We are hard-pressed to pick up a newspaper or listen to a newscast without seeing or hearing something about bankruptcies, foreclosures, or the credit crisis in general. Millions of Americans who over-extended themselves in the last decade are now paying “the price,” and the impact of the “shadow inventory” that hangs over the housing market will last for years. But looking at things from a granular perspective will help to keep things in perspective. In the past, borrowers who had declared bankruptcy, or turned in their keys (“deed in lieu of foreclosure,” similar to a defendant pleading “no contest” in a court case) usually moved into the “subprime” category. And with that sector of the market came higher rates. Now, millions of Americans are going through bankruptcies, or mailing in their keys – how long will it be until they regain “A-paper” status with the agencies or large lenders?
It is not an easy question to answer. Is any underwriting question easy to answer, now or in the past? Basic information for the agencies: Fannie Mae (FNMA) and Freddie Mac (FHLMC) can be found at:
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/sel1005.pdf
or
http://www.freddiemac.com/learn/service/foreclosure.html.
Fannie Mae, for example, requires 5 years from the completion date for foreclosures. “From the fifth to seventh year following the foreclosure completion date, the purchase of a principal residence is permitted with a minimum 10% down and 680 FICO score. The purchase of a second or investment property is not permitted for 7 years. Limited cash out refinances are permitted for all occupancy types. Pre-foreclosure (Short Sale) minimum is 2 years from the completion date (no exceptions or extenuating circumstances).”
For Fannie, a situation involving a Deed-in-Lieu of Foreclosure “requires a 4 year period from the date the deed-in-lieu is executed. From the fifth to the seventh year following the execution date the borrower may purchase a property secured by a principal residence, second home or investment property with the greater of 10 percent minimum down payment or the minimum down payment required for the transaction. Limited cash out and cash out refinance transactions secured by a principal residence, second home or investment property are permitted pursuant to the eligibility requirements in effect at that time.” And under a Chapter 7 Bankruptcy “A borrower is eligible for an A paper loan program 4 years after discharge or dismissal, provided they have reestablished credit and have maintained perfect credit after the bankruptcy.” Chapter 13 Bankruptcy: 2 years from the discharge date or 4 years from the dismissal date.
In summary, for Fannie, strategic defaulters have to wait 7 years after a foreclosure, but 2 or 4 years after a deed in lieu (depending on LTV of 80 or 90%). In a case where the home was not lost through a strategic default, but due to extenuating circumstances beyond a borrower's control, such as job loss, death, divorce, medical issues, etc., then the waiting period is reduced to 3 years on a foreclosure (90 LTV, cash-out refis are not allowed, and purchases must be owner occupied) and is reduced to 2 years on a deed-in-lieu (maximum of 90% LTV). The intention is to provide incentive for deeds-in-lieu vs. foreclosures, and not to punish borrowers who lost their home through events beyond their control. Strategic defaulters via foreclosure have to wait 7 years, and homes lost through extenuating circumstances are eligible in 2 years for deeds-in lieu and 3 years for foreclosures (90%LTV). The selling guide lists how lenders are required to document extenuating circumstances (section B3-5.3-08) and also the foreclosure and re-established credit.
Freddie Mac’s time lines and requirements are very well spelled out in its on-line guides. “Recovery Time Periods for Reestablishment of Credit” vary based on a number of criteria. With “Extenuating Circumstances” for example, a foreclosure requires 36 months from the completion date as reported on the credit report. Deed-in-lieu is 24 months from the execution date, and a short sale is 24 months from the completion date. “Whenever a Borrower has had a previous foreclosure, deed-in-lieu of foreclosure or a short sale within the last seven years, the Mortgage must either be: a purchase transaction Mortgage secured by a Primary Residence with a maximum loan-to-value (LTV)/total LTV (TLTV)/Home Equity Line of Credit TLTV (HTLTV) ratio of the lesser of 90% or the maximum LTV/TLTV/HTLTV ratio for the transaction, or a "no cash-out" refinance Mortgage that meets the requirements of Chapter 24.
By the way, “extenuating circumstances” are created by “non-recurring events that are beyond the borrower's control, which result in a sudden, significant, and prolonged reduction in income, or a catastrophic increase in financial obligations. However, extenuating circumstances cannot be solely defined by the event; they must take into consideration the interrelationship between the event, the severity of the resulting hardship, and the extent of the borrower's efforts to resolve the situation.”
Government Loans
Turning to government loans, for Wells Fargo, per a source in the wholesale channel, VA loans require a 2 year wait for both foreclosures and short sales and if the original loan was serviced by Wells Fargo an automated approval is required.
For FHA insured loans, 3 years for both and an automated approval is required if the loan was Wells Fargo. Generally speaking, for conventional agency loans it is 4 years for both, with the usual automatic approval requirement. (In all cases if the loan was Wells Fargo and there is no automatic approval the wait is 7 years.)
Watch out for specific lender guidelines, as other lenders require a 2 year wait only for FHA or VA, subject of course to the full borrower profile.
What does all this mean? First, remember that non-agency lenders do exist who often offer programs tailored to borrowers who have lost their homes due to foreclosures or short sales. And not all borrowers are out of the “potential homeowner pool” for seven years. If there are extenuating circumstances, if MI or low LTV’s are involved, etc., borrowers may be eligible for an A-paper home loan sooner - which is certainly good news for the housing market in the near future.
Need to know how the entire loan process works? Go here: http://www.mijoymortgage.com/Loan_20_Process1.html
Need more info or wish to apply for HARP II (unlimited LTV refinance)? Go here: http://www.mijoymortgage.com/.
No comments:
Post a Comment