This article consists of excerpts and other information from the Federal Register / Vol. 78.

Background

During the years preceding the mortgage crisis, too many mortgages were made to consumers without regard to the consumer’s ability to repay the loans.  Loose underwriting practices by some creditors — including failure to verify the consumer’s income or debts and qualifying consumers for mortgages based on ‘‘teaser’’ interest rates that would cause monthly payments to jump to unaffordable levels after the first few years — contributed to a mortgage crisis that led to the nation’s most serious recession since the Great Depression.  In response to this crisis, in 2008 the Federal Reserve Board (Board) adopted a rule under the Truth in Lending Act which prohibits creditors from making "higher-price mortgage loans" without assessing consumers' ability to repay the loans.  Under the Board’s rule, a creditor is presumed to have complied with the ability-to-repay requirements if the creditor follows certain specified underwriting practices.  This rule has been in effect since October 2009.

In the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress required that for residential mortgages, creditors must make a reasonable and good faith determination based on verified and documented information that the consumer has a reasonable ability to repay the loan according to its terms.  Congress also established a presumption of compliance for a certain category of mortgages, called "qualified mortgages."  These provisions are similar, but not identical to, the Board’s 2008 rule and cover the entire mortgage market rather than simply higher-priced mortgages.  The Board proposed a rule to implement the new statutory requirements before authority passed to the Consumer Financial Protection Bureau (Bureau) to finalize the rule.

Summary of the Final Rule -- The rule is effective January 10, 2014.

The Bureau is amending Regulation Z, which implements the Truth in Lending Act (TILA). Regulation Z currently prohibits a creditor from making a higher-priced mortgage loan without regard to the consumer’s ability to repay the loan.  The final rule implements sections 1411 and 1412 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which generally require creditors to make and document a reasonable, good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan) and establishes certain protections from liability under this requirement for "qualified mortgages."

General Requirements for Qualified Mortgages

The Dodd-Frank Act sets certain product-feature prerequisites and affordability underwriting requirements for "qualified mortgages" and vests discretion in the Bureau to decide whether additional underwriting or other requirements should apply.  The final rule implements the statutory criteria, which generally prohibit loans with negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years from being qualified mortgages.  So-called “no-doc” loans where the creditor does not verify income or assets also cannot be qualified mortgages.  Finally, a loan generally cannot be a qualified mortgage if the points and fees paid by the consumer exceed three percent of the total loan amount, although certain “bona fide discount points” may be excluded in some instances.  The rule also provides guidance on the calculation of points and fees and thresholds for smaller loans.

Please see your Loan Officer for additional information regarding "qualified mortgages".

The final rule contains the following key elements:

Ability-to-Repay Determinations 

The final rule describes certain minimum requirements for creditors making ability-to-repay determinations, but does not dictate that they follow particular underwriting models.  At a minimum, creditors generally must consider eight underwriting factors:

(1) Current or reasonably expected income or assets

(2) Current employment status

(3) The monthly payment on the covered transaction

(4) The monthly payment on any simultaneous loan

(5) The monthly payment for mortgage-related obligations

(6) Current debt obligations, alimony, and child support

(7) The monthly debt-to-income ratio or residual income

(8) Credit history.

Creditors must generally use reasonably reliable third-party records to verify the information they use to evaluate the factors.

The rule provides guidance as to the application of these factors under the statute. For example, monthly payments must generally be calculated by assuming that the loan is repaid in substantially equal monthly payments during its term.  For adjustable-rate mortgages, the monthly payment must be calculated using the fully indexed rate or an introductory rate, whichever is higher.  Special payment calculation rules apply for loans with balloon payments, interest-only payments, or negative amortization.

