Fannie Mae Revises Derogatory Credit Event Rule

According to the Denver Business Journal, a new rule imposed by Fannie Mae (Federal National Mortgage Association) could make it more difficult for would-be homebuyers who have had a short sale in the past to buy a home. The rule, which went into effect on August 16, will extend the mandated waiting period to qualify for a conventional home loan after a short sale from two years to four years.

Fannie Mae announced the rule regarding “significant derogatory credit events” in July. These events include bankruptcies, foreclosures and short sales.
The rule does make exceptions for those who can prove that a short sale occurred because of extenuating circumstances. If a borrower can prove that the short sale was the result of a lost job or wages, catastrophic event or other circumstance beyond the borrower’s control, the two-year waiting period can still be honored by Fannie Mae, but only if significant documentation is provided by the borrower.

“The presence of significant derogatory credit events dramatically increases the likelihood of a future default and represents a significantly higher level of default risk,” Fannie Mae said in its announcement of the rule. Jolon Ruch, Chairperson of the Colorado Association of REALTORS, sees the change as an opportunity for homebuyers to take more time and better position themselves for a purchase. “This can give them the opportunity to gain more income, save some more money and actually be better for everyone,” Ruch said.

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