First, let me give you a little background on that particular document.  It was released by Fannie Mae on June 25^th of this year.  Its changes went into effect on August 1^st of this year.  Some may think the date of August 16^th comes into play as the title is Announcement 08-16, but that number represents that this was the 16^th announcement Fannie Mae issued in 2008.  For all of Fannie Mae’s announcements, check out www.efanniemae.com.  As of August 21^st, there are now 21 announcements/changes Fannie Mae has issued.

The specific announcement you refer to has a number of components: dealing with a change in guidelines regarding when Fannie Mae will provide a loan for someone who previously filed bankruptcy or who previously had a foreclosure or deed-in-lieu; how Fannie Mae will look at a borrower who currently owns a primary residence and will be keeping that residence and converting to a second home or rental when they purchase a new primary residence; and lastly, how Fannie Mae will deal with appraisals/values that are sold to them by lenders 6 months or more after the deal was closed.  For the purpose of this blog, I’m not going to address the last component as it doesn’t pertain to realtors and homebuyers.

Bankruptcies

Back in the “good ol’ days” of mortgage lending, there were some sub prime programs that offered 100% financing to buyers who were one day out of a discharged or dismissed bankruptcy.   Fannie Mae was never that lenient.  Fannie Mae currently requires a buyer be 4 years from a discharged Chapter 7 bankruptcy or 2 years from a discharged Chapter 13.  (A Chapter 7 is when your debt is wiped clean and you make no payments back to your debtors, a Chapter 13 is when your debt with your debtors is renegotiated and you make monthly payments on a portion of the debt you originally owed.)

This announcement basically just provides rules as to what we can accept if you had a bankruptcy dismissed, meaning you started the process, but didn’t follow through with your bankruptcy so it was never completed.  It also provides guidance if a buyer has had multiple bankruptcies.

So if you have filed for Bankruptcy recently, here are the guidelines in order to qualify for a Fannie Mae loan:

-If you filed a Chapter 7 before, you still will have to wait 4 years from when it was discharged or dismissed.

-If you filed a Chapter 13 before, you will have to wait 2 years from when it was discharged, or if you had it dismissed, you will need to wait 4 years from the dismissal date.

-If you had extenuating circumstances for your bankruptcies (perhaps a major accident or medical issue), you may be able to qualify 2 years from the discharge or dismissal date.

-If you have had multiple bankruptcy filings within the past 7 years, you will have to wait 5 years from the most recent dismissal or discharge date.

-If there were extenuating circumstances surrounding your multiple bankruptcy filings, you may be eligible 3 years from the most recent discharge or dismissal date.

Foreclosures

Fannie Mae has also gotten a little stricter on their stance towards foreclosures.

While you used to be eligible for a Fannie Mae loan 4 years from the date of the completed foreclosure sale, they now are requiring a minimum of 5 years.  Additionally, in order to qualify just 5 years out, it must be a primary residence and you must be putting a minimum of 10% down and have a credit score of 680 or above.  If your scenario does not fit those parameters, you’ll have to wait 7 years.

Now just like with bankruptcies, Fannie Mae does have different guidelines if you have extenuating circumstances.  While you used to be eligible 2 years from the completion of sale, now you must wait 3 years, but the same conditions apply as above (10% down, primary residence, though you don’t need the 680 score).

Conversion of Primary Residence to Second Home or Investment Property

This is the part of the document that concerns me the most and that I feel will have the greatest impact on potential move-up buyers.

In a nutshell, when someone has owned a home and wanted to buy a new one, they either sold their current home or decided to turn it into a rental.  Based on today’s market, most buyers are opting to turn their current home into a rental and wait to sell when the market rebounds.  To qualify the buyer, they would have to find a renter for that property and provide us with a lease agreement.  We could then use 75% of that rental income (leaving 25% for a vacancy factor, maintenance, etc), to offset their mortgage payment on that property.  Now, the new guidelines say we can only use the rental income IF the buyer has at least 30% equity in the property.  In addition, we must also get proof a security deposit has been given from the new renter and has been deposited into our buyer’s account. 

Given our current market, many potential move-up buyers do not have the 30% equity in their current home.  So if we can’t prove the 30% equity (and we must have documented proof on the value of the existing home), we have to qualify the borrower with having enough income to cover both mortgage payments and they must have 6 months worth of mortgage payments for both properties.

Now if the buyer is converting their current home into a second home, they must also be able to qualify for both payments (nothing new) and have 6 months reserves for both properties.

While I can understand Fannie Mae’s reasoning for this and I can’t say I disagree with the theory behind this change, I can definitely say it will make it harder to qualify new buyers who want to keep their existing home.  In today’s housing market, it would be nice if there were new guidelines coming out to make it easier for the responsible people to buy new homes.  The only way we will get out of this mess, is for more people to buy homes (and again, let me reiterate, responsibly buy homes).

If you have any questions on this topic, or any others regarding home loans in Reno, Sparks or any part of Northern Nevada, please don’t hesitate to give me a call or shoot me an email.

Stephanie Hanna

Platinum 1^st Mortgage

 775 762 9114 

Your local home loan lender specializing in First-time homebuyers, FHA and jumbo loans

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