Pam Marron Home Lending

Drill Down on Short Sale and Modification Credit

April 4, 2017 by · Leave a Comment 

By Pam Marron | National Mortgage Professional Magazine | April 2017

Recently, a joint effort of the mortgage and the housing counseling industries to remedy continued credit problems of past short sellers who continue to receive a foreclosure credit code on their past short sale credit was investigated. While reviewing data, it was learned that this same credit code problem also affects consumers who have had a modification. The foreclosure code problem seems to be present when mortgage lates go past 120 days, a trait present in many short sales and modifications. But we were stunned when the foreclosure credit code also showed up on a consumer who had excessive mortgage lates… but no short sale, foreclosure or modification.

To prove the data found, nine cases including short sales, a modification, a Deed in Lieu and one where none of these existed were set up in the same format. A tri-merged credit report was pulled for each and a visual of the problem credit trade line was provided as well as a snapshot of the individual bureau repositories of Experian, TransUnion and Equifax.

Fannie Mae

All cases were run through the Fannie Mae Desktop Originator (DO) automated underwriting system (AUS) with the tri-merged credit report. A visual of the findings for an approval or declination and what the blended tri-merged credit in Fannie Mae looks like was provided.

The Fannie Mae workaround was used for loans that received a Desktop Originator Refer with Caution and it worked… even on the modification.

There is no workaround for Freddie Mac.

Freddie Mac

For Freddie Mac, cases were run through the Loan Prospector Advisor (LPA) first with the lender tri-merged credit report. Then, the case was run again using the credit in-file option allowed internally through Freddie Mac’s LPA. A snapshot of Freddie Mac’s tri-merged credit and the separate credit in-files was included.

Here is what was found in Freddie Mac:

  • There is no variation for foreclosure verbiage. Either “13. Recent foreclosure/signif derog appears on credit report” appears in findings, or it does not.

Other remarks are often included:

  • “64. Crdt rpt w/recent mtg delinq or review mtg credit history”
  • “YW. The Borrower has had a foreclosure within the last seven years. The mortgage file must also contain evidence of the completion of the foreclosure.”

Number of consumers at risk

Thanks to RealtyTrac (now ATTOM Data Solutions), it was learned that there were 1,978,754 short sales and deeds in lieu completed from 1/1/2010 through 12/31/2016.

The wait timeframe after a short sale or deed-in-lieu is 4 years, rather than the 7 year wait timeframe after a foreclosure.

Thus, as of Dec. 31, 2016, 1,032,211 of those with a past short sale or deed-in-lieu are past the 4 year wait timeframe and are now eligible to re-enter the housing market. Any of these clients and additionally those who had a modification or who had mortgage lates past 120 days will most likely encounter a new mortgage denial for a Fannie Mae or Freddie Mac conventional mortgage.

We haven’t even looked at the number of modifications affected yet.

How Problem Continues

A conventional mortgage denial occurs when the automated underwriting system reads credit code of a past short sale as a foreclosure. When the lender calls Freddie Mac or Fannie Mae, support tells the lender that the information is coming from one or more of the bureaus (TransUnion, Experian or Equifax). Ultimately, the consumer is told they must get the credit fixed with the bureau(s) where the foreclosure code is coming from, though Fannie Mae has a workaround for this problem.

The borrower tries to get this fixed by placing a “dispute” on the account. The “dispute” hides the actual credit from Fannie Mae and Freddie Mac automated systems and must be lifted from the credit when the consumer applies for a new mortgage. When the dispute is lifted, the problem credit comes back and most often credit scores plummet. This results in a higher rate for the consumer and the lender must pay for a Rapid Rescore, the quickest way for consumers to get a credit score change. This is a big problem when found during a contract with a deadline. Lenders that end up paying for the Rapid Rescore often do not want to assist consumers where this problem is anticipated due to the cost the lender must incur.

