Pam Marron Home Lending

When Unpopular Policy Works

December 6, 2016 by · Leave a Comment 

Our current administration inherited a financial crisis that this country has not experienced anything close to since the Great Depression. When the collapse occurred, it was visible by the number of unoccupied homes, and many of us knew of friends, relatives and colleagues who were affected. Initially, problems were blamed on the unscrupulous mortgage broker industry until it was learned that the banking industry had an equal amount of blame.

Almost every loan originator I know was negatively impacted by the housing crisis. They were either losing their homes or their income and in many cases, both. All of us saw the housing bubble, but complacency set in after it continued for years, not months. When the crash happened, it was fast and mammoth. It had to be dealt with and the depth of problems that housing faced during the last eight years was unprecedented. Drastic measures were necessary to be put in place immediately to stop the bleeding.

Many say that measures put in place went too far and stalled the progress of the housing market and ultimately added more cost to the entire mortgage process. Others say it could have been much worse if these safeguards were not in place, and that the inconveniences placed upon our industry need to be adapted to. But a few changes occurred that have provided end results that could be argued as good.

The Role of AMC’s and Home Prices

Many of us have concerns when we see housing prices increase quicker than normal trends again. How do we safeguard against alarmingly fast increases in home value that was the norm prior to the crash? The answer appears to be the Appraisal Management Companies, or AMC’s where all (or at least) Qualified Mortgage (QM) appraisals must go through. Appraisals are now done by third-party appraisal management companies (AMC) who lenders and realtors have no communication with until after the appraisal is completed. Even though the process can be frustrating, the value can’t be blamed on the buyers’ lender. A dispute in value can be done but it is with the appraiser through the AMC rather than the lender.

Qualified Mortgages (QM)

Due to requirements put in place by the Consumer Financial Protection Bureau (CFPB), almost all secondary market sellable mortgage products no longer have prepayment penalties, negative amortization, balloons and interest only options. Prior to the housing crash, these negative options were mostly explained to consumers as “rare to happen”, but ultimately became a main reason so many homeowners were negatively affected by the housing crash.

Consequently, a new industry of non-QM mortgage products is out there. Though a rare few have limited “skin in the game”, most of these products require 20% equity to do the deal.

I know that many in my industry have opposite views of the above. And, yes, policies can be streamlined. Frustrating to all of us is that dealing with housing issues seem to come to a standstill 6 to 12 months before every election cycle, seeming to be a topic that no political candidate wants to touch.

Please don’t say the past housing crash won’t happen again with policy changes in the new administration. Instead, those of us in the mortgage and real estate industries need to ensure that this doesn’t happen again by looking at what policies have and have not worked. More effort needs to be placed in finetuning policy that does work.

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.

Thanks to Senator Bill Nelson, Who Called for Correction of Short Sales Erroneously Coded as Foreclosures

September 12, 2013 by · Leave a Comment 

Senator Nelson 3              Corey Stone.CFPB

Senator Bill Nelson (FL-D)                                               Corey Stone, CFPB

Credit reports label

On May 7th, 2013, Senator Bill Nelson (D-Fl) went to the  Subcommittee on Consumer Protection, Product Safety and Insurance to get to the bottom of a major problem keeping past short sellers from re-entering the housing market.

Based upon a current Realty Trac report, up to to 2.2 million past short sellers are eligible to re-enter the housing market, past the required wait timeframe to get a new mortgage after a short sale. However, these past short sellers apply for a mortgage only to be denied through both Fannie Mae and Freddie Mac automated underwriting systems (AUS) because short sale credit shows up as a foreclosure. Why is this so detrimental? A foreclosure requires a 7 year wait to get another mortgage, while a short sale only requires a 2 year wait afterwards and with a 20% downpayment, to get a new mortgage. This delay threatens the rebound of the U.S. housing market, and will negatively affect the credit and ability of another 16 million underwater consumers who may need to short sale in the future, to go forward.

 

Below is the link and transcripted words of Senator Bill Nelson (D-FL), Senator Claire McCaskill (D-MO), Corey Stone, Assistant Director, Deposits, Cash, Collections, and Reporting Markets, Consumer Financial Protection Bureau (CFPB); Stuart K. Pratt, Consumer Data Industry Association (CDIA), Ira Rheingold, National Association of Consumer Advocates (NACA), and the National Consumer Law Center (NCLC)

WASHINGTON, D.C.—The U.S. Senate Subcommittee on Consumer Protection, Product Safety, and Insurance held a hearing on Tuesday, May 7, 2013 at 2:30 p.m. titled Credit Reports: What Accuracy and Errors Mean for Consumers.

Click on the link to load and view the webcast housed at C-Span: “Credit Reports: What Accuracy and Errors Mean for Consumers.”

This is a large video so please allow time to load.

1st, go to time of 58:46 where Senator Nelson addresses Corey Stone with the Consumer Financial Protection Bureau (CFPB):

Transcript starting at 58:46:

Senator Bill Nelson: “Ok, I want to ask you about something else. Under the Fair Credit Reporting Act, all credit files should be reported accurately. Isn’t that correct?”

Corey Stone/CFPB: “That’s correct.”

Senator Bill Nelson: “OK. And if a person goes into foreclosure, someone, indeed, that will be noted and it will affect their credit, will it not?”

