Mortgage Rumors: Fannie Mae and Principal Reductions

by Elizabeth K. from Holiday, FL and by Liz T. from NY, NY

Ask Kate if Fannie Mae and Freddie Mac ever plan to grant principal reductions on behalf of underwater borrowers: As of February 2015, mortgage reductions for seriously underwater homes that are financed with money backed by Fannie Mae (FNMA) and Freddie Mac (FHMLC) have stubbornly remained out of reach, in spite of pleas for help.



Undeterred by plans to end Making Home Affordable's HARP refinance and HAMP modification programs on the last day of 2015, Mel Watt, director of the Federal Housing Finance Agency (FHFA), is reconsidering borrower eligibility for principal reductions.

Also included here are questions from Elizabeth about buying a home with a Fannie Mae mortgage after bankruptcy and deed-in-lieu of foreclosure with Freddie Mac financing.

In the comment section, you will find a question from Liz who bought at the height of the market and at the top of their financing abilities. Without a GSE loan, they are having a hard time refinancing.

But first the news that borrowers with Fannie and Freddie mortgages have been waiting for...

FHFA Considers Principal Reduction Eligibility

Thousands of struggling homeowners who participated in HAMP have been fortunate to find a portion of their equity restored due to principal write-downs during the loan modification process. But there was a catch... The mortgage could not be backed by FNMA and FHMLC.
Possible Principal Reductions for Fannie Mae Mortgages

What about the select group of borrowers who, by luck of the draw, ended up with a mortgage backed by government-sponsored enterprises (GSEs), Fannie or Freddie? They found, regardless of their hardship, they were not eligible to receive principal reductions.

So, Watt's sudden announcement is of paramount importance to over-financed homeowners with Fannie Mae or Freddie Mac loans.

But it is still unknown if Watt will come through for the currently restricted borrowers.

Also unknown at this point is how the criteria for the pay-downs will be defined. For example, will terms like seriously underwater be defined by a percentage of equity lost or the dollar amount lost? For now, we wait for answers. As always, I will report new developments at my mortgage blog.

Buying a Home After Freddie Mac Deed in Lieu of Foreclosure

By Elizabeth K. from Holiday, FL
Buying a Home After Deed in Lieu of Foreclosure

Hi,

I have a couple of questions about purchasing a home again.

I filed chapter 7 bankruptcy in 2008, the same year it was discharged, but the deed-in-lieu did not go through till the beginning of 2014. How long do I have to wait before I can buy another home?

I know Fannie Mae is now going by the date of bankruptcy discharge versus the date of the deed-in-lieu for 2015 as long as the home was included in the bankruptcy. So based off this, am I able to go through Fannie Mae now?

I don't understand if I have to wait for the original lenders terms to be met (Freddie Mac) before I can purchase again through that same lender or a different one such as Fannie Mae.

I hope this makes sense because I have been trying to get an answer from somewhere for months.

Thank you, Elizabeth,

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Ask Kate answers: Buying a Home After Deed in Lieu of Foreclosure

Hi Elizabeth,

Keep in mind that individual lenders are free to add more stringent requirements to the established guidelines of Fannie Mae and Freddie Mac.

For example, Fannie might say, after X-amount of years, borrowers with a discharged chapter 7 are eligible for financing. But let's say a lender has been required in the past to buy back loans from Fannie because they prematurely approved mortgages for borrowers with bankruptcies. To limit their risk and prevent additional costly buy-backs, the lender's decision-makers add 2 years onto the Fannie's timeline.
You can read more about lender overlays at Infuriating Lender Overlays!
Because of overlays, mortgage pre-approval becomes extremely important. More on this later.

Fannie Mae Guidelines: Loan Approval After Bankruptcy and Deed-in-Lieu of Foreclosure

Read the following Fannie Mae guidelines that explain waiting periods for getting a new mortgage after a chapter 7 bankruptcy and deed-in-lieu of foreclosure...
  • A 4 year waiting period is required following the date of the chapter 7 bankruptcy discharge.


  • The waiting period after chapter 7 bankruptcy is reduced to 2 years if the borrower can document extenuating circumstances, such as a hardship.


  • A 4 year waiting period is required following the completion date of the deed-in-lieu of foreclosure.


  • The waiting period after deed-in-lieu of foreclosure is reduced to 2 years if the borrower can document extenuating circumstances, such as a hardship.
In regards to which date the lender will use, here are Fannie Mae's current guidelines...
"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."
It would seem reasonable to me that deed-in-lieu of foreclosure could be interchanged with foreclosure since it is recommended by Making Home Affordable to avoid actual foreclosure.

Fannie Mae Requirements for Re-Established Credit

Do keep in mind, in addition to Fannie's waiting periods, there is also the requirement of re-established credit.

For example, after bankruptcy, foreclosure, deed-in-lieu of foreclosure, or short sale, Fannie Mae requires an acceptable rating from their proprietary software, DU, used by lenders during the loan approval process (or minimum credit scores without a DU rating) and several seasoned tradelines, such as a car loan.

Manage the Bumps of the Mortgage Process with Pre-Approval

But here is my question. What delayed the completion of the deed-in-lieu of foreclosure? It could be that the underwriter will want to know this too. This is a perfect example why getting pre-approved by the specific lender you choose for your financing is so important.

Your situation is not unusual in that it has twists and turns. But an experienced loan originator knows how to smooth out these bumps in the road, starting with the pre-approval process.
Go here to learn more about managing the bumps of the mortgage process...
  1. Mortgage Pre-Approval - Home Buying the Easy Way


  2. How to Compare Mortgage Lenders to Avoid Borrower Remorse
    Best wishes,

    Ask Kate
    P.S. In general, the lender issuing approval would dictate loan terms. But there are exceptions such as pre-payment penalties which is another excellent reason for getting fully pre-approved by a conscientious mortgage lender.

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    Refinancing Underwater Mortgage Not Backed by Fannie Mae or Freddie Mac
    by: Liz T. from NY, NY

    Kate,

    My husband and I purchased our home in the summer of 2006. We were both at our highs in terms of compensation and figured it could only get better.

    We bought our home for 605k, put down about 60k and mortgaged out the rest (482k Interest-only ARM / 55k Line of Credit) - not our smartest decision as our salaries have not increased since 2008.

    Because our loans are not owned by Fannie or Freddie, we have been unable to refinance as we have no equity in our home. Our mortgage is almost $4k a month and it is beginning to become painful every month.

    What can we do? We have never missed a payment and therefore, do not seem to be eligible for any hardship or modification programs.

    Please help, is there anything we can do to reduce our monthly payments?

    Hi Liz, Kate here...

    I understand how incredibly frustrating not finding assistance can be. So let me see if I can help.

    The first step is to call your loan servicer to see if they participate in HAMP loan modifications.

    Your loan servicer is not required to participate in Making Home Affordable Programs unless your loan is backed by Fannie Mae or Freddie Mac. However, since your loan is not backed by either of the two mortgage giants, you could possibly be eligible for principal balance write-offs to restore equity in your home.

    Note that HAMP does not require you to be late on mortgage payments unless the financing to be modified is attached to an investment property.

    Now, let's assume your servicer is not participating in HAMP. They might still offer an in-house modification program. But you may need to press them a bit to get the information.

    Since the lender or loan servicer will set their own guidelines so be sure you are comfortable with their requirements, for example, being late on a payment.

    Additionally, you may be eligible for the Home Affordable Unemployment Program (HAUP) for both unemployed and underemployed borrowers.

    Read about it at HAUP for Unemployed and Underemployed.

    Best wishes, Kate

    Click here to add your own comment.

    You can also ask Kate about your mortgage at The Ultimate In Mortgage News.

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