Pam Marron Home Lending

Better Details Needed for FHA Back to Work, Conv “Extenuating Circumstances”

May 6, 2015 by · Leave a Comment 

Better Details Needed for FHA Back to Work Program and Conventional “Extenuating Circumstances”

 

By Pam Marron

For past short sellers who have gone through the loss of a home and are eligible to return, criteria needed for a new mortgage is vague. The result is a partial story.

Proving “extenuating circumstances” and confining the timeline for an economic event is a struggle for loan originators and underwriters trying to comply with vague criteria. Because of so many variables, lenders deny new loans for borrowers with a short sale or foreclosure in their past even when they may be eligible to repurchase again.

We HAVE to get this right. Detailing WHY the loss of a home is the hardest thing for affected consumers to provide… not because they can’t remember, but because they relive it.

In attempting to originate the FHA “Back to Work” loans, it would seem the process is simple. The criteria for “Back to Work” is to show a 20% reduction in income sustained for 6 months minimum that resulted from a loss of employment or reduction in income, which is considered the “economic event”.

Here’s the bigger problem. Most who had an “economic event” tried to hang on, wiping out assets along the way. But, while trying to hang on, homeowners accumulated more debt to stay solvent and in most cases, to stay current on their mortgage. Then, another “economic event” hit, assets were gone and debt is so excessive that there is no choice but to short sell.

As a mortgage broker in Florida where it is common to see Boomerang Buyers (those eligible to re-enter the housing market after a short sale or foreclosure), I often hear the full story for those who have lost a home and want to re-try home ownership again. An economic event followed by a prolonged period of trying to stay put, finally ended with another event where funds were no longer available and the only choice was to short sale, occurred in a great deal of these cases.

Proof also exists to show a good number of these folks had excessive debt that pushed up debt to income ratios incredibly high prior to the sale of their underwater home.

But, it gets confusing for a new mortgage. For the FHA “Back to Work” program, HUD approved counselors are able to determine hardship and can provide those who attempt a re-purchase one year after a short sale, foreclosure or bankruptcy with a housing counseling certificate.

However, that doesn’t mean the mortgage company will approve the mortgage. Because the economic event may have occurred years ago and short sale processes took months or years, documentation such as tax returns and bank statements needed to show a lack of assets may stretch over the previous five to seven years rather than the most recent two years that lenders are accustomed to evaluating.

Mortgage companies who offer FHA “Back to Work” are reluctant to promote this almost two year old program due to few of these loans getting approved. Part of this is because loan originators don’t provide enough documentation, and the other problem is that there seems to be wide discrepancy between underwriting opinion on these files.

Varying opinion also exists for “extenuating circumstances” noted in Fannie Mae and Freddie Mac guidelines for eligibility of a new mortgage under four years. Underwriting interpretation of these guidelines vary greatly from lender to lender for the few mortgage companies who offer these loans.

For loans submitted with what seems to be an iron clad “extenuating circumstance” or proof of the 20% reduction in income for 6 months minimum for FHA’s “Back to Work” program, underwriter opinion seems to vary widely. Some underwriters think the decision to short sale was too soon, while others wonder why homeowners waited. It seems they are trying to justify the sale was “not strategic”.

The income, current credit and assets of borrowers who have gone through a short sale and are trying to re-enter the housing market is more than acceptable per current guidelines. They have to be next to perfect, and they know it. Other than knowledge of the past short sale, these are loans that any lender would want to have on their books.

Those who make policy need to talk directly with affected past short sellers. They need to come to where underwater home problems still exist and see for themselves what is really happening. This can truly help the housing industry recover.

 

 

 

 

Fannie Mae Fix out Nov.16, 2013 and Two Fixes for Erroneous Foreclosure Code on Past Short Seller Credit Working Now!

October 27, 2013 by · 8 Comments 

Fannie Mae Real fix3

Effective Nov. 16, 2013, Fannie Mae “Fix”!

FNMA Horizontal

Desktop Originator/Desktop Underwriter  Release Notes DU Version 9.1

Updated October 22, 2013

During the weekend of Nov. 16, 2013, Fannie Mae will roll out automated underwriting changes to Desktop Originator/Desktop Underwriter to allow lenders to make a correction when past short sales are erroneously coded as a foreclosure. This will allow past short sellers now eligible for a new mortgage to obtain an approval through the Fannie Mae automated underwriting system (AUS)!

Underwriting when Conflicting or Inaccurate Foreclosure Information Provided on DIL or PFS Tradeline

Fannie Mae has been made aware that there are often inconsistencies in the credit data when Deed in Lieu (DIL) and Pre-Foreclosure Sale (PFS) events occur, and in an effort to assist borrowers in obtaining a new loan in an appropriate timeframe, DU will be updated to disregard the foreclosure information on the credit report when instructed to do so by the lender on the online loan application.

