FNMA Updated Bankruptcy, Foreclosure, and Short Sale Policies

A view shows the Fannie Mae logo at its headquarters in Washington

Fannie Mae updated its policies regarding significant derogatory credit events, which in some cases allows more borrowers to reenter the housing market. These updates are reflected in the embedded chart: How long after bankruptcy or foreclosure must you wait to get a mortgage?

  1. Waiting Period for Mortgage Debt Discharged Through Bankruptcy

The borrower is now held to the bankruptcy waiting period (4 years) and not the foreclosure waiting period (7 years). This is true even if a foreclosure action is subsequently completed to reclaim the property in satisfaction of the debt. This is a significant and favorable change. From the FNMA underwriting guidelines (B3-3-07): “When both a bankruptcy and foreclosure are disclosed on the loan application, or when both appear on the credit report, the lender may apply the bankruptcy waiting period if the lender obtains the appropriate documentation to verify that the mortgage loan in question was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting period must be applied.

[At this time FHA/VA/USDA require a two year waiting period following discharge and a three year period post-foreclosure.]

  1. Short Sale or Deed-in-Lieu Waiting Period

The waiting periods are being updated to establish a standard four year waiting period, with a two year waiting period permitted providing a borrower has extenuating circumstances*.

[FHA/VA/USDA require a three year waiting period following Short Sale or Deed-In-Lieu.]

  1. Mortgage Debt

As a new policy, charge-offs of mortgage accounts now require a four year waiting period following this derogatory credit (two years if the borrower can demonstrate extenuating circumstances*).

Number one became effective July 29, 2014; two and three are effective for mortgage loans with applications dated on and after August 16, 2014.

How do you know if Fannie Mae owns/owned your mortgage? Click on FNMA Loan Lookup.

Based on past experience, it will take time for the mortgage origination industry to catch up with these new policies. Further, it is likely that some will not accept these policies within their own underwriting guidelines.

*Given the reliance on automated underwriting for compliance purposes, few lenders will delve into the perceived risk of manually underwriting extenuating circumstances for fear of losing the QRM safe harbor. QRM standards were implemented on January 10, 2014. The vast majority of lenders are staying squarely inside the New Rules box, so to speak.

Reference: Fannie Mae  Selling Guide Announcement SEL-2014-10

Image Credit: Reuters/Jonathan Ernst

Financially Speaking™  James SprayMLO, CNE, FICO Pro
CO LMO 100008715 | NMLS 257365 |August 10, 2014 | Updated January 28, 2018

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

6 comments on “FNMA Updated Bankruptcy, Foreclosure, and Short Sale Policies

  1. Patricia Mackey says:

    Hi James,

    We are really being educated from your Blog! I have a question as it relates to what you just blogged about the  waiting periods for  a Discharged  Chapter 13 Bankruptcy. My question is, does the two year waiting period also apply for Refinancing your home after you are discharged?

    Thank you, Pat



    • James Spray says:

      Excellent question, Pat –

      With a conventional mortgage (Fannie Mae and Freddie Mac) you can refinance two years post-discharge providing you’ve reestablished appropriate credit, build acceptable FICO Scores with no new bad credit. The assumption here is that you will obtain full automated underwriting approval at that time. With a government insured mortgage (FHA/VA/USDA) you can even refinance during a Chapter 13 with court approval. In addition, you can refinance after the discharge enters providing you can find a lender which will manually underwrite the loan. Many, if not most, lenders will not take the risk of a manually underwritten approval in the current regulatory climate.

      Best thoughts for your success!


  2. clara says:

    hello, I have a question regarding the qualifications of “back to work” prog. it mostly says that you have to have a loss of income etc.. does this include incarceration of a significant other who was the main provider?


  3. Val says:

    Thanks for posting this, it is very helpful. I don’t suppose you know of any lenders that are familiar and using this information? The only reason I ask is that I have called a few lenders since these guidelines have come out and told me that they were bound to the short sale date not the bankruptcy discharge date. I saw them on FHA, so I know they are there… lol… I’m in Illinois- not sure if that matters….


    • James Spray says:

      Hello Val –

      I understand your situation and it is frustrating that all are not always on the same page. On one hand, it takes time for new information to flow through to all channels in the mortgage lending industry. On the other hand, it is also true that there are lenders in the industry that layer additional overlays in their own underwriting guidelines as they are not compelled to follow Fannie, Freddie or FHA. My blog post of today discusses some of this bias which is based on a realistic fear of the originating lender being put in a position of having to repurchase a loan.

      To your point, try the Find a Mortgage Professional search section on the NAMB home page for a mortgage professional in or nearest your zip code. Another possible source is to contact a HUD Approved Housing Counselor and ask for contact information of a few established mortgage brokers who are working with direct lenders.

      Let us know what you find which works for you, please.

      We wish you success!


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