Pam Marron Home Lending

Numerous Problems Surround Underwater Homeowners: To Get Short Sale Approval, Throughout Process, and Afterwards

Problems Outlined. There are solutions. Anyone listening?

If you are having any of problems noted below, please email Pam Marron at pmarron@tampabay.rr.com or call 727-375-8986.

1.) Credit:

  •         Short sales incorrectly show up on consumer credit as a foreclosure. This one error extends the wait period before getting a new mortgage approval from the short sale minimum wait timeframe of 0-2 years to the minimum foreclosure wait timeframe of 3-7 years. 
  •         Why can’t this easily be corrected? Because there is no specific short sale code. 
  •         Previous short sale lenders and their attorneys usually will not change the incorrect foreclosure credit code. A credit code change can be made by a credit repair company that demands a downgrade of the credit code if the mortgage did not close as a foreclosure. However, this results in extra cost and further delay for past short sellers.  
  •         It has been claimed by credit reporting agencies that the erroneous credit code is also affecting other consumer credit of past short sellers.

2.) Credit and Denial through Fannie Mae/Freddie Mac Automated Underwriting Systems:

  •          Government Sponsored Enterprises (GSE) Fannie Mae (FNMA) and Freddie Mac (FHLMC) automated underwriting systems (AUS) are reading short sales incoreectly as a foreclosure, which results in a denial for the past short seller of a new mortgage after the required wait period.
  •          Mortgage underwriters are reluctant to override the erroneous FNMA and FHLMC AUS findings even when provided proof that the past mortgage was closed as short sale because of fear of buyback of loan  if nthere is no “Accept/Approve” through AUS.

3.) Problems Created by Ignoring Dual Tracking:

  •          Lenders have illegally proceeded with “dual tracking”, continuing to process a foreclosure even though the homeowner has entered the short sale process. This results in a “Foreclosure Started” credit code, which is then reported as Foreclosure, noting the (Method of Payment (MOP) as an M-8 or “8” on payment history.

Dual Tracking results in additional costs to get fixed and a delay of getting a mortgage for the past short seller.

4.) Banks Ignore FHFA Short Sale Guidelines Effective 11/1/2012:

         Banks are still requiring underwater homeowners to be delinquent even though the 11/1/12 FHFA Short Sale Guidelines <http://www.fhfa.gov/webfiles/24211/shortsalesprfactfinal.pdf>  which allows FNMA/FHLMC homeowners to be current on their mortgage. This needs to stop.
·      Though FHFA states that all ten 10 hardships listed on the Uniform Borrower Assistance Form 710  <
https://www.fanniemae.com/content/guide_form/710.pdf>  are eligible, lenders are still using the previous three “D’s” for hardships: death , disability, divorce and have now added relocation.

 (Note: Eight of the ten hardship reasons are noted on the FHFA Fact Sheet. However, Reduction in Income and Other: A Hardship Not Covered, are not noted on the FHFA Fact Sheet. Additionally, Legal Separation is not noted on the FHFA Fact Sheet with Divorce. FHFA has confirmed that all hardships listed on Form 710 from August 2012 are included.)

5.) No Refinance Program for NON-GSE Mortgage Holders:

  •          There is no refinance program for underwater non-FNMA or FHLMC conventional mortgage holders! There is a streamline FHA and VA loan for government mortgage holders. Conventional non-FNMA/FHLMC mortgage holders are beholden to investor rules which often require default on the mortgage before considering a short sale.

6.) HARP 2.0 Problems:

  •          HARP loans do not allow a refinance to an underwater homeowner with a past short sale for specific time frames. This can be a detriment to those homeowners in underwater areas where the likelihood of having another mortgage that may have had to short sell is high. Also, there is a difference between FNMA and FHLMC waiting periods for past short sellers who want to refinance with HARP:
      •  FNMA: won’t allow a HARP refinance on property if borrowers had a past short sale unless the current refianced home is at 80% LTV and it has been 2 years since the short sale, or at 90% LTV and 4 years after the short sale. This prevents many who have already had a past short sale from getting relief for a prolonged period of time.
      • FHLMC: will allow a HARP refinance on current property if the short sale was 2 years past.
  • Underwater homeowners are being turned down for HARP by current lenders because of the lender’s overlays, which may not be actual HARP guidelines. Underwater homeowners do not get the message that they may still be eligible for the HARP program through another lender without overlays.