Here’s how to correct the problem:

a. The past short seller needs to have proof of past short sale available (commonly received from listing realtor) and a HUD 1 closing statement to show date of the short sale (both commonly retrieved from short sale realtor or title company). Provide to lender.

b. Lender should run the Desktop Underwriter and get finding first. If Refer with Caution received (shown below), go back into 1003 loan application.

 Rfer with Caut

When DU identifies a foreclosure on a credit report tradeline that appears to be one that was subject to a DIL or PFS, the lender may instruct DU to disregard the foreclosure information on the credit report by entering “Confirmed CR DIL” or “Confirmed CR PFS” in the Explanation field for question c. in the Declarations section of the online loan application and resubmitting the loan casefile to DU. When DU sees this indication, the foreclosure information on the credit report tradeline that also has a DIL or PFS Remarks Code will not be used.

The following is a screen shot of the Desktop Originator® (DO®)/DU User Interface that shows question c., the Explanation field, and examples of how the data should be entered on the online loan application after Nov. 16, 2013:

CR: Credit

DIL: Deed in Lieu

PFS: Pre-Foreclosure Sale/Short Sale

DU fix.12.17

c. After the correction is made, lender should rerun Desktop Underwriter again.

For questions regarding the support of this field by a lender’s loan origination system, lenders should contact their technical support team, and may also contact their Fannie Mae Account Team for additional assistance.

Please Note:

    •  FHA and VA loan approvals are not commonly resulting in loan denials for past short sellers through eitherFannie Mae DU or Freddie Mac LP systems.
    • For short sales that are over 4 years ago, have your lender run through Freddie Mac LP automated underwriting system.

 

And, try these two solutions which are working right now, resulting in an approval:

checkmarkEffective NOW: “Submit a Complaint” at CFPB.gov now.

This prompts a response from your lender typically within 3 days. (A visual of the 5 steps to complete and a list of documents to have ready to attach is at http://closewithpam.com/directions-to-submit-a-complaint-to-the-consumer-financial-protection-bureau/).

CFPB Bank ltr pg 1

bank ltr pg 2

Bank Ltr pg 3

bank ltr pg 4

bank ltr pg 5

The resulting letter from your past short sale lender will have a CFPB case#.

Kelly CFPB letter

checkmark Effective NOW: Call your past short sale lender and ask for the “Executive Mortgage Complaint Escalation” phone number. Call this phone # and ask for a letter stating that your past mortgage closed as a short sale.

a. Have your HUD-1 Closing Statement and the short sale approval letter(s) for the 1st (and 2nd ) mtg. ready upon this call. Make sure to ask how long it will take to get this letter.

b.  Forward the resulting letters from CFPB and your past short sale lender to your new mortgage lender and ask them to re-pull a new credit report.

IMPORTANT: Ask your lender if they can pull credit through Kroll Factual Data or Acranet. I am having various results with different credit agencies and the greatest success has been with both of these agencies.

c. Then, have your lender rerun your loan with the new credit report through Fannie Mae Desktop Underwriting. This results in an Approve/Eligible, or an Approve/Ineligible that can be fixed with proof of the short sale date.

Letters from Lender:

Bank letter

Albright WF letter

Video: Past Short Sellers Can Be Homeowners Again!

October 16, 2013 by · Leave a Comment 

The fix is in!

 

Video: Past Short Sellers Can Be Homeowners Again!

George Albright, like many past short sellers, had a problem when he was eligible to repurchase a home. His past short sale credit was showing up as a foreclosure. George made this video to explain how he was able to get his credit corrected and buy a new home again. How many past short sellers, or those who may have to short sell, can this help? Simple instructions for past short sellers, realtors and lenders!

Click on picture above or go to http://youtu.be/ZPvzVpnwKRI

Fannie Mae Desktop Underwriter (DU) Vers. 9.1 Release Webinar Available!

September 19, 2013 by · Leave a Comment 

Lenders, loan officers, credit companies;

Sign up for Desktop Underwriter (DU) Version 9.1 Release Webinar dates at https://www.fanniemae.com/s/more?query=webinar+on+version+9.1

This session will provide an overview of instruction on how to confirm past consumer short sale data in Fannie Mae Desktop Originator/Underwriter automated system, scheduled for update the weekend of November 16, 2013.

