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Jun 2010

After bankruptcy, how soon can I get approved for a new mortgage?

Posted by / in After Bankruptcy / 3 comments

Yesterday the mortgage giant Fannie Mae, now owned the the federal taxpayers, announced a new policy on qualifying for a new mortage, after you lose your house in bankruptcy, foreclosure, or short sale.

They say they want to discourage people who “just walk away” from their mortgages, particularly in states, like California, where the mortgage company cannot come after you for the money.  (Under Virginia law, they can.)

So Fannie Mae now won’t back a mortgage for someone who gave up a house in foreclosure until seven years have passed from the foreclosure date.   They call this a “Seven-Year Lockout Policy for Strategic Defaulters”

Now, there is an exception that I’m calling the loan mod/extenuating circumstances exception.  The seven year lockout does not apply to people who can show the foreclosure was caused by “extenuating circumstances.”  That’s not defined, but I think it would certainly include unemployment, divorce, and probably reduced hours or loss of bonus or commission during the recession.  If you are giving up your house, and want to buy again soon, keeping proof of that would be important.

The seven year lock out also does not apply  to people who tried to get a loan mod.   “We’re taking these steps to highlight the importance of working with your servicer,” said Terence Edwards, executive vice president.

Only a three year waiting period applies to people who tried to get a loan mod and to people who had extenuating circumstances.  (I’m not totally clear whether that means you have to do both, or if either one is enough.)

If you shortsale the house, or do a deed in lieu, the waiting period is only two years.  (This is one of the very few benefits I see in doing a shortsale. September 7, 2012 Washington Post had a good article on the big damage a shortsale does to your credit score.  You can read that here.)

Lots of people think bankruptcy is the worst thing you can do–those people are wrong.  Fannie Mae regulations require only a two year waiting period after the bankruptcy–again if the bankruptcy was caused by extenuating circumstances.   (Again, it’s important to keep a file documenting loss of income or whatever caused the problem.)

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Robert Weed has helped fifteen thousand people file bankruptcy in Northern Virginia. Robert Weed is a frequent panelist and speaker at the meetings of the National Association of Consumer Bankruptcy Attorneys. He is one of Northern Virginia’s most experienced personal bankruptcy lawyers. As an expert on changing consumer bankruptcy laws, Robert Weed has been interviewed on local and national TV and quoted in newspapers across the country.

  • Chapter 13 bankruptcy and your credit report. How to fix what’s wrong.

    July 9, 2011, pm31 4:12 PM

    […] Since you are paying your creditors, at least a little, in Chapter 13, that’s unfair. Five years after filing a Chapter 7 bankruptcy, people can have great credit. (Assuming life hasn’t knocked you down again.) You can get a car loan at as good a good rate. You could already be a year or two in your new home. […]

  • Patty

    August 20, 2011, pm31 7:28 PM

    What if you have been discharged for 2 years from Chapter 7 and now ready to buy a home but on the CREDCO report it states Foreclosure Proceedings Began on a home that was part of the bankruptcy. Will FHA lender consider that statement as a completed foreclosure and you have to wait 3 years even though it only says “started” and according to their guidelines it says it starts counting once foreclosure has been done which in this case it shows no indication of when it was completed. I know confusing but what I am saying any time a home is included in a bankruptcy and there is still a mortgage on it lenders would have to assume the home went into foreclosure at some point. Please advise. Thank you.

    • Robert Weed

      August 20, 2011, pm31 9:10 PM

      I’m a bankruptcy lawyer, not a lender or real estate guy, so I’d think there would be people out there who understand this better than me. A lot better.

      But what I think is it has nothing to do with CREDCO. They are going to run a check of the land records and see that there was a foreclosure–assuming there was one. So you have to wait until three years after the land records show the foreclosure got the house out of your name.

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