Fannie Mae Cuts Mortgage Guidelines to Help Borrowers

By Mike Colpitts

Former homeowners who have lost their homes in a short sale or signed them back to the bank may get a break from Fannie Mae to buy a new home. The mortgage giant has cut mortgage guidelines, reducing the time to obtain a new mortgage from four years for troubled mortgage borrowers to just two years.

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Fannie Mae made the announcement in a bulletin it sent out to bankers. The new rules are scheduled to go into effect July 1st, reducing the waiting period for those who have suffered through a short sale to avoid foreclosure or signed a deed in lieu of foreclosure.

Millions of mortgage borrowers have lost their homes as a result of foreclosure due to the financial crisis, signed deeds in lieu of foreclosure or worked out short sales with their banks to sell homes for less than what they owe. The new program is another effort to gain Main Street support for the White House housing rescue plan to stem the flood of rising foreclosures.

However, qualifying for a new mortgage will be more difficult than it was during the real estate boom through the program. Mortgage borrowers will be required to come up with a 20% down payment to obtain a mortgage in two years unless borrowers’ can show mortgage problems were due to extenuating circumstances like the loss of a job, divorce or medical expenses. If that’s the case, borrowers may be able to obtain a new mortgage with a 10% down payment.

Fannie Mae has been the target of widespread criticism for its aggressive actions to provide mortgages to homeowners as a result of political fall out in wake of the Obama administration’s housing crisis rescue program. The White house is currently working to gather input from mortgage experts, college professors and the public to reform the ailing government sponsored enterprise. Fannie and Freddie Mac supply more than 80% of all U.S. mortgages.

Fannie Mae officials did not return inquiries made to discuss the program, but the notice it sent out to mortgage lenders said Fannie hopes to encourage homeowners to work out solutions with their lenders to avoid foreclosure. The announcement was made at a time when more and more mortgage holders are choosing to walk away from their homes as a result of unaffordable mortgages resulting in more foreclosures.

Freddie Mac still generally requires four years before it will approve borrowers for a new mortgage who have undergone a short sale, signed a deed in lieu of foreclosure or experienced a foreclosure. However, if extenuating circumstances can be demonstrated by mortgage applicants Freddie Mac will approve a new mortgage two years after short sales or deeds in lieu of foreclosure have been signed back to the bank.

Mortgage applicants still have to demonstrate that they have been paying other bills in a timely fashion and get good marks in their credit bureau files. A credit score was not mentioned in the bulletin sent out to bankers. The new mortgage underwriting guidelines are expected to give hundreds of thousands of borrowers a new chance at home ownership.

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