Presumption for Qualified Mortgages

The Dodd-Frank Act provides that "qualified mortgages" are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements.  However, the Act did not specify whether the presumption of compliance is conclusive (i.e., creates a safe harbor) or is rebuttable.  The final rule provides a safe harbor for loans that satisfy the definition of a qualified mortgage and are not "higher-priced," as generally defined by the Board’s 2008 rule.  The final rule provides a rebuttable presumption for higher-priced mortgage loans, as described further below.  The line the Bureau is drawing is one that has long been recognized as a rule of thumb to separate prime loans from subprime loans.  Indeed, under the existing regulations that were adopted by the Board in 2008, only higher-priced mortgage loans are subject to an ability-to-repay requirement and a rebuttable presumption of compliance if creditors follow certain requirements.  The new rule strengthens the requirements needed to qualify for a rebuttable presumption for subprime loans and defines with more particularity the grounds for rebutting the presumption.

Specifically, the final rule provides that consumers may show a violation with regard to a subprime qualified mortgage by showing that, at the time the loan was originated, the consumer’s income and debt obligations left insufficient residual income or assets to meet living expenses.  The analysis would consider the consumer’s monthly payments on the loan, loan-related obligations, and any simultaneous loans of which the creditor was aware, as well as any recurring, material living expenses of which the creditor was aware.

Guidance accompanying the rule notes that the longer the period of time that the consumer has demonstrated actual ability to repay the loan by making timely payments, without modification or accommodation, after consummation or, for an adjustable-rate mortgage, after recast, the less likely the consumer will be able to rebut the presumption based on insufficient residual income.   With respect to prime loans — which are not currently covered by the Board’s ability-to-repay rule — the final rule applies the new ability-to-repay requirements but creates a strong presumption for those prime loans that constitute qualified mortgages.  Thus, if a prime loan satisfies the qualified mortgage criteria, it will be conclusively presumed that the creditor made a good faith and reasonable determination of the consumer’s ability to repay.

Encouraging Creditors to Refinance "Non-Standard Mortgages" into "Standard Mortgages"

The final rule also provides special rules to encourage creditors to refinance "non-standard mortgages" — which include various types of mortgages which can lead to payment shock that can result in default — into "standard mortgages" with fixed rates for at least five years that reduce consumers' monthly payments.

Limiting Prepayment Penalties

The final rule also implements section 1414 of the Dodd-Frank Act, which limits prepayment penalties.

Retention of Evidence of Compliance

The final rule also requires creditors to retain evidence of compliance with the rule for three years after a covered loan is consummated.

Background

Effective January 10, 2014, the Consumer Financial Protection Bureau (CFPB) amended Regulation Z, which implements the Truth in Lending Act (TILA). Regulation Z currently prohibits a creditor from making a higher-priced mortgage loan without regard to the consumer’s ability to repay the loan.  The amendments generally require creditors to make and document a reasonable, good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan) and establishes certain protections from liability under this requirement for "qualified mortgages" (QM).

Concerns

There is a lot of anxiety in the marketplace regarding how these amendments are affecting the flexibility of lenders to customize a loan to meet the needs of a particular borrower, and the impact on loan interest rates.  In addition, there is concern that the newly implemented tighter underwriting guidelines may, for families with moderate income, limit the amount of a mortgage loan for which they can qualify, and that the maximum 43% debt-to-income ratio may even cause some borrowers to fall short of qualifying for the mortgage loan they need for the home they want to purchase.

Outlook

Although these new regulations will impact some potential homebuyers as noted above, there are plenty of mortgage loan options still available -- conventional (Fannie Mae/Freddie Mac), FHA, VA, and USDA; most people would still be able to qualify for the loan they want under one of these programs.

Recommendation

As always, it is advised that the borrower, if considering purchasing or refinancing a home, contact a licensed mortgage professional in order to ensure they are aware of the latest information and options available to them, and to get fully pre-qualified.

The ATR has added another layer of responsibility on lenders above and beyond meeting guideline-specific program requirements. ATR has eight specific underwriting factors all lenders must consider on residential mortgage loans. That’s an important distinction, as it adds a layer of lender responsibility previously not there. For example, years ago Fannie Mae and Freddie Mac were purchasing loans that contained very little income or asset documentation, these were often referred to as “liar loans.” If Fannie Mae and or Freddie Mac decided to loosen guidelines, lenders were still required to meet ATR rules. So regardless of any of the loan purchasers’ or guarantors’ documentation desires, the overarching federal rule dictates underwriting factors and subsequently the documentation necessary to meet the law’s requirements.