IMPORTANT NOTE: A group in New Jersey called Loan Value Group, LLC (LVG) is successfully working with Arizona and a number of other states to contact, educate and convert eligible borrowers to HARP. LVG is the only company offering this service free of charge to the borrower and the state and so far, have acheived 80% contact rates and greater than 90% conversion rates. LVG could launch this program within 60 days to help the state of Florida! Learn more about what LVG is doing here!

7.) HARP 2.0 and VA Loan Refinance Ineligibility to Ex-Spouses, Widows, Widowers:

  •          HARP refinancing, which allows a refinance for underwater homeowners, is only available If the current mortgage holder is on the note. If the ex-spouse was give a quit claim deed to the home per the divorce but is not on the note, they cannot do a HARP refinance without the original note holding spouse staying on the mortgage. (How many divorced spouses can you find that are willing to refinance a home with their ex-spouse?) 
  •        On VA and FHA loans, the same holds true: widows and widowers who are not on the note but are on the deed and title as the spouse cannot get the attention of the bank to refinance the loan, for modification help or for a short sale unless they are late on the mortgage payment, which triggers the lender to contact them. Then, due to their late payment on the mortgage, they are not eligible for a refinance!  (If there was equity in the property, the widow/widower could simply refinance.)
  • HARP is the only refinance option for GSE held underwater mortgages, and an FHA or VA Streamline refinance is the only option for underwater government mortgage holders. When lenders refuse to work with ex-spouses, widows and widowers if they are not on the note, this problem can destroy the lives of the ex-spouse needing the refinance to lower payments, as well as the ex-spouse who holds the note, when the lender requires a mortgage delinquency in order to short sell a home.

8.) No Qualifying of Short Sales Before Submission by Most Professionals:

  •          Realtors and title companies are improperly entering prospective short sellers into the Making Home Affordable (MHA) program through HAFA, not HAMP. Additionally, very few are taking into consideration “waterfall qualifying criteria” which requires >31% front debt to income ratio in order to be considered for HAMP and >55% back end debt to income ratio in order to be considered for HAFA for a short sale, especially when proceeding while being current.

Often, underwater homeowners trying to apply for a short sale while being current are told that “the investor required a 31 day delinquency in order to be approved for the short sale”. This is in direct conflict with the HAFA guidelines that allow for Imminent Default, which means the ability to make mortgage payments on time with the threat of soon being delinquent if something is not done. In these instances, homeowners are turned down simply because they did not enter MHA through the modification route of HAMP first, but entered at the foreclosure alternative route of (HAFA) first.  

9.) Chinese Drywall Mold Repairs Required to Made Before Short Sale Approval

  •          Homeowners who have Chinese drywall mold problems are required to make repairs prior to getting approval for a short sale. Chinese drywall is a health hazard and has caused homeowners to move out when the mold begins affecting family health.  Some lenders do not know what Chinese drywall mold is, but lenders that do know require a costly and lengthy report to confirm that the mold is present. Then, lenders often require underwater homeowners to pay for the repair which can cost $20,000 and up. Frustrated underwater homeowners who don’t have the money for negative equity and then must short sale certainly don’t have the extra money to repair Chinese drywall problems.

March 16, 2013 by · Leave a Comment

About Pam

Since 1985 as a loan originator, highly experienced with automated loan approvals on DU, LP, and with USDA GUS systems, thorough knowledge and use of FHA loans including 203K rehab, conventional loans including USDA, Homepath and rehab, and VA loans. After 27 years, I STILL love this business!

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