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Sometimes Bad Things Happen To Good People

homes1025-2Mark James
Sales Manager
NMLS 247356
Guild Mortgage Company
(808) 744-6420

The mortgage companies, banks, and credit unions, which are the primary components of the mortgage lending industry, all have different rules on how to handle bad credit. We are talking “severe bad credit” resulting from bankruptcy, foreclosures, and short sales.

The question most often posed to us as lenders by consumers who have experienced or are facing such financial disasters is, “How long will it take to restore our good credit after the ‘bad thing’ happened?”

The intent of this article is to deliver basic rules of the road for consumers as published by the key agencies of residential finance. These are Fannie Mae (FNMA), Freddie Mac (FHLMC), Federal Housing Administration (FHA), Veterans Administration (VA) and United States Department of Agriculture Rural Development Programs (USDA-RD). Timeframes for Jumbo and Portfolio Loans are case by case. The information presented needs to be double checked with your mortgage lender.

Here are some General Rules.


The most severe form of bad credit is a result of bankruptcy, and all three types – Chapter 7, Chapter 11 and, Chapter 13 – are damaging.

FNMA & FHLMC: Four years must pass from the discharge or dismissal date of the bankruptcy action. It can be shortened to two years with extenuating circumstances (e.g., reasonable explanation with documentation that events were beyond the party’s control).

FHA & VA: Two years must pass with no further credit problems reported.

USDA-RD: Three years must pass with no further credit problems reported.


FNMA & FHLMC. A seven-year waiting period, which could be shortened to three years with extenuating circumstances (e.g., a good reason/explanation with documentation).

FHA: Three years.

VA: Two years. USDA-RD: Three years

Short Sale

A Short Sale occurs when the mortgage loan is paid off for less than the debt owed with permission of the lender at the time of sale.

FNMA & FHLMC: Four years must pass, or two years with extenuating circumstances.

FHA: Generally three years with some exceptions.

VA: Generally two years with some exceptions.

USDA-RD: Three years.

The moral of the story is that bad credit events do not need to haunt you forever. The keys to recovery are:

• The passage of sufficient time

• No additional bad credit events or late payments indicative that “the consumer has learned from the past.”

• Documentation of extenuating circumstances

Guild Mortgage loan officers can “dive deep” for specifics as they apply to your situation. To make an appointment with a loan officer, call Guild Mortgage, Honolulu Branch at 744-6420, Waikele Branch at 369-7098, or our Main Office in Kailua at 263-4622.

We will provide more useful consumer information about credit scores and tips for avoiding common mistakes that negatively impact your score in our next article in this section.

Meanwhile, keep in mind that with good intentions and the right advice, you can put the “bad things” behind you and start heading down a new road to a brighter financial future.

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