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BIG changes to Fannie Mae's policy regarding mortgages included in BK

Super Contributor

BIG changes to Fannie Mae's policy regarding mortgages included in BK

Fannie Mae announced, effective immediately, that when a mortgage is discharged through a bankrupcy that the bankruptcy waiting periods would apply instead of the foreclosure waiting period. 

 

The official announcement is https://www.fanniemae.com/content/announcement/sel1410.pdf which states:

 

The Selling Guide has been updated to indicate that if a mortgage debt has been discharged through bankruptcy, even if a foreclosure action is subsequently completed to reclaim the property in satisfaction of the debt, the borrower is held to the bankruptcy waiting periods and not the foreclosure waiting period. Lenders must obtain documentation to verify that the mortgage debt in question was in fact discharged as part of the bankruptcy.

 

The selling guide has been updated to say:

 

If a mortgage debt was discharged through a bankruptcy, the bankruptcy waiting periods may be applied if the lender obtains the appropriate documentation to verify that the mortgage obligation was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting periods must be applied.

 

The bankruptcy guidelines are also included in that selling guide link, and state:

 

Bankruptcy (Chapter 7 or Chapter 11)

A four-year waiting period is required, measured from the discharge or dismissal date of the bankruptcy action.

Exceptions for Extenuating Circumstances

A two-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the discharge or dismissal date of the bankruptcy action.

 

Bankruptcy (Chapter 13)

A distinction is made between Chapter 13 bankruptcies that were discharged and those that were dismissed. The waiting period required for Chapter 13 bankruptcy actions is measured as follows:

  • two years from the discharge date, or

  • four years from the dismissal date.

The shorter waiting period based on the discharge date recognizes that borrowers have already met a portion of the waiting period within the time needed for the successful completion of a Chapter 13 plan and subsequent discharge. A borrower who was unable to complete the Chapter 13 plan and received a dismissal will be held to a four-year waiting period.

Exceptions for Extenuating Circumstances

A two-year waiting period is permitted after a Chapter 13 dismissal, if extenuating circumstances can be documented. There are no exceptions permitted to the two-year waiting period after a Chapter 13 discharge.

 

 

So in a nutshell, if the mortgage was discharged in a Ch 7 BK, then just a 4 year waiting period applies instead of the 7 year waiting period from the time the lender takes back the property.  This shaves 3+ years off the waiting period.   Typically in a Ch 13 BK a mortgage isn't included in the discharge (mortgage arrears often are, but not the entire mortgage), but I guess in theory it could be...  so in that rare situation just 2 years from the Ch 13 BK discharge would be permitted.

 

This does not apply to Freddie Mac, VA, or FHA mortgages (at least not at this time, and there is no indication that they will be changing their guidelines in the future).

Mortgages (FHA, VA, USDA, Fannie, Freddie, Non-Prime) since 2002, based in Irvine, CA and lending in all 50 states

Information that is needed to determine if you qualify for a mortgage

Message 1 of 18
17 REPLIES
Moderator Emerita

Re: BIG changes to Fannie Mae's policy regarding mortgages included in BK

Message 2 of 18
Valued Member

Re: BIG changes to Fannie Mae's policy regarding mortgages included in BK

@ Shane "Lenders must obtain documentation to verify that the mortgage debt in question was in fact discharged as part of the bankruptcy.", What kind of documentation will satisfy this requirement?  Thank you

Message 3 of 18
Moderator

Re: BIG changes to Fannie Mae's policy regarding mortgages included in BK


penguin11 wrote:

@ Shane "Lenders must obtain documentation to verify that the mortgage debt in question was in fact discharged as part of the bankruptcy.", What kind of documentation will satisfy this requirement?  Thank you


Discharge and petition.

Message 4 of 18
New Member

Re: BIG changes to Fannie Mae's policy regarding mortgages included in BK

Shane, would this apply also to a mortgage that was included in bankruptcy for a property that was subsequently short sold?  

 

We had our Ch 7 discharged in September 2010 and included our mortgage.  We "stayed and payed" (the whole point of the BK was to try and keep our house as they wouldn't modify our loan) as long as we could.  Eventually we outgrew our home as my husband got a new job that is home office based and we didn't have room for that.  We were still extremely upside down in our house and chose to do a short sale as even though we were off the hook for the debt, our understanding was the waiting periods for a future home purchase would be from the date the deed transferred to the new owner.  This occurred in October 2012.

 

We have been hoping to be able to buy in June/July 2015 as we would like to move out of state closer to family and where it is more affordable.  With my husband's income we are over for the area for USDA Direct, but would qualify for guaranteed.  I have read mixed opinions on whether we could qualify under that program with a short sale at 32-33 months prior.  Now I am wondering if we do not qualify for USDA due to the time frame then maybe we will be able to qualify for Conventional because it will be almost 5 years since the Ch 7 discharge.

 

I am only considering the difference in the waiting period here - I know that the credit, down payment, etc. requirements will be different for Conventional.  I am not interested in FHA due to the PMI requirements, and they also require 36 months as far as I know.  

 

Thanks!

 

 

Message 5 of 18
Super Contributor

Re: BIG changes to Fannie Mae's policy regarding mortgages included in BK

The guideline change is very new.  However I confirmed with two different lenders that it'd also apply to homes whose mortgages were discharged through the BK and subsequently short sold.  I haven't closed any under that situation though.  There are also the PMI companies guidelines to consider if the down payment is less than 20%, so essentially need to get two approvals.

 

USDA has the same 3 year waiting period on a short sale that FHA does, so closing prior to the 3 year mark could only be done with an extenuating circumstance (like FHA as well).

Mortgages (FHA, VA, USDA, Fannie, Freddie, Non-Prime) since 2002, based in Irvine, CA and lending in all 50 states

Information that is needed to determine if you qualify for a mortgage

Message 6 of 18
New Member

Re: BIG changes to Fannie Mae's policy regarding mortgages included in BK

Thank you!

Message 7 of 18
Established Member

Re: BIG changes to Fannie Mae's policy regarding mortgages included in BK

We were getting ready to buy a house as our 2 year wait will be up in less than a month.  Now, it looks like they are making us wait 4 years before we buy?  This totally sucks.  Houses in the Seattle area are selling for higher than the peak of 2006 and continue to rise.  We really wanted to get into a new home before the prices get totally unaffordable.

 

The mortgage brokers and banks that I've been talking to are still staying that 2 years is fine.  I guess they are out of the loop. 

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Message 8 of 18
New Member

Re: BIG changes to Fannie Mae's policy regarding mortgages included in BK

BK is 2 years.  Foreclosure is 3.  These is government loans (FHA, VA, USDA)  Conventional (fannie/Freddie) are 4 years Chapt 7 BK. 

 

Message 9 of 18
New Member

Re: BIG changes to Fannie Mae's policy regarding mortgages included in BK

That is correct. Fannie did just change he guideline regarding shortsales to four years even with 20% down from the previous 2 years

Message 10 of 18