The new Fannie Mae guidelines are creating a little controversy. What else would you expect from a government program?
Fannie Mae came out with new underwriting guidelines for borrowers who have a history of pre-foreclosure, deed-in-lieu foreclosure, and short sales.
The guidelines make it easier for some to get financing on a new home ... but more difficult for others.
Those who previously went through a ‘deed-in-lieu foreclosure’ ... i.e., turned in the keys of their house before the bank could officially foreclose ... have it easier by being able to buy a new home in as little as 2 years. Before, they would have had to wait 4-7 years.
It looks like there’s no change for pre-foreclosure sales, i.e., those who were able to avoid final judgment by selling first. Two years before and 2 years now.
The biggest punishment comes for those who did a Short Sale without ever defaulting on their loans. Before, there was no waiting period to qualify for a new purchase per se, though most lenders had been reluctant to approve new loans. Now ‘Short Sellers’ must wait at least 2 years, no exceptions.
Many, though, have also been stating that those who have gone through a Foreclosure with a capital ‘F’ can also purchase in as little as 2 years. This isn’t true.
It’s important to delineate between the words ‘pre-foreclosure’ and ‘foreclosure’.
- ‘Pre-foreclosure’ means before the foreclosure or final judgment has happened.
- ‘Foreclosure’ means the house has been taken by the bank and title has transferred.
As you’ll see in the Fannie Mae Announcement, only a ‘pre-foreclosure sale’ is addressed.
- A pre-foreclosure sale is one in which the homeowner defaulted and foreclosure proceedings had been initiated ... but a successful Short Sale stopped final foreclosure.
- A Short Sale, it would appear, is a short sale in which the homeowner has not defaulted.
Confused yet? So are we all!
Since these new guidelines do not address Foreclosure with a capital ‘F’, former homeowners must still wait at least 5-7 years before they can purchase a new home.
I think it’s sad, though, that homeowners who have borrowed and scraped and gone into debt to keep those foreclosure papers from being served are being lumped together with homeowners who defaulted. The distinction is a fine line but a valid one.
Adding to the woes of ‘pure’ Short Sellers is Fannie Mae’s requirement that they must be in default at least 30 days before the Short Sale can be approved. Doesn’t this punish the homeowner who is just trying to do the right thing? And doesn’t this deplete the available number of homebuyers ... homebuyers that the real estate market desperately needs for a recovery?
With 3 million homes predicted to be foreclosed this year ... and maybe next year ... and maybe into 2012, at the end of this long road, there won’t be any homebuyers left.
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JUDY CHAPMAN | “Your House ... Your Future ... My Job”
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Ask the Queen of Short Sales about ...
The #1 Way to Avoid Foreclosure
or "How to Sell Your House in an Upside-Down Market"
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Ron Margolis, RA, CDPE, ABR Hawaii Life Real Estate Services 808.346.7095 email: firstname.lastname@example.org