This is critical for loan originators, Realtors®, and most importantly home buyers to understand. Loan originators and Realtors® can greatly facilitate the smoothness of a home purchase transaction by setting proper expectations at the very beginning of the purchase process. In the past, many loan originators would only begin to gather documentation after a purchase contract had been executed. In today’s environment that approach could lead to trouble, as often times the buyer’s understanding of what is considered proper documentation may not meet the lender’s standards now being dictated on a federal level.

The “documentation dance” starts when buyers supply documentation that results in additional documentation being required. Here’s a typical scenario in today’s loan environment. Home buyer supplies loan officer with a bank statement that has a “large deposit.” This deposit is clearly not related to employment, i.e. stems from a deposited check or cash. One of the ATR rules is to document current debt obligations. People can borrow money from sources (friends/family/acquaintance) that won’t report on credit. As such, the lender will require proof of where the money came from and document that there isn’t a financial payment related to those monies. This can lead to needing gift letters, or adding debt to a buyer’s credit report, or any number of documentation issues and requirements.

The best approach is to work with one another with a sense of urgency and supply whatever documents are requested as quickly as possible. Additionally, understand it’s necessary to be up front and honest about requests as underwriting will get to the bottom of whatever questions arise.

Finally the ATR rule applies to all “residential mortgages.” This is important to note as there’s no lessening of underwriting factors as it pertains to loan size. In other words, lenders are required to document a $40,000 mortgage the same as they would a $400,000 mortgage.

For more information on ATR and QM you can see previous blog postings here:

QM and the Ability to Repay Changes – Plenty of Options Still Available

Amendments to the Ability to Repay Standards Under the Truth in Lending Act

Some Ways You Can Tell Your Information May Have Been Stolen

• You receive calls about debts that aren’t yours
• You receive bills that you know you did not incur
• Bills or statements you normally receive don't show up
• You see withdrawals from your bank account that you didn't make
• Your checks don't clear when there should be sufficient funds to cover them
• Your checks are refused by merchants
• Unfamiliar accounts or charges appear on your credit report
• You are notified by the IRS that more than one tax return was filed in your name, or that you have income from an unknown employer
• You receive medical bills for services you did not receive
• Your health plan rejects your legitimate medical claim because their records show you’ve reached your benefits limit
• A health plan won’t cover a claim because you are being billed for a condition your records don't show you have
• You get notice that your information was compromised by a data breach at a company where you do business or have an account.  When the organization that lost your information lets you know about the breach, they should explain your options.

Immediate Steps to Prevent and/or Repair Identity Theft

If your wallet, Social Security card, or other personal, financial or account information are lost or stolen, and you take action quickly, you can stop a potential identity thief from doing more damage.  Be sure to check your bank and other account statements and report any unusual activity, and follow these steps as soon as possible:

Place a Fraud Alert
If you believe that you have been (or are about to become) the victim of identity theft or fraud, you should place a fraud alert on your credit report with one of the three main nationwide credit reporting companies.  Confirm that the company you call will contact the other two companies.  Be sure the credit reporting companies have your current contact information so they can get in touch with you.  The alert lasts 90 days, but can be renewed, so be sure to mark your calendar.  Note that a fraud alert does not prevent a lender from opening credit in your name, but it does require a lender to take certain measures to verify your identity first.

Order Your Credit Reports
As you may already know, you can request a free credit report from each of the three main nationwide credit reporting companies once every 12 months.   By staggering your requests, you can get a report every four months. If you have already used up your three free credit reports within the past 12 months, for a nominal charge (typically $10 to $15) you can get a current report.  Review your credit reports carefully, and if you find any unfamiliar accounts or charges, report them immediately.  Following is the contact information for the three main credit reporting companies:

- Equifax - 1-800-525-6285 or www.Equifax.com

- Experian - 1-888-397-3742 or www.Experian.com

- Transunion - 1-800-680-7289 or www.Transunion.com

Create an Identity Theft Report - An Identity Theft Report gives you some important rights that can help you recover from the theft.

