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:
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).
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