Fannie Mae is updating its automated underwriting system so that lenders can report when troubled borrowers completed a preforeclosure sale so they aren’t treated as if they went through foreclosure when they apply for a new mortgage.
Under Fannie guidelines, a borrower that completes a short sale or deed-in-lieu transaction can be eligible for a new loan after two years. In cases where a servicer forecloses on a borrower, they are not eligible for seven years.
Starting Nov. 16,
When a borrower completes a short sale, the credit report often reflects a foreclosure and a preforeclosure sale. Currently, DU records it as a foreclosure, which means the borrower has to wait seven years to qualify for a Fannie mortgage.
“By making this change to DU in November, lenders will have the opportunity to get a DU recommendation based on actual foreclosure/preforeclosure credit history and with the appropriate waiting period applied,” Pawlowski said in a FM Commentary.