Submit a report about the theft to the Federal Trade Commission (FTC) at https://www.ftc.gov/ . When you finish writing all the details, print a copy of the report. It will be called an Identity Theft Affidavit

Bring your FTC Identity Theft Affidavit when you file a police report

File a police report about the identity theft, and get a copy of the police report or the report number.  Your FTC Identity Theft Affidavit and your police report make an Identity Theft Report.

Update Your Files

Create a log and record the dates you made calls or sent letters

Record the date of each call and the names and telephone numbers of everyone you contact.  Prepare your questions before you call and write down the answers

Send letters by certified mail and ask for a return receipt.  Send copies of your documents and reports, and keep the originals.

Tip

You can also submit a complaint to the Consumer Financial Protection Bureau (CFPB) at https://www.consumerfinance.gov/ or by calling 1-855-411-CFPB (2372).

Summary
The above steps should help stop the immediate damage resulting from identity theft.  If you are a victim of identity theft and have created an Identity Theft Report there are some additional steps you can take to help prevent or address other issues which may arise.  The following Federal Trade Commission (FTC) site provides information on placing an extended fraud alert and/or a credit freeze on your credit file:

https://www.consumer.ftc.gov/articles/0279-extended-fraud-alerts-and-credit-freezes

Why a Veterans Affairs (VA) Loan? Among other things, a VA home loan can be used to:

• Buy a home or a condominium unit
• Build a home
• Simultaneously purchase and improve a home
• Buy a manufactured home and/or lot.

Currently, banks are requiring large down payments for many types of loans, putting home ownership out of reach for many prospective buyers.  A VA loan still allows the borrower to buy a home, up to a loan amount of $417,000, or even higher in designated high-cost areas, with no money down.

A VA Loan offers two benefits which can substantially lower your monthly payment:

1. Private Mortgage Insurance (PMI), an added monthly expense required for conventional loans where the borrower finances more than 80% of the home's value, is not required on a VA loan
2. VA home loans are backed by the government, meaning banks can assume less risk with the loan and possibly price it lower than a rate for which you would qualify from a bank. The interest rate offered on a VA loan may be significantly lower in comparison to the rate on a conventional loan.  A lower rate combined with monthly PMI savings can substantially lower your monthly payment.

Getting qualified for a VA loan is easier

The qualification guidelines are less stringent for VA Loans.  Because the loan is backed by the government, banks have relaxed the strict lending rules for VA Loan applicants, making VA loans easier to obtain.

Additional Benefits of VA Home Loans

• VA home loans have more lenient credit and debt ratio guidelines. You may qualify for a VA loan even if you can’t be approved for other loan types
• The VA program won't deny a loan based solely on a low credit score, and most lenders don't tier interest rates for better scores. The VA program usually looks at only the previous 12 months of credit history, unless bankruptcy, a tax lien or a collections issue factors into your situation
• Borrowers can often refinance to a lower rate within the VA program without re-qualifying for the program through the VA Streamline Refinance Loan
• With a VA loan, you can refinance or sell your home at any time without penalty
• The seller is allowed to pay all of your closing costs up to 4% of the purchase price
• If the borrower has a service-related disability, they may qualify for the lender to waive the funding fee, further reducing closing costs.

Eligibility for a VA Home Loan

In comparison to other mortgage loans, a VA-guaranteed loan has much more flexibility regarding FICO score requirements.  Sufficient income, a valid Certificate of Eligibility (COE), and other criteria are required as well.  The home must be for your own personal occupancy.  The requirements for active service members, veterans, spouses, and other beneficiaries to obtain a COE vary, depending on the nature, period and duration of the service.  Please contact your mortgage professional for additional information, for help in determining your eligibility, and to get pre-approved for your loan.

There are potential positives in disputing accounts. For example disputing a credit account that is incorrectly reporting negative information and successfully removing that from your credit account will typically boost FICO scores. However the dispute must work through the process in order to remove the negative information and this could potentially delay the loan process.

