Fannie Mae is in the process of upgrading Desktop Underwriter (DU), its automated underwriting system, to ensure that lenders have sufficient flexibility during the underwriting process to approve borrowers who accidentally end up with a foreclosure on their credit report. In many instances, a borrower may be qualified to obtain a loan when enough time has passed from the enactment of a pre-foreclosure sale; however, in some of the credit bureau files, the data offered undermines the borrower by showing a foreclosure even if the residence was technically offloaded in a pre-foreclosure deal.
Fannie Mae's Stephen Pawlowski says the government-sponsored enterprise requires a two-year waiting period before a borrower can qualify for a home loan following a pre-foreclosure sale. By contrast, borrowers who undergo foreclosure must ride out a seven-year waiting period. When borrowers who go through a pre-foreclosure sale end up with a foreclosure and pre-foreclosure sale on their credit reports, this technical error can delay their re-entrance into the underwriting process and thus the housing market. Fixes taking effect on Nov. 16 will allow lenders to instruct DU to ignore foreclosure information on credit reports if a pre-foreclosure sale is also listed.