Corey Stone/CFPB: “Absolutely.”

Senator Bill Nelson: “Then I would ask both of you all, as the regulator s, why are people who don’t go into foreclosure but go into a short sale which the government, this government, under law that we have passed actually encourages, and even encourages with some tax incentives, why is a short sale being coded in the credit reporting agencies the same as a foreclosure? And it’s happening in my state right now! Why?”

Corey Stone/CFPB: “Short sales is a relatively new phenomenon and it is important that it be reported accurately because Fannie and Freddie and the GSE’s and the FHA treat those differently in their underwriting system. So if they can’t distinguish between a short sale and a foreclosure, somebody whose had a short sale will be treated as if they’ve had a foreclosure. The coding of this information is coming into the 3 credit bureaus from furnishers in identical files but it’s our understanding, and this is something we’ve talked to the Consumer Data Industry Association about, and you can ask Mr. Pratt, the next witness about…”

Senator Bill Nelson: “I don’t know what you’ve just said. Why is a short sale being coded the same and you all as the regulators are allowing it to be coded the same as a foreclosure which is a completely different breed of horse.”

Corey Stone/CFPB: “Yeah. Right now, there is a special treatment for short sales that does code them differently but not in the same way that other kinds of ends of loans are coded and a technical aspect that I think Mr. Pratt will be able to shed more light on. But right now, some of the credit reporting agencies do report this information accurately from the information that they receive but not all….”

Senator Bill Nelson: “But they haven’t been (doing so) in Florida. You’re the Consumer Financial Protection Bureau. You’re supposed to be protecting consumers. You’re supposed to be seeing that fair trade is going on. Here we have a new phenomenon. We have a lot of mortgages underwater, people still want to sell their homes. You get into a state like mine where 40% of all of the mortgages in the state are underwater and you want commerce to continue. You want to get the economy to recover. And, so why then penalize the poor person, and we’ve seen this over and over in Florida… why penalize them because they’ve done something we’ve encouraged, and then they have their credit completely blown?”

Corey Stone/CFPB: “We agree with you, Senator, that foreclosures and short sales should be clearly distinguished in credit reports. We’ve become aware of this problem and we’re trying to track down exactly how to fix it, uh, and we’ll have to get back to you on it.”

Senator Bill Nelson: “Well, here’s what I’d suggest that you do. Since you’re supposed to be protecting the consumer (and so are you too, stated to the FTC spokesperson), I have just called this to the attention of your respective chairman, Ms. Ramirez and Mr. Cordray, and I would appreciate it if you all would stop this nonsense and get it coded correctly so that our people are not being penalized. Thank you very much.”

 

Then, go to 2nd piece from 2:22:51 to 2:24:52 where Senator Claire McCaskill asks Stuart Pratt with CDIA the question of Senator Bill Nelson, “Why is a short sale being coded as a foreclosure?”

 

Senator Claire McCaskill Stuart Pratt.CDIA Rheingold

Senator Claire McCaskill (D-MO)               Stuart Pratt, (CDIA)                               Ira Rheingold, NACA, NCLC

Transcript: starting at 2:22:51:

Senator Claire McCaskill: “I have a question from Senator Nelson for Mr. Pratt. Why is a short sale being coded as a foreclosure?”

Stuart Pratt/CDIA: “Well they’re not, but I think that Mr. Stone said it right. The short sale is a new. We’ve had deed-in-lieu, we’ve had foreclosures, we now have short sales. The Metro 2 Task Force, which the CDIA administers, is now looking at a new short sale code because in fact it isn’t a scoring issue in this case, it’s a Fannie and Freddie issue. Fannie and Freddie are administering some programs and they need to be able to identify short sales uniquely, different than any other loan, which is simply settled for less than the full amount. So, we have a code that is settled for less than full amount. And, generally we try to keep codes broad rather than narrow because very narrow codes generally don’t populate into the data base , they don’t become scoreable, they don’t become useable. So in this case, we probably will have to create a short sale code, because Fannie and Freddie are looking for something like a short sale code and they want to see it uniquely and differently from any other settled for less than full amount loan that’s out there in the marketplace, and that’s why…”

Senator Claire McCaskill: “so you’re saying perspectively you will code it differently but now it’s being coded the same?”

Stuart Pratt/CDIA: “Lenders are coding it as a paid for less than full amount.”

Senator Claire McCaskill: “Which is the same as a foreclosure…”

Stuart Pratt/CDIA: “Uh, no. Actually a foreclosure is yet a different coding. If a lender is coding foreclosure on it’s own, they are miscoding a short sale, which would be a data furnisher issue, which would be an issue that the CFPB could look into just as they can look into our practices with our members.”

Rheingold: “But that coding has an incredibly negative impact on the consumers’ ability to get credit. I’d also add that short sales have been around for a long time. I’ve represented homeowners for 25 years and we were doing short sales 20 years ago. So, it’s not a new phenomena. Maybe the prevalence of it, it’s been around for a long time…”

Stuart Pratt/CDIA: “I think that’s well said. The prevalence of it, and the relevance of it to certain new processes that Fannie and Freddie are trying to roll out in the marketplace.”

 

 

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.”

 

 

 

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