Another key consideration is to fully understand how the dispute process impacts your FICO scores while the account(s) in question is in dispute. The Fair Credit Reporting Act requires the reporting agencies to show disputed accounts as being “in dispute.” The agencies do this by attaching a special code to the disputed item(s) which triggers the FICO scoring mechanism to disregard both the debt related measurement and payment history.

Why is this so important? Let’s say you have disputed a situation in which a credit card account is near the maximum credit line and has previous late payments. The FICO score would normally decrease for both the high proportion of credit used and the derogatory aspect of the credit. By ignoring these factors a person’s FICO score would likely report higher than if that dispute was removed.

The reality is a lot of people will dispute accounts that are reporting correctly in hopes the creditor removes or changes the account history. Lenders understand this and will typically require borrowers to address the dispute(s) in an attempt to ascertain a correct FICO score. As FICO scores are included in many loan approval facets such as approvability, interest rate determination, mortgage insurance costs, etc., it is critical for the lender to work with a correct FICO score.

It is also critical to understand that if you have disputed items on your credit report your credit score is likely to be impacted and it could very well be lower than it otherwise would have been without the dispute once disputes have been removed or resolved. It is critical to work with your loan originator to handle potential dispute issues as early as possible in the loan process.

Following are examples of verbiage concerning underwriting guidelines:

Fannie Mae*

When Desktop Underwriting (DU) issues a message stating that DU identified a disputed trade line(s) and that trade line(s) was not included in the credit risk assessment, the lender must confirm the accuracy of disputed trade line(s) reported on the borrower's credit report.  If it is determined that the disputed trade line information is accurate, lenders must ensure the disputed trade line(s) are considered in the credit risk assessment by either obtaining a new credit report with the trade line(s) no longer reported as disputed and resubmitting the loan case file to DU, or manually underwriting the loan.

If DU does not issue the disputed trade line message, the lender is not required to further investigate the disputed trade line(s) on the credit report, obtain an updated credit report (with the undisputed trade line information), or manually underwrite the loan.

However, the lender is required to ensure that the payment for the trade line(s), if any, is included in the total expense ratio if the account does belong to the borrower.

https://www.fanniemae.com/content/guide/selling/b3/5.3/09.html

FHA*

The existence of potentially inaccurate information on a borrower’s credit report resulting in a dispute must be reviewed by an underwriter. Accounts that appear as disputed on the borrower’s credit report are not considered in the credit score utilized by TOTAL Mortgage Scorecard in rating the application. Therefore, FHA requires the lender to consider them in the underwriting analysis as described below.

With this Mortgagee Letter (ML), FHA is revising policy on manual downgrades for applications with disputed accounts to reflect the risk associated with derogatory and non-derogatory disputed accounts for factors such as age and size of outstanding balance.

https://portal.hud.gov/hudportal/documents/huddoc?id=13-24ml.pdf

Federal Trade Commission: Consumer Information – Disputing Errors on Credit Reports

https://www.consumer.ftc.gov/articles/0151-disputing-errors-credit-reports

*Guideline information can be found at the links above. Information was added to aid in understanding, e.g. Desktop Underwriter instead of DU. Guideline information is always subject to change.

Since employees might incur a wide variety of expenses related to their job, this article will cover only the following broad categories of tax-deductible job expenses

• Vehicle expenses
• Parking, tolls, and local transportation expenses
• Travel expenses
• Meals and entertainment expenses
• Other business expenses

For additional information on tax-deductible job expenses, please refer to the IRS website, https://www.irs.gov.

Recordkeeping is particularly important for job-related expenses.  Whether you seek reimbursement from your employer or take a deduction on your personal tax return, the IRS expects business expenses to be adequately substantiated.  Adequate substantiation means that for each expense, you have documents to show the description, the amount, the business purpose and relationship, and the date and place where the expense was incurred.  For general information on recordkeeping, please refer to the IRS website, https://www.irs.gov.

An employee's business expense reimbursement or allowance under a plan that qualifies as an "Accountable Plan" is excluded from the employee's gross income and is not reported on the employee's W-2, i.e., it is tax-free to the employee and tax-deductible to the employer.  In addition, these amounts are not subject to withholding or employment taxes.