FNMA Vers 9.1 training

Pasco man gets around home lending glitch

September 15, 2013 by · Leave a Comment 

8 on your side

Posted: August 28, 2013

By Shannon Behnken

PASCO COUNTY, FL -In 2010, George Albright’s Trinity home lost half its value, and he lost income. His lender agreed to allow the house to sell for less than Albright’s mortgage and write off the rest. This foreclosure alternative is supposed to help distressed homeowners get back on their feet.Albright knew the short sale would be a black mark on his credit, but he wanted to buy a home again in a few years.”The bank approved it, so I thought I’d be okay in a couple of years and get back in the market.”

One of the benefits to a short sale is that most lenders require only a two-year waiting period before you can buy again. A foreclosure, on the other hand, sticks on your credit report for seven years. But Albright, and thousands of others who have waited their two years, are finding that a computer glitch resulted in foreclosure, the “kiss of death” in lending, on their credit anyway.

“Again, I thought I did the right thing, and I’m getting linked in with other foreclosures, and I didn’t think that was fair because I thought I did the right thing, as best I could at that time.”

The problem is that credit agencies don’t have a code for “short sale” and so many just mark foreclosure. Fannie Mae is working on a fix to its computer system that would flag this problem. The new system is supposed to launch Nov. 16. In the meantime, the Federal Housing Administration is working to change its guidelines, too.

Instead of waiting three years for an FHA loan, a distressed seller can now jump back into the market after one year of good credit.

Until all of the computer fixes are in place, experts recommend obtaining a letter from your former lender to prove your short sale situation.

This is what Albright did, and now he has been approved to buy a home again.

National Consumer Reporting Assoc.(NCRA)…Could Not Have Done This Without Them!

September 6, 2013 by · Leave a Comment 

NCRA 8.23.13

Short sales coded as foreclosures hurt credit

August 29, 2013 by · Leave a Comment 

channel 8 8.26

Posted: August 26, 2013

By Shannon Behnken

PASCO COUNTY, FL – For a distressed homeowner who owes way more on a mortgage than a home is worth, a “short sale” can be a ticket out of foreclosure.

A short sale occurs when a bank allows a home to sell for less than you owe, then writes off the rest. It’s supposed to be a black mark on your credit for just two years, instead of the usual seven years for a foreclosure.

“The benefit of entering a short sale agreement is that you’ll be able to re-enter the housing market a lot quicker than having a foreclosure on your credit,” said Joe Gendelman, of National Credit Federation in Tampa.

Gendelman said he’s working with dozens of clients who went through short sales, but then found a foreclosure listed on their credit years later.

The problem is bank and credit bureaus have no special code to report a short sale, so when a new lender checks your credit, it often shows up as a foreclosure.

So thousands of Bay area homeowners who completed short sales years ago are now having trouble buying another home, or even a car.

“Forty percent of homes in the state of Florida are under water.  So, it really creates a mountain that if people need to sell for some reason, many times they would have to be forced to do a short sale,” Gendelman said.

Mortgage Giant Fannie Mae, which underwrites mortgages, says it’s in the process of changing its computer system so that short sales are flagged.

In the meantime, experts recommend you ask for a letter from the lender who approved your short sale. That way, you have proof, if you need it.

Negative Equity Declines in 2Q13, but Trouble Looms for Many Homeowners

August 29, 2013 by · Leave a Comment 

By Evan Nemeroff  AUG 29, 2013 12:40pm ET

With home values rising over the last several months, the national negative equity rate is falling. But for millions of homeowners, it could take years for them to regain equity, Zillow said.

Approximately 12.2 million homeowners with a mortgage were in negative equity at the end of the second quarter, the Seattle-based real estate information provider said in a report. This figure is down from 13 million homeowners in 1Q13 and 15.3 million a year ago.

Even if home prices go up by 4.8% in the next year, it would take a homeowner who is 20% underwater about four years to reach positive equity, assuming appreciation continues at that rate going forward.

“Widespread rising home values during the past year have helped chip away at negative equity nationwide, helping many homeowners who were only modestly underwater to come up for air. For those homeowners who are deeply underwater, though, there is still a long row to hoe,” said Stan Humphries, chief economist for Zillow.

Overall, the negative equity rate for all homeowners with a mortgage is 23.8%. More than half (57%) of homeowners in negative equity are underwater by at least 20%. Furthermore, 13.4% of underwater borrowers owe more than twice what their properties are worth.

Among the 30 largest metropolitans areas covered by Zillow that have the highest percentage of mortgaged homeowners with negative equity in the second quarter are Las Vegas (48.4%), Atlanta (44%) and Orlando (39.8%).

Over the next year, Zillow is forecasting that the negative equity rate for homeowners with a mortgage will fall to at least 20.9%, which will help free 1.9 million borrowers from being underwater. The majority of these homeowners, Zillow said, that will fall into positive equity are anticipated to come from Los Angeles, Riverside, Calif., and Atlanta.

