• Freddie Mac Manual Underwriting Guidelines
• Freddie Mac After Foreclosure Guidelines
• Freddie Manual Underwriting Guidelines Matrix
• Freddie Mac Manual Underwriting Foreclosure Guideline 2017

General Information

The presence of significant derogatory credit events dramatically increases the likelihood of a future default and represents a significantly higher level of default risk. Examples of significant derogatory credit events include bankruptcies, foreclosures, deeds-in-lieu of foreclosure, preforeclosure sales, short sales, and charge-offs of mortgage accounts.

Note: The terms “preforeclosure sale” and “short sale” are used interchangeably in this Guide and have the same meaning (see Deed-in-Lieu of Foreclosure, Preforeclosure Sale, and Charge-Off of a Mortgage Account below).

The lender must determine the cause and significance of the derogatory information, verify that sufficient time has elapsed since the date of the last derogatory information, and confirm that the borrower has re-established an acceptable credit history. The lender must make the final decision about the acceptability of a borrower’s credit history when significant derogatory credit information exists.

• The report must meet the requirements of Fannie Mae, Freddie Mac, FHA or VA, which include, but are not limited to the following requirements: The report should include all information from three different credit repositories, or two repositories, if that is the extent of the data available for the applicant.
• Jun 12, 2019 URLA optional use period postponed At the direction of the Federal Housing Finance Agency, Fannie Mae and Freddie Mac are communicating that the optional use period for the redesigned Uniform Residential Loan Application (URLA) form and corresponding datasets will not begin on July 1, 2019, as previously scheduled.

This topic describes the amount of time that must elapse (the “waiting period”) after a significant derogatory credit event before the borrower is eligible for a new loan salable to Fannie Mae. The waiting period commences on the completion, discharge, or dismissal date (as applicable) of the derogatory credit event and ends on the disbursement date of the new loan for manually underwritten loans. See B3-5.3-09, DU Credit Report Analysis, for additional information pertaining to DU loan casefiles, including how the waiting period is determined. Also see B3-5.3-08, Extenuating Circumstances for Derogatory Credit, for additional information.

Fannie Mae-Freddie Mac Condo Guidelines And Requirements. Both Fannie Mae and Freddie Mac Condominium Guidelines are similar. Freddie Mac and Fannie Mae eligibility requirements allow 3% down payment condo purchase conventional loans to borrowers who qualify on owner occupant condos. Second home condos require 10% down payment.

Note: The requirements pertaining to significant derogatory credit are not applicable to high LTV refinance loans. (See B5-7-02, High LTV Refinance Underwriting, Documentation, and Collateral Requirements for the New Loan.)

Identification of Significant Derogatory Credit Events in the Credit Report

Lenders must review the credit report and Section VIII, Declarations, of the loan application to identify instances of significant derogatory credit events. Lenders must review the public records section of the credit report and all tradelines, including mortgage accounts (first liens, second liens, home improvement loans, HELOCs, and manufactured home loans), to identify previous foreclosures, deeds-in-lieu, preforeclosure sales, charge-offs of mortgage accounts, and bankruptcies. Lenders must carefully review the current status of each tradeline, manner of payment codes, and remarks to identify these types of significant derogatory credit events. Remarks Codes are descriptive text or codes that appear on a tradeline, such as “Foreclosure,” “Forfeit deed-in-lieu of foreclosure,” and “Settled for less than full balance.”

Significant derogatory credit events may not be accurately reported or consistently reported in the same manner by all creditors or credit reporting agencies. If not clearly identified in the credit report, the lender must obtain copies of appropriate documentation. The documentation must establish the completion date of a previous foreclosure, deed-in-lieu or preforeclosure sale, or date of the charge-off of a mortgage account; confirm the bankruptcy discharge or dismissal date; and identify debts that were not satisfied by the bankruptcy. Debts that were not satisfied by a bankruptcy must be paid off or have an acceptable, established repayment schedule.

Freddie Mac Manual Underwriting Guidelines

Note: Timeshare accounts are considered installment loans and are not subject to the waiting periods described below.

Bankruptcy (Chapter 7 or Chapter 11)

A four-year waiting period is required, measured from the discharge or dismissal date of the bankruptcy action.

Exceptions for Extenuating Circumstances

A two-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the discharge or dismissal date of the bankruptcy action.

Bankruptcy (Chapter 13)

A distinction is made between Chapter 13 bankruptcies that were discharged and those that were dismissed. The waiting period required for Chapter 13 bankruptcy actions is measured as follows:

• two years from the discharge date, or

• four years from the dismissal date.

The shorter waiting period based on the discharge date recognizes that borrowers have already met a portion of the waiting period within the time needed for the successful completion of a Chapter 13 plan and subsequent discharge. A borrower who was unable to complete the Chapter 13 plan and received a dismissal will be held to a four-year waiting period.

Exceptions for Extenuating Circumstances

A two-year waiting period is permitted after a Chapter 13 dismissal, if extenuating circumstances can be documented. There are no exceptions permitted to the two-year waiting period after a Chapter 13 discharge.