In contrast, amounts paid under a "Non-Accountable Plan" are included in the employee's W-2 wages and are deductible as miscellaneous itemized deductions, subject to the 2 percent Adjusted Gross Income (AGI) limitation.  In other words, because of the 2% AGI limitation, only a part of these job-related expenses are deductible.  In addition, deductions may be further limited by the overall limitation on itemized deductions.

While it is generally in the best interest of the taxpayer to maximize deductions, please be aware that in some instances, these deductions may lower your income to the point where your debt-to-income ratio could adversely affect your ability to qualify for a mortgage loan.  

If you are considering qualifying for a mortgage loan, be sure to discuss any employment deductions with your loan officer.

 

The information presented in this article is meant as a general guide.  Before taking action and for specific questions regarding your particular tax situation, please refer to the IRS website, https://www.irs.gov, or consult a tax specialist.

 

Nestablish is pleased to announce a new release of our site that brings with it dozens of improvements, new features, and a tightened up look and feel.

Major Changes
We've added several big new features to Nestablish to make it easier to use. We'll outline the major changes here.



New Navigation
You'll notice that we've broken our navigation tab bar into two segments. The top bar includes a help link, settings menu, and a logout button. The help link allows you to instantly access a page's guiders, if they exist, or to file a support ticket.

Bulk Lead Import
Import a CSV file to quickly transfer your entire lead list into Nestablish from your old CRM. This tool allows you to designate if your leads have already opted-in and you can even identify specific leads in your CSV as opted-out. You can access this feature from the Leads tab.

Setup Wizard
To ensure that new users finish the account creation step completely, we've implemented a two minute setup wizard that walks them through the process. This is especially important for real estate agents creating a new account who may not have realized they could upload their own branding.

Guiders
If it's your first time using Nestablish, helpful Guider bubbles will now appear and walk you through each section of the site. This helps instantly train new users and will make it easier than ever for real estate agents to access the pre-qualification they need.

Better Emails
We've completely re-written our invitation emails to be easier to understand and to reduce the Nestablish branding on them. Our logo and contact information now appears much smaller in the footer (per anti-spam compliance requirements), and the emails have been streamlined significantly. Emails no longer include a long and cumbersome invitation link, and invitation emails now emphasize instant access to loan pre-qualifications.

Convert Closed Loans to Post-Close Leads
We've made it dirt simple to convert closed loans into post-closed leads that can be dripped email content. We're adding features to make it even easier to target your post-close contacts for refinance opportunities by allowing you to track their interest rate.

Minor Changes
In addition to these major features, we've changed a lot of smaller things as well that will improve your experience. We've adjusted the color of the Live Chat tab to make it easier to see, we've added the ability to lock either the down payment amount or percentage, added some compatibility enhancements for Internet Explorer, updated error messages when importing Fannie Mae files to be more specific, made the dashboard "pop" a bit more, and made literally hundreds of other small tweaks and fixes.

On Deck
Looking forward, we're spending May working on a revamp of the contact manager and lead incubation system. Our most-requested feature is the ability to "assign" leads to a real estate agent (or vice versa), and we're laying the groundwork for that feature this month. We hope to launch that feature over the next 60 days, so stay tuned.

We're also releasing an affiliate link system that will pay you $100 for every loan officer you introduce to Nestablish! (Assuming they stay with us for at least 90 days.) You'll be able to share your link directly through Nestablish, or on your favorite social network platforms.

We have several others features in the backlog we're working through as well, and we're always eager to hear your feedback. You can leave your suggestions by clicking the new Help icon in the top bar (see first image in this post) and choosing "File A Support Ticket". Support tickets can take the form of suggestions as well and you'll always hear back from the Nestablish team in short order.

Log in and check out our newest features and new look and feel. Not yet a Nestablish subscriber? What are you waiting for? A better loan workflow and an amazing mortgage lead incubation system awaits you. Click here for pricing and to signup!

