action.
• If the foreclosure was the result of documented extenuating circumstances (as defined in the Selling Guide) and the requisite three year elapsed time period has passed
• The same requirements apply as outlined above, with the exception that the minimum credit score of 680 is not required.

So if you, or anyone you know, are thinking of letting a property go into foreclosure...beware of the impact on your credit, how long it will take you to get past the issue, it's impact in trying to buy a home in the next 5 years, the minimum of 10% down requirement after 5 years, minimum credit score of 680 and above, and your inability of obtaining a cash-out mortgage, and a second home or investment property mortgage for 7 years.

That's heavy duty, folks. Please use discretion.

Bill Wilbanks /omm222@hbwireless.com