Towards the end of 2013 Fannie Mae quietly released an update to their Desktop Underwriter (DU) underwriting system, the system used to underwrite the vast majority of Conventional mortgages nationwide.
Much of the update is inconsequential, it mostly had to do with updating the software to comply with the new QM (Qualified Mortgage) rules that went into effect on Jan 10th, as well as some minor changes to the way DU underwrote HARP refinances, but one big change may positively affect a lot of people. Definitely a lot of people I have talked to over the last couple years.
One of the good things about current conventional guidelines is they allow qualified borrowers to buy or refinance in as little as two years after a short sale so long as they have a 20% down payment or 20% equity in the case of a refinance.
Many people suffered the effects of the Great Recession from 2008 – 2011, losing their primary residence or maybe a 2nd home or investment property, and today qualify under Fannie Mae’s guidelines for getting a new mortgage. The issue has been DU has not been able to differentiate between a short sale and a foreclosure when it reads credit reports and it made it so A LOT of people could still not qualify because of the issue with the software.
Yes, a glitch was making it so people could not buy a home or take advantage of recent low rates.
Fannie Mae has been aware of this issue for a while but never did anything to fix it. Versions of DU were announced and announced and there was no update to fix this issue. Creative lenders (like me) created a workaround with our credit report providers to help DU read the data is was getting wrong accurately but Fannie Mae asked the credit report providers to stop doing this. At the end of the day well-qualified people could not get their loan even though they met all the guidelines.
That is until Fannie FINALLY did something about it with the release of Desktop Underwriter 9.1. Now the software is able to correctly read the credit report and determine if the loan was foreclosed on or was a short sale. Big difference.
If you or someone you know had issues qualifying to buy a home or refinance in the last couple of years with this glitch please give me a call (916.412.3313). It may (probably should) just work this time around! If you want to buy a home or refinance to a lower rate and payment and you had a short sale as recently as January 2012 you may already be able to qualify!