FNMA Rewards Michigan Homeowners doing a Short Sale or Deed-In-Lieu Instead of Walking-Away (Foreclosure)

By
Services for Real Estate Pros with Topkins & Bevans-etopkins@topbev.com

This is really a break-through. There is light at the end of the tunnel for people who thought they were "out of the ballgame if they had a short sale or deed-in-liew.

Homeowners doing a Short Sale or Deed-In-Lieu instead of Walking-Away (Foreclosure) got some great news from FNMA recently as the agency announced shorter waiting periods to qualify for a new mortgage.

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In an attempt to encourage Michigan Homeowners to work with their lenders on Short Sales or Deed-in-Lieu's instead of just letting their homes go to Foreclosure, FNMA just announced some changes to their policy in regards to these homeowners qualifying for their next mortgage.

Previously, Deed-in-Lieu's were treated the same as Foreclosures - giving a Michigan Homeowner little incentive to work out anything with their lender.

There was also a lot of confusion regarding when a homebuyer could qualify for a new mortgage after a Short Sale.

FNMA's announcement SEL-2010-05 clarifies their policies. 

A summary of the new guidelines:

  • Putting 20% Down - minimum wait period of 2 years
  • Putting 10% Down, minimum wait period of 4 years
  • Putting less than 10% Down, minimum wait period of 7 years

There are still exceptions for extenuating circumstances (out of homebuyer's control), but the minimum regardless of reason is 2 years.

FNMA has also clarified what constitutes acceptable re-established credit after a Foreclosure, Deed-In-Lieu, Preforeclosure, Short Sale or Bankruptcy.  The homebuyer's credit can only be re-established through credit tradelines reported through the credit bureaus.  Nontraditional credit - utility bills, car insurance, etc, that is not reported through the credit bureaus will no longer be acceptable.

What's this mean for Michigan Homeowners considering a Short SaleDeed-in-Lieu, Foreclosure and/or Bankruptcy

  • Will your lender even work with you or will they ignore you and give you the run around pushing you into Foreclosure, despite the financial incentives the government is giving lenders?
  • If you work with your lender to do a Deed-in-Lieu or Short Sale instead of Foreclosure, where will you live and how will you pay for that housing?
  • You'll have to weigh the new waiting time periods against how long you can stay in your home without making payments.  Can you save enough to pay cash for a new home or for a down payment on a land contract to avoid having to worry about a new mortgage?
  • Are your debts such that you'll have to file Bankruptcy, which FNMA requires you to wait 4 years, so the 2 year incentive doens't really matter?

I highly recommend struggling homeowners seek out the advice of Certified Mortgage Professionals, Attorneys & CPA's in analyzing their options.  Don't let anyone tell you what to do!  True professionals assist you in understanding your options so you, and only you, make the best decision for your future.

Here's the chart FNMA published regarding their guidelines concerning this:

Preforeclosure Event Current Waiting Period Requirements New Waiting Period Requirements
Deed-in-Lieu of Foreclosure 4 years
Additional requirements apply after 4 years up to 7 years 
2 years - 80% maximum LTV ratios
4 years - 90% maximum LTV ratios 7 years - LTV ratios per Fannie Mae's eligibility matrix 
Preforeclosure Sale 2 years 
Short Sale No policy currently exists specific to short sales
Exceptions to Waiting Period for
Extenuating Circumstances
Preforeclosure Event Current Waiting Period Requirements New Waiting Period Requirements
Deed-in-Lieu of Foreclosure 2 yearsAdditional requirements apply after 2 years up to 7 years 2 years - 90% maximum LTV ratios
Preforeclosure Sale No exceptions are permitted to the 2-year waiting period
Short Sale No policy currently exists specific to short sales

 
To read the full announcement yourself click here.

By the way, if you do go all the way to foreclosure, it's still a minimum 5 years until you can get a new mortgage.  This new announcement did not affect that.

I would expect FHLMC to soon follow this with their own updates.

Contact me with questions or for assistance.

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Drew Sygit: CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MAMP Instructor & Speaker
The most Certified Mortgage Expert in the Midwest

Contact him for The Lending Edge
P: 248-356-3739 • F: 866-215-3755 • dsygit@TheLendingEdge.comwww.TheLendingEdge.com

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