Multiple Bankruptcy Filings

For a borrower with more than one bankruptcy filing within the past seven years, a five-year waiting period is required, measured from the most recent dismissal or discharge date.

Note: The presence of multiple bankruptcies in the borrower’s credit history is evidence of significant derogatory credit and increases the likelihood of future default. Two or more borrowers with individual bankruptcies are not cumulative, and do not constitute multiple bankruptcies. For example, if the borrower has one bankruptcy and the co-borrower has one bankruptcy this is not considered a multiple bankruptcy.

Exceptions for Extenuating Circumstances

A three-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the most recent bankruptcy discharge or dismissal date. The most recent bankruptcy filing must have been the result of extenuating circumstances.

Foreclosure

A seven-year waiting period is required, and is measured from the completion date of the foreclosure action as reported on the credit report or other foreclosure documents provided by the borrower.

Exceptions for Extenuating Circumstances

A three-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the completion date of the foreclosure action. Additional requirements apply between three and seven years, which include:

• Maximum LTV, CLTV, or HCLTV ratios of the lesser of 90% or the maximum LTV, CLTV, or HCLTV ratios for the transaction per the Eligibility Matrix.

• The purchase of a principal residence is permitted.

• Limited cash-out refinances are permitted for all occupancy types pursuant to the eligibility requirements in effect at that time.

Note: The purchase of second homes or investment properties and cash-out refinances (any occupancy type) are not permitted until a seven-year waiting period has elapsed.

Foreclosure and Bankruptcy on the Same Mortgage

If a mortgage debt was discharged through a bankruptcy, the bankruptcy waiting periods may be applied if the lender obtains the appropriate documentation to verify that the mortgage obligation was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting periods must be applied.

Deed-in-Lieu of Foreclosure, Preforeclosure Sale, and Charge-Off of a Mortgage Account

These transaction types are completed as alternatives to foreclosure.

• A deed-in-lieu of foreclosure is a transaction in which the deed to the real property is transferred back to the servicer. These are typically identified on the credit report through Remarks Codes such as “Forfeit deed-in-lieu of foreclosure.”

• A preforeclosure sale or short sale is the sale of a property in lieu of a foreclosure resulting in a payoff of less than the total amount owed, which was pre-approved by the servicer. These are typically identified on the credit report through Remarks Codes such as “Settled for less than full balance.”

• A charge-off of a mortgage account occurs when a creditor has determined that there is little (or no) likelihood that the mortgage debt will be collected. A charge-off is typically reported after an account reaches a certain delinquency status, and is identified on the credit report with a manner of payment (MOP) code of “9.”

A four-year waiting period is required from the completion date of the deed-in-lieu of foreclosure, preforeclosure sale, or charge-off as reported on the credit report or other documents provided by the borrower.

Exceptions for Extenuating Circumstances

A two-year waiting period is permitted if extenuating circumstances can be documented.

Note: Deeds-in-lieu and preforeclosure sales may not be accurately or consistently reported in the same manner by all creditors or credit reporting agencies. See Identification of Significant Derogatory Credit Events in the Credit Report above for additional information.

Summary — All Waiting Period Requirements

The following table summarizes the waiting period requirements for all significant derogatory credit events.

Requirements for Re-establishing Credit

After a bankruptcy, foreclosure, deed-in-lieu of foreclosure, preforeclosure sale, or charge-off of a mortgage account, the borrower’s credit will be considered re-established if all of the following are met:

• The waiting period and the related additional requirements are met.

• The loan receives a recommendation from DU that is acceptable for delivery to Fannie Mae or, if manually underwritten, meets the minimum credit score requirements based on the parameters of the loan and the established eligibility requirements.

Freddie Mac After Foreclosure Guidelines

• The borrower has traditional credit as outlined in Section B3–5.3, Traditional Credit History. Nontraditional credit or “thin files” are not acceptable.

Related Announcements

The table below provides references to the Announcements that have been issued that are related to this topic.

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.

References to LTV ratios include LTV, CLTV, and HCLTV ratios. The maximum LTV ratios permitted are the lesser of the LTV ratios in this table or the maximum LTV ratios for the transaction per the Eligibility Matrix.

Since late 2007 and the MORTGAGE MELTDOWN started we’ve had many “inquiries” from prospective MN & WI buyers who’ve wanted to get into a new home or BACKinto home ownership. The last couple years have been hard on many people even though the Federal Government says that the recession is behind us. People have had their incomes cut back, lost jobs, bankruptcies, foreclosures and short sales.

What I wanted to share with you is a current (as of today) crib sheet of how long certain negative things need to be “seasoned” before different types of mortgage financing can be offered.

Let’s get a list of different situations or events may be required for waiting periods for different types of financing options:

Bankruptcy

The two most common types of bankruptcy (BK) are the Chapter 7 (liquidation) and the Chapter 13 (reorganization).

