Mortgage Information
Fannie Mae Single Family
2011 Selling Guide
Part B, Origination Through Closing
Subpart B3, Underwriting Borrowers
Chapter B3-5, Credit Assessment
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 Extenuation 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.
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.
Deed-in-Lieu of Foreclosure and Preforeclosure Sale
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. 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.
The following waiting period requirements apply:
| Waiting Period | Additional Requirements |
|---|---|
| Two years | 80% maximum LTV ratios* |
| Four years | 90% maximum LTV ratios* |
| Seven years | LTV ratios per the Eligibility Matrix |
Exceptions for Extenuating Circumstances
A two-year waiting period is permitted if extenuating circumstances can be documented, with maximum LTV ratios of the lesser of 90% or the maximum LTV ratios for the transaction per the Eligibility Matrix.
*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.
Summary — All Waiting Period Requirements
The following table summarizes the waiting period requirements for all significant derogatory credit events.
| Derogatory Event | Waiting Period Requirements | Waiting Period with Extenuating Circumstances |
|---|---|---|
| Bankruptcy — Chapter 7 or 11 | 4 years | 2 years |
| Bankruptcy — Chapter 13 |
|
|
| Multiple Bankruptcy Filings | 5 years if more than one filing within the past 7 years | 3 years from the most recent discharge or dismissal date |
| Foreclosure | 7 years | 3 years Additional requirements after 3 years up to 7 years:
|
| Deed-in-Lieu of Foreclosure and Preforeclosure Sale |
|
2 years — 90% maximum LTV ratios* |
Note: 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.
Requirements for Re-establishing Credit
After a bankruptcy, foreclosure, deed-in-lieu of foreclosure, or preforeclosure sale, 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.
- The borrower has traditional credit as outlined in Section B3-5.3, Traditional Credit History. Nontraditional credit or “thin files” are not acceptable.
FHA Single Family
4155.1: Mortgage Credit Analysis for Mortgage Insurance
Chapter 4: Borrower Eligibility and Credit Analysis
Section C. Borrower Credit Analysis
2: Guidelines for Credit Report Review (03/01/11)
4155.1 4.C.2.g Chapter 7 Bankruptcy
A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from obtaining an FHA-insured mortgage if at least two years have elapsed since the date of the discharge of the bankruptcy. During this time, the borrower must have:
- re-established good credit, or
- chosen not to incur new credit obligations.
- An elapsed period of less than two years, but not less than 12 months, may be acceptable for an FHA-insured mortgage, if the borrower
- can show that the bankruptcy was caused by extenuating circumstances beyond his/her control, and
- has since exhibited a documented ability to manage his/her financial affairs in a responsible manner.
Note: The lender must document that the borrower's current situation indicates that the events which led to the bankruptcy are not likely to recur.
4155.1 4.C.2.h Chapter 13 Bankruptcy
A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA-insured mortgage, provided that the lender documents that:
- one year of the pay-out period under the bankruptcy has elapsed
- the borrower's payment performance has been satisfactory and all required payments have been made on time, and
- the borrower has received written permission from bankruptcy court to enter into the mortgage transaction.
4155.1 4.C.2.i Consumer Credit Counseling Payment Plans
Participating in a consumer credit counseling program does not disqualify a borrower from obtaining an FHA-insured mortgage, provided the lender documents that:
- one year of the pay-out period has elapsed under the plan
- the borrower's payment performance has been satisfactory and all required payments have been made on time, and
- the borrower has received written permission from the counseling agency to enter into the mortgage transaction.
4155.1 4.C.2.l Short Sales
A borrower is not eligible for a new FHA-insured mortgage if he/she pursued a short sale agreement on his/her principal residence simply to:
- take advantage of declining market conditions, and
- purchase a similar or superior property within a reasonable commuting distance at a reduced price as compared to current market value.
Borrower Current at the time of Short Sale
A borrower is considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage, all:
- mortgage payments on the prior mortgage were made within the month due for the 12-month period preceding the short sale, and
- installment debt payments for the same time period were also made within the month due.
Borrower in Default at the time of Short Sale
A borrower in default on his/her mortgage at the time of the short sale (or pre-foreclosure sale) is not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale.
Note: A borrower who sold his/her property under FHA's pre-foreclosure sale program is not eligible for a new FHA-insured mortgage from the date that FHA paid the claim associated with the pre-foreclosure sale.
Exception: A Lender may make an exception to this rule for a borrower in default on his/her mortgage at the time of the short sale if the:
- default was due to circumstances beyond the borrower's control, such as death of primary wage earner or long-term uninsured illness, and
- a review of the credit report indicates satisfactory credit prior to the circumstances beyond the borrower's control that caused the default.
