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Mortgage Update: August 2008   Effective August 1, 2008, Fannie Mae has implemented some major changes with regard to seasoning of bankruptcies, seasoning of short sales, seasoning of Foreclosures, & conversions of primary residences into rental properties.  This update will give you all the pertinent information you need to conduct your business in the best manner possible.  These are not all of the guidelines but it will give you the important details of the changes.   Bankruptcy Seasoning ·        All bankruptcy filings, except for chapter 13, must be seasoned for 4 years from the date of discharge or dismissal.  The major change to this was the dismissal addition. ·        Chapter 13 Bankruptcies must be seasoned 2 years from the date of discharge or 4 years from the date of dismissal. ·        In cases of multiple filings in the past 7 years, the borrower must wait a minimum of 5 years from the date of the most recent dismissal or discharge regardless of the bankruptcy action. ·        In cases of extenuating circumstances, borrowers must wait 2 years from the date of discharge or dismissal regardless of the bankruptcy action.   Foreclosures Borrowers that have had previous foreclosures are now under greater scrutiny when applying for financing under these new guidelines.  Below are some of the major bullet points: ·        Minimum time frame a borrower must wait before they are eligible for financing is increased to 5 years from the date the foreclosure was completed. ·        Between the 5 and 7 year time frame a borrower may only purchase a primary residence.  Investment properties and second homes are not permitted. ·        Each borrower applying for the loan must contain a minimum FICO score of 680. ·        Minimum down payment of 10% is required.   Pre-Foreclosure or Short Sales   Fannie Mae views any sale of a property to a third party for less than is owed on the delinquent mortgage to be a pre-foreclosure sale.  (We call them short sales)  The new guideline states that the borrower must wait for a minimum period of 2 years from the date of the sale, before being eligible to buy a new primary residence.  Currently, there is no exceptions to this due to extenuating circumstances.   When speaking to clients this is one of the reasons why short sales are more preferred than a foreclosure – they can buy a primary residences in 2 years instead of 5!   Conversion of Primary Residences to rental property VERY IMPORTANT THIS HAPPENS A LOT Changes to guidelines with regards to converting a primary residence into an investment property are extremely important.  Fannie Mae felt that the previous guidelines that stated a borrower simply had to supply a 12 month lease agreement and lenders could offset the monthly mortgage payment by the amount stated in the lease is no longer valid.  The new guidelines state that if a borrower wants to purchase another home and turn their current primary residence into a rental, the following will apply: ·        The borrower must provide proof they have at least 30% equity in the current primary residence.  This can be determined by an appraisal, AVM, or BPO. ·        The borrower must provide an executed 12 month lease agreement on the current residence to offset the mortgage payment.  Also, the borrower must provide receipt of the security deposit and show the security deposit has been deposited in the borrowers account. ·        75% of the monthly lease amount will be used to offset any mortgage payment.  25% is used to account for any vacancy that may occur. If 30% percent equity cannot be determined, the following will apply: ·        Rental income on the current property may not be used to offset the mortgage payment.  Borrowers must qualify for both mortgage payments. ·        Borrowers must have at least 6 months PITI reserves for both mortgage payments; sourced and seasoned.   Please understand these guidelines only apply to conventional financing and does not include FHA or VA.  If you’re wondering what you can count on in today’s market, the answer is constant change.  Feel free to give me a call at 303-325-3578 to go over any scenarios or questions.   Thank you,   Jocelyn Predovich Senior Mortgage Consultant 303-325-3578   The information contained is this newsletter is for educational purposes only and should not be construed as investment and/or mortgage advice.  Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors. If you wish to no longer receive this newsletter, please reply to this email with “REMOVE” in the subject line.