Another problem is the “Date Reported”, or a more recent change to an account than the initial occurrence date. The more recent date often exempts a past short seller from a new conventional mortgage when it falls within the minimum required wait timeframe. This date cannot be changed per credit reporting agencies.

Stay tuned.

HUD Housing Counseling Federal Advisory Committee (HCFAC) to host panel entitled “Challenges in Credit Reporting Post-Crisis: An Opportunity for Housing Counselors”

March 14, 2017 by · Leave a Comment 

As a member of the HCFAC committee which is comprised of three representatives each from the mortgage, real estate and housing counseling industries as well as three consumer advocates, I am learning more about a great resource – HUD approved counseling agencies. Panels were planned for March 14 at HUD to show different ways that HUD approved housing counselors can assist not only consumers, but also mortgage and real estate professionals. (The meeting was cancelled due to a major snowstorm and will be held at a later date.)

For years, we have grappled with a credit problem where past short-sellers who attempt to get approved for a conventional Fannie Mae or Freddie Mac mortgage are turned down because their short sale is credit coded as a foreclosure. This problem is commonly found during the mortgage process of a live contract where a deadline must be met. Often, options to get this corrected quickly are expensive or result in the borrower resorting to an FHA mortgage or a non-QM portfolio loan at a higher interest rate.

When this problem was discussed with colleagues in the housing counseling industry, it became evident that this is where a solution to this problem for all parties might be. Why? Loan originators are trained to meet contract dates and get data needed to ensure an approval. Housing counselors are trained to analyze and prepare clients for homeownership.

The credit code problem specific to short sales is not a singular issue. It starts with the realization that the short sale code is showing up as a foreclosure – something not visible until it is seen in both Fannie Mae and Freddie Mac automated underwriting systems. This doesn’t mean Fannie Mae and Freddie Mac are to blame for this problem – it’s just where it is first seen.

Unfortunately, for many affected past short-sellers they learn of this problem on their first attempt to get a new conventional mortgage when they are eligible again four years after the short sale. But too often, lenders don’t run these clients through the automated underwriting system upfront which would allow the lender to know there’s a problem right away. And consumers don’t always let the lender know they had a past short sale.

Note to all loan originators: ask your clients if they had a short sale up front! If they did, run them through your automated system immediately!

Calls for help often come in when the loan is in crisis. Lenders are instructed on how to do the Fannie Mae Desktop workaround, but if the lender is primarily a Freddie Mac lender, there is no workaround. And because of slight differences in the popular Fannie Mae Home Ready program and the Freddie Mac Home Possible loan, calls for help are increasing for how to fix this problem in Freddie Mac.

If past short-sellers know of the problematic credit code issue, they or a credit repair company attempt to get it corrected. The most common fix is to dispute the account. However, the dispute does nothing but hide the credit, offering a temporary fix that appears to work when credit scores increase. However, when the affected consumer applies for a new mortgage the dispute must be taken off of the credit. The previous credit code problem returns, credit scores plummet and if the consumer is in a contract, there is only one quick way to remedy the problem and that is with a Rapid Rescore. Per FCRA regulations, the lender must pay for the Rapid Rescore.

Another problem that occurs is that because of the dispute, the “date reported” becomes more recent then the short sale closing date because of the new investigation. This date can’t be changed per credit reporting agencies and the automated systems can deny a past short seller if this date is within the four year wait limit.

No lenders in the U.S. will do a manual underwrite to circumvent the problem, though both Fannie Mae and Freddie Mac have written criteria that allows for a manual underwrite.

Last week, it was found that the same credit code problem appears to also affect those who had a modification and are over 120 days delinquent.

It is a hunch that going over 120 days delinquent may be the key because an approval of a new loan was received for a consumer who was less than 120 days late on their mortgage prior to the short sale. Nonetheless, we are close to getting this resolved…. And the housing counseling industry will be involved in assisting in a permanent correction of this problem.

How Loan Professionals can Correct a known Short Sale credit