Monday, August 19, 2013

FHA Shortens the Waiting Period for new loans after Short Sale, Foreclosure, Deed-in-Lieu of Foreclosure, or Bankruptcy...

Well, I will be emailing many of my past short sale seller clients shortly. Last week, FHA issued Mortgagee Letter 2013-26, which in a nutshell, shortens the waiting period to get a new mortgage loan for folks who did a short sale, deed-in-lieu of foreclosure, foreclosure of bankruptcy. This waiting period to obtain a new FHA loan for a purchase for these folks has generally been about 3 years after a foreclosure or short sale. Now, for potential buyers who had a "defined Economic Event" can get a new FHA loan for a purchase as soon as 12 months after a short sale, deed-in-lieu of foreclosure, foreclosure, or bankruptcy. This create a huge opportunity for folks who suffered hardship during the recession.

To quote part of Mortgagee Letter 2013-26 directly:
"As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a pre-foreclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected. FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage. 

To that end, FHA is allowing for the consideration of borrowers who have experienced an Economic Event and can document that: 
  • certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrower’s control;
  • the borrower has demonstrated full recovery from the event; and,
  • the borrower has completed housing counseling.
Housing counseling is an important resource for both first-time home buyers and repeat home owners. Housing counseling enables borrowers to better understand their loan options and obligations, and assists borrowers in the creation and assessment of their household budget, accessing reliable information and resources, avoiding scams, and being better prepared for future financial shocks, among other benefits to the borrower."

So what does this mean? A Sacramento borrower who can now qualify for an FHA loan under this Mortgagee Letter STILL must meet other standards of credit-worthiness. You must have solid income, no recent delinquent (late) payments, meet the "debt-to-income ratio" requirements, etc. BUT if you did a short sale, deed-in-lieu of foreclosure, foreclosure, or filed bankruptcy 12+ months ago you may now qualify much sooner for a new mortgage.

Some examples of "defined Economic Events" include things like loss of employment (layoff, company closed,  for you or a spouse, ex-spouse, etc), loss of household income (like in the case of a furlough, reduction of hours for you or a spouse, ex-spouse, etc.), and others.  You will need to prove you had good credit before the economic event took place, and you will need to document this.

One thing I will point out, is lenders may not be super quick to adopt the new guidelines in this Mortgagee if you call your favorite lender right this very minute, they may not be prepared to give you a loan right away. These new guidelines were just released on August 15, 2013 -- so it may take weeks or months for lenders to start actually lending based on these guidelines. If you need a referral to a good loan officer who can help you navigate this, email me and I am happy to point you in the right direction.


Sean Jones said...

Great information, Erin. I'm glad you pointed out that lenders will implement this as soon as they can, but not right away. We implement these new policies as soon as our investors are on board.

Anonymous said...

Hi Erin,

I accessed your blog through a referral from Marlena Olson- Carrington Mortgage Services has aligned with this mortgagee letter and we do not foresee any overlays at this time.

Linda Maples
Wholesale Account Executive