We're pleased to announce the Nestablish News blog! We'll be cross-posting on Facebook so make sure you "Like" Nestablish so you can stay on top of our new feature posts and tips on how to use Nestablish to help maximize your pre-qualifications and lead incubation.

This blog is separate from the one we use for our drip campaign emails and is intended fully for loan officers and real estate agents making use of Nestablish for their daily workflow and mortgage CRM systems.

We'll be tightening up the design of the blog in the next couple of weeks, but for now we wanted to make sure we had a place to keep you in the loop!

In light of August, 2014 changes made to Fannie Mae’s mortgage loan waiting policy for borrowers who have experienced a short sale, we felt it would be useful to review the mortgage loan interval qualifying guidelines following a financial hardship event for the most popular mortgage loan programs.

Please see the table below.

Mortgage Loan Interval Qualifying Guidelines Following Financial Hardship as of January, 2015

¹ If the buyer is able to prove extenuating circumstances, Fannie Mae may qualify the buyer to repurchase using conventional financing after only three years; additional requirements after three years up to seven years:

1. 90% Maximum LTV ratios

2. Purchase for principal residence

3. Limited cash-out refinance for all occupancy types

² If the buyer is able to prove extenuating circumstances, Fannie Mae may qualify the buyer to repurchase using conventional financing after only two years.

³ If the buyer is able to prove extenuating circumstances for the most recent bankruptcy, Fannie Mae may qualify the buyer to repurchase using conventional financing after only three years.

⁴ Exception: The lender may grant an exception to the three-year requirement if the foreclosure or short sale was the result of documented extenuating circumstances that were beyond the control of the borrower, such as a serious illness or death of a wage earner, and the borrower has re-established good credit since the foreclosure.

⁵ 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.

⁶An elapsed period of less than two years, but not less than twelve 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.

⁷A 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, all required payments have been made on time, and the borrower has received written permission from the bankruptcy court to enter into the mortgage transaction.

Click the following link for additional information: 

https://portal.hud.gov/hudportal/documents/huddoc?id=4155-1_4_secC.pdf

⁸ Foreclosure (and deed in lieu of foreclosure) – Per VA guidelines, in order to meet satisfactory credit risk in the 1-2 year period after a foreclosure, the lender must follow bankruptcy guidelines. Bankruptcy guidelines are: If the bankruptcy was discharged within the last 1 to 2 years, it is probably not possible to determine that the applicant or spouse is a satisfactory credit risk unless both of the following requirements are met:

• The applicant or spouse has obtained consumer items on credit subsequent to the bankruptcy and has satisfactorily made the payments over a continued period, and

• The bankruptcy was caused by circumstances beyond the control of the applicant or spouse such as unemployment, prolonged strikes, medical bills not covered by insurance, and so on, and the circumstances are verified. Divorce is not generally viewed as beyond the control of the borrower and/or spouse

If the bankruptcy was caused by failure of the business of a self-employed applicant, it may be possible to determine that the applicant is a satisfactory credit risk if:

• The applicant obtained a permanent position after the business failed, and

• There is no derogatory credit information prior to self-employment, and

• There is no derogatory credit information subsequent to the bankruptcy, and

• Failure of the business was not due to the applicant’s misconduct.

Click the following link for additional information: 

https://www.benefits.va.gov/warms/pam26_7.asp

⁹ Adverse credit waivers may be granted for USDA buyers if there were mitigating factors beyond the buyer’s control and those factors are documented and have been removed.

As an example, if the circumstances causing the adverse credit were beyond the applicant’s control and temporary in nature, such as increased expenses due to illness and/or medical expenses, injury, death, etc., and those circumstances are no longer a factor, there may be justification for an adverse credit waiver.

Click the following link for additional information:

https://www.rurdev.usda.gov/supportdocuments/ca-sfh-grhunderwritingguide.pdf

Regardless of their former financial situation, it is important for those looking to re-enter the housing market to re-establish their credit again as quickly as possible following their hardship. They should start by obtaining a copy of their credit report, then contact a mortgage professional for guidance in rebuilding their credit score and to obtain additional information for help in determining their eligibility for a mortgage loan.