• FHA will need a Chapter 7 BK to be dismissed 24 months (or 1 year for someone who’s eligible for the Back to Work program). Someone who is IN a Chapter 13 and is in the process of REPAYING their debts can qualify for a FHA loan after 12 months of proof of repayment, no “lates” on anything on their credit report AND “permission from the court”.
• Conventional Financing with the Federal National Mortgage Association (FNMA/Fannie Mae) after a Chapter 7 is allowed after 48 months from the discharge/dismissal date. A two-year waiting period is allowed if certain “extenuating circumstances” can be documented. The time is extended to 60 months if there is more than one BK within the last 7 yrs.
• Conventional Financing with the Federal Home Loan Mortgage Corporation (FHLMC/Freddie Mac) will generally require a borrower to have waited 84 months unless either “extenuating circumstances” can be met ( then its 24 months) OR when “extenuating circumstances” can’t be met and then what Freddie calls “Financial mismanagement” is assumed and then the timeframe is reduced to 48 months and a list of requirements must be met including a 680 score and a perfect rental history.
• The US Department of Veterans Affairs will allow an eligible Veteran to qualify for a VA loan typically two years after discharge date of a Chapter 7 BK. There are guidelines that the VA spells out for a Veteran to qualify between 1 and 2 yrs after discharge date according to Chapter 4 of the VA Lender Handbook: if both of the following are met
  • borrower and/or co-borrower have reestablished satisfactory credit, and
  • the bankruptcy was caused by circumstances beyond your and/or your spouses control (such as unemployment, medical bills, etc.)

Another situation for a determining that an applicant is a satisfactory credit risk is in situations where the BK was caused by failure of a business of a self-employed applicant and:

• the applicant obtained a permanent position after the business failed,
• there is no derogatory credit information prior to self-employment,
• there is no derogatory credit information subsequent to the bankruptcy, and
• failure of the business was not due to the applicant’s misconduct.

For Chapter 13 BK’s the 2 situations outlined that may conclude a VA lender to extend credit are :

• Satisfactorily making at least 12 months of payments and “permission from the court”
• Finishing all payments satisfactorily
• The USDA (US Department of Agriculture) has a Rural Development program that generally will require a discharge date of 36 months.

Foreclosure

Freddie Manual Underwriting Guidelines Matrix

A foreclosure is the legal process by which a mortgagee (typically a bank) obtains a court ordered termination of the home-owners “equitable right of redemption”.

• FHA requires a 36 months seasoning (or 1 year for someone who’s eligible for the Back to Work program)
• Fannie Mae and/or Freddie Mac require 84 months from the completion of the Foreclosure for the Date of the credit pull for the new loan. The old “between 5 and 7 year rule” was changed effective October of 2010. Now there is a 3 yr “extenuating circumstance” rule (90% LTV for a primary residence) with Fannie Mae and its at only 2 yrs with Freddie Mac.
• VA follows their guidelines for a Chapter 7 BK with the request that the complete facts / circumstances of the Foreclosure be submitted AND if the Foreclosure was on a VA loan note that “full entitlement” will not be available for the new loan.
• USDA generally requires 36 months OR if after 12 months, reestablished credit and an underwriter “waiver”. This is completely up to the discretion of the u/w… do you have a good one?

Short Sale

A Short Sale is an option of a homeowner selling a home for less than the balance on their current mortgages and the mortgagee agrees to a reduced payoff. The bank’s decision to allow a Short Sale is typically in lieu of the foreclosure process which can result in heft fees for the bank. This process and agreement does not necessarily release the homeowner from the obligation to pay the remaining balance of the loan known as the DEFICIENCY.

• FHA requires 36 months in most situations. If CERTAIN GUIDELINES are met that follow Mortgagee Letter 09-52… the homeowner could qualify for an immediate purchase. Did you catch that… RIGHT AWAY. This is an important guideline change that is often misunderstood. Another complicated option is the FHA Back to Work program that allows for a purchase after 1 year even if there were late payments on the mortgage against the property previously sold short.
• Fannie Mae guidelines right now require a 48 month seasoning for FULL ELIGIBILITY. Their “extenuating circumstances” rule may allow someone to borrow in as little as 2 yrs.
• Freddie Mac is sticking to their 48 month seasoning… or 24 months if their “extenuating circumstances” guidelines can be proven/met.
• VA guidelines that we’ve seen have looked very similar to FHA’s above; 36 months OR if after 12 months and fitting the similar new guidelines of ML 09-52.
• USDA generally requires 36 months OR with the right underwriter’s “waiver” and approval.

Freddie Mac Manual Underwriting Foreclosure Guideline 2017

Did you get all that? Its pretty crazy and you can see that things are different now and the job of a “mortgage guy” (and a Realtor) is to know more than just “what’s the rate and fees”? These guidelines are effective today and changed a few times in the past year.

We have to educate consumers who are current home-owners that are in tough situations (ask me about the “Upside Down Playbook”) along with shoppers who have fallen into Hardships. The toughest part of our jobs right now is telling people what they need to know and not just what they want to hear. The hope is that the knowledge from the paragraphs above will help you shine and win more referrals and future business.