By the way, DU refers to desktop underwriter. Basically, DU determines if the lender is able to get a computerized approval for the loan. If the computer declines the application, it then goes to manual underwriting

Updates to Policy for Prior Foreclosure Actions

Selling Guide, Part X, Chapter 8, Section 803.02, Payment History

The presence of a prior foreclosure action in the borrower’s credit history is evidence of significant derogatory credit and increases the likelihood of future default. The lender should consider the presence of a foreclosure as an added risk element that represents a significantly higher level of default risk. The greater the number of such incidences and the more recently they occurred, the higher the credit risk.

We currently require four years to elapse after a foreclosure before we will consider the borrower to have a re-established credit history. With this Announcement, we are increasing that time period to five years. We will continue to allow a lesser time period to elapse (three years in lieu of the current two-year requirement) for borrowers who can demonstrate documented extenuating circumstances that resulted in the foreclosure action.

These policy changes apply to all mortgage loans delivered in accordance with the Selling Guide, loan casefiles underwritten with DU Version 7.0, or pursuant to any variance contained in the lender’s Master Agreement.
Manually Underwritten Mortgage Loans
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Elapsed time is measured by comparing the application date of the new mortgage to the completion of the foreclosure action as reported on the credit report or other foreclosure documents provided by the borrower.
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After the requisite five year elapsed time period
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The borrower may obtain a new mortgage to purchase a principal residence with a minimum 10 percent down payment and a minimum credit score of 680.
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The borrower may obtain a limited cash-out refinance mortgage pursuant to our eligibility requirements in effect at that time.
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The borrower may not obtain a cash-out refinance or obtain a mortgage secured by a second home or investment property for seven years after the foreclosure action.
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If the foreclosure was the result of documented extenuating circumstances (as defined in the Selling Guide) and the requisite three year elapsed time period has passed
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The same requirements apply as outlined above, with the exception that the minimum credit score of 680 is not required.
Mortgage Loans Underwritten with DU
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DU determines the elapsed time based on the credit report date and the length of time that has elapsed since the foreclosure was reported in the credit report.
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If the foreclosure was reported within five years of the credit report date, the loan will receive a Refer with Caution/IV recommendation.

Announcement 08-08 Page 11
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DU is unable to determine if there were extenuating circumstances that resulted in a foreclosure action. If lenders have the appropriate documentation that extenuating circumstances were the cause of the foreclosure and at least three years have elapsed since the foreclosure, lenders can manually underwrite a loan that otherwise received a Refer with Caution/IV recommendation. The loan must meet all requirements of the Selling Guide or this Announcement that pertain to manually underwritten loans, including full documentation, minimum credit scores, maximum LTV ratios, etc.
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If DU is unable to determine the date of the foreclosure, the lender will receive an Underwriting Finding message requiring the lender to manually verify the filed and satisfied date of the foreclosure action and apply the policy accordingly.

Effective Date
These changes are effective for all manually underwritten mortgage loans with application dates on or after June 1, 2008 and for loan casefiles submitted to DU Version 7.0. Mortgage loans that conform to our existing foreclosure policy must be purchased by Fannie Mae on or before October 31, 2008 for whole loans, or delivered into MBS pools with issue dates on or before October 1, 2008.