“The frustrating slow pace of negative equity declines in the face of such robust home value appreciation is a direct result of the fact that many people in the hardest-hit markets are underwater by an enormous amount,” Humphries stated. “Because of this, negative equity will be a factor in these markets for years to come, constraining the supply of homes for sale and keeping people out of the market who might otherwise get involved.”

 

 

 

Problems Surrounding Underwater Homeowners and Short Sellers

April 13, 2013 by · Leave a Comment 

Click title to view document taken to Washington, D.C. on April 8-10th.

Problems Surrounding Underwater Homeowners and Short Sellers

For short-sellers, some good news, by Kenneth R. Harney, Washington Post

February 6, 2013 by · Leave a Comment 

THE NATION’S HOUSING COLUMN

Friday, Sept. 6, 2013

For short-sellers, some good news

By KENNETH R. HARNEY

WASHINGTON — Policy changes by two of the biggest players in the mortgage market could open doors to home purchases this fall by thousands of people who were hard hit by the housing bust and who thought they’d have to wait for years before owning again.

Fannie Mae, the federally controlled mortgage investor, has come up with a “fix” designed to help large numbers of consumers whose short sales were misidentified as foreclosures by the national credit bureaus. Under previous rules, short-sellers would have to wait for up to seven years before becoming eligible for a new mortgage to buy a house. Under the revised plan, they may be able to qualify for a mortgage in as little as two years. Homeowners who are foreclosed upon generally must still wait for up to seven years before becoming eligible again to finance a house through Fannie. Industry estimates suggest that more than 2 million short-sellers might be affected by credit bureaus’ inaccurate descriptions of their transactions.

Meanwhile, the Federal Housing Administration (FHA) has announced a new program allowing borrowers whose previous mortgage troubles were caused by “extenuating circumstances” beyond their control to obtain new mortgages in as little as a year after losing their homes instead of the current three years. They will need to show that their delinquency problem was caused by a 20 percent or greater drop in income that continued for at least six months, and that they are now “back to work,” paying their bills on time and earning enough to qualify for a new FHA-insured mortgage.

Fannie Mae’s policy change came after months of prodding by the federal Consumer Financial Protection Bureau, Sen. Bill Nelson, D-Fla., the National Consumer Reporting Association, the National Association of Realtors and Pam Marron, an outspoken Florida consumer advocate. They all sought fairer treatment of borrowers who had participated in short sales in recent years. Marron, a mortgage broker, spotted the erroneous reporting of short sales on credit reports and mounted a campaign to correct the problem.

In a short sale, the lender approves the sale of a house to a new buyer but typically receives less than the balance owed. In a foreclosure, the bank takes title to the property and seeks to recover whatever it can through a resale. Though the two types of transactions are distinct and involve significantly different losses for banks — foreclosures are far more costly on average — the nation’s major credit bureaus have no special reporting code to identify short sales. As a result, say critics, millions of people who have undertaken short sales in recent years may have their transactions coded as foreclosures on their credit bureau reports.

That matters — a lot — because Fannie Mae and other major financing sources have mandated different waiting periods for new loans to borrowers who have completed short sales compared with borrowers who were foreclosed upon — in this case, two years versus seven. Under the new policy, which takes effect Nov. 16, short-sellers who find that their transactions were miscoded on their credit reports, and are able to put 20 percent down, should alert their loan officers and provide documentation on their transaction. The loan officer should advise Fannie Mae about the credit report coding error. Fannie will then run the loan application through its revised automated underwriting system.

Freddie Mac, the other government-administered mortgage investor, continues to require a four-year waiting period for short-sellers who cannot demonstrate “extenuating circumstances” as having caused their problems. If they can do so — documenting income reductions beyond their control that wrecked their credit — they may be able to qualify for a new Freddie Mac loan in two years.

FHA’s policy change may prove to be an even more generous deal for some previous homeowners. Like Freddie Mac, FHA wants to see hard evidence of what economic events beyond the borrowers’ control — loss of a job, serious illness, or death of a wage earner, for example — led to the delinquency or loss of the house. Applicants must be able to show 12 months of solid credit behavior, participate in a housing counseling program and get through the agency’s underwriting hoops. But unlike either Fannie or Freddie, if you qualify under FHA’s revised rules, which are now in effect, and your lender approves, you might be able to buy a house with a new, low-down-payment mortgage in as little as a year.

It’s worth checking out.

Ken Harney’s email address is kenharney@earthlink.net.

(c) 2013, Washington Post Writers Group

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