So Government mortgage giant Fannie Mae has just announced some interesting new mortgage underwriting guidelines in an April 14th bulletin to lenders. And among them is a tasty little tidbit that changes things for a certain slice of troubled mortgage borrowers — a time-frame change the investment community would do well to have on our radar.
For those who have previously released their homes through short sale or a “deed in lieu of foreclosure”, there has always been a waiting period required before you could apply for another Fannie Mae backed loan.
In 2008, the waiting period was reduced from five years to four. But effective July 1, 2010, this waiting period has been reduced to only 2 years.
The “Catch”?
Now to qualify after that two year period, the new regs state that a minimum 20% down payment will be required — unless there are “extenuating circumstances” such as job loss, health problems, divorce, etc…
But I’m thinking, doesn’t pretty much any short sale by default involve “extenuating circumstances”? I mean, just show them the hardship letter you submitted with your short sale docs. Case closed. At least that’s what I think – only time will tell.
Why This Matters to Investors
So why does this matter, and how should we, as investors, USE this information?
Well for starters, if you couple this with the Obama administration’s new Short Sale assistance program (where mortgage servicing companies are paid $1,000 to handle successful short sales and mortgage holders get $1,500 for signing over their property), you’ve now got more compelling reasons than ever for distressed homeowners and lenders alike to pursue a short sale rather than just throwing up their hands and “letting things go”.
And from the investor’s perspective, this is information you can now use when negotiating with a distressed seller, to help enlighten them to the benefits of working with you to pursue a short sale versus foreclosure.
(In case you didn’t know, the typical “it’ll do less damage to your credit than a foreclosure” argument doesn’t really hold water anymore.)
The new 2 year rule could also come into play for you if you’re retailing houses. My bet is that most folks who “lose their house” through short sale or deed-in-lieu will have no clue they can qualify again in as few as 2 years. Anyone smell an opportunity there? What about for 2 year lease options?
So just keeping you in the loop, guys.
Oh and just so you know, Fannie’s rival Freddie Mac remains unchanged in their waiting period. But historically whatever one entity does successfully, the other tends to emulate shortly thereafter. So it’ll be surprising if they don’t follow suit.
If you want to read more about this, here are a couple of good articles from Housing Predictor and The Washington Post.
What are your thoughts on this? I’d love to hear them…