Short Sale Seasoning Requirements Changing August 16th!! (must Read)

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
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**Updated 5/31/18**

Fannie Mae & Freddie Mac have released new short sale waiting periods for conventional purchases & refinances. The topics we will be discussing within this article are FNMA Short Sale, Mortgage Charge Off & Deed-in-lieu of foreclosure.

What are the current seasoning periods for short sales under conventional loan programs?
  • 7 years with less than 10% down 4 years from the date of deed transfer ** 5/31/2018
  • 4 years with 10% - 19.99% down there are no options to put more down to avoid the seasoning requirement
  • 2 Years with 20%+ down
If you are seeking a home loan program that is not 4 years from the date of the short sale (or 3 years for FHA), we do have programs available. Please call 619-379-8999 or e-mail [email protected] to discuss details and options.

How will the program change effective August 16th, 2014?
Please remember that these apply to transactions with application dates on or after August 16th. These changes apply to borrowers who have had a Short Sale, Mortgage Charge Off or Deed-In-Lieu of Foreclosure.

New Conventional Short Sale Guidelines:
  • 7 years with less than 10% down (no extenuating circumstances allowed for this program)
  • 4 years with 10% down or more (2 year seasoning requirement is allowed if we can document extenuating circumstances that caused the short sale. Taking advantage of a declining market is an unacceptable hardship. I’ve written more about this subject below.)

Why are Fannie Mae & Freddie Mac adopting these changes? We can all have speculations on this change; it’s essentially to lower the overall risk of their future borrowers. In my professional opinion it could actually create additional risk with applying these changes as it will lower the originations of new mortgages essentially creating turmoil in the marketplace possibly causing a potential reduction in home values. If a borrower that had a short sale 2 years ago saved 20% for a new mortgage, they should be allowed to purchase a new home.

The niche programs are going to start to open up and the flood gates will be released for investors to start tapping into this arena. Our company is currently in negotiations with a couple investors to open a product for borrowers that have no seasoning period for economic events like the above. Right now we have a product that has no specific waiting period for previous derogatory events as long as the borrower has 30% down and the minimum loan size is 300,000.00.

If you’re in a similar situation like the above and have no way to document hardship as long as your application is dated prior to the change, the old guidelines will still be in effect. In order to create an application date you must have an accepted offer on a new home purchase.

What constitutes as a hardship to qualify for the 2 year rule?
Many different lenders will have their own perspective of hardship and what is or is not acceptable. An example of that is CitiMortgage, a colleague that I work with on a daily basis mentioned that Citi will only accept a hardship if there was a death of a borrower. They may have relaxed their guidelines since that time but I don’t know. The point is everyone that you speak with will have their own interpretation of hardship. I know that our company is one of the more lenient ones when evaluating the extenuating circumstances to cause the economic event.

If you have any questions about the changes or in need of assistance immediately before August 16th, please feel free to reach out to me.
 
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Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,094
174
63
San Diego, California
www.loansreduced.com
I haven't heard anything about having a previous foreclosure limiting your ability to purchase a certain loan amount. The 2014 California FHA Loan Limits I posted here when they were released: California FHA Loan Limits for 2014

If you're reading something somewhere and want me to verify it I would be more than happy to.

FHA did lower the loan limits for the new year because they wanted to focus on helping the middle/lower class obtain mortgages. In almost all counties it really has caused a damper with some borrowers for example in Murrieta, Riverside, Corona, Eastvale and many others that are looking for lower down payment options with higher loan amounts. I work very closely with a large builder funding their back up loans. Since they're in an area with lower FHA limits it makes it a little more difficult to find affordable financing. We recently launched a product that's 5% down NO MI that has been very popular for the 370K-560K homes.
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,094
174
63
San Diego, California
www.loansreduced.com
Indeed! I'm in the same boat with you Mike. Not only that but for the people that want to try to document the hardship we're going to have to go back years and years depending on what occurred that caused the short sale. It's going to be a very similar process as the FHA Back to Work loans which are a nightmare at times.

In your case Mike, we may have to wait a little longer to get you out of the loan that we just completed. Congratulations by the way!
 

simigal

LoanSafe Member
Jul 6, 2012
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1
OMG! I am just sick about this. We did a short sale that closed 2/2013 (short sold under HAFA in California). We have been renting a home from my daughter and son-in-law, who are willing to sell the home to us for just the outstanding loan balance ($320,000). We have been saving money and just waiting for the 2 years to pass (2/2015) so we can get the home in our name and unencumber their credit so they won't have issues when trying to make big purchases. Now we will have to wait until 2/2017 even though our credit has recovered and is excellent - only flaw is being "settled for less than owed" comment. Because I don't want to put that burden on my daughter, we may have to find a rental that allows an old (11 yrs) but sweet golden retriever. :(
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
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San Diego, California
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Hi Simigal,
If you want we can look into an alternative direction for financing that doesn't have any seasoning requirements. This will allow you to purchase the home now with a little higher payment than normal and then refinance once you reach the seasoning period.
 

miked2023

LoanSafe Member
Mar 15, 2009
153
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Hey Erik, any updates on this? I'll be two years out of a short sale this fall and am wondering what the chances are of getting into a conventional 30 year loan. Income loss would be the 'extenuating circumstance' that we've since completely recovered from. Hope all is well!
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,094
174
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San Diego, California
www.loansreduced.com
Hi MikeD,
Good to talk again!

The extenuating circumstance definition is as follows for Fannie Mae: Nonrecurring events beyond the borrowers control that result in a sudden, significant, prolonged reduction in income or a catastrophic increase in financial obligations. Documentation is required (ie: Divorce Decree, medical reports or bills, notice of job layoff or severance papers.
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,094
174
63
San Diego, California
www.loansreduced.com
Are you talking about trying to qualify under extenuating circumstances? If so Fannie Mae & FHA have different definitions:

Fannie Mae: Nonrecurring events beyond the borrowers control that result in a sudden significant, prolonged reduction in income or catastrophic increase in financial obligations. Documentation is required (ie: divorce decree, medical reports or bills, notice of job layoff or severance papers.) - If you qualify under this you would only have to wait 2 years after short sale.

FHA: Serious Illness or death of a wage earner. Divorce and the inability to sell a property due to a job transfer or relocation do not qualify for extenuating circumstances. Borrower must have reestablished credit and a letter of explanation along with documentation to support.

Maybe we can try conventional under the extenuating circumstance rule?
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,094
174
63
San Diego, California
www.loansreduced.com
Hey Snapple.
If you included a home in bankruptcy you can possibly qualify under conventional guidelines as long as you meet the bankruptcy seasoning requirements. Your question leads me to believe that a few things may be going on so I'll explain a few below:

1. If you included your home in BK, BK seasoning periods would apply even if the home foreclosed after the bankruptcy. You will have to provide proof that your intentions were to include the home in the BK and that you didn't remain in the home and just not pay the mortgage. That will be looked at differently.

2. Second mortgage charge off's are a common thing that has happened to homeowners that prevent them from refinancing a new home loan because it is still a debt outstanding. You must settle the 2nd lien and once you settle the lien it will be considered similar to a short sale and those seasoning periods would begin at the time of settling. That means settle that 2nd mortgage soon! There's a great thread on this forum with instructions on that.

3. If you included a home in bankrutpcy and continued to pay the mortgage, as long as you meet the bankruptcy seasoning periods and can demonstrate that you have paid the mortgage on time for the requirement of the program you can also qualify.

If that doesn't apply to your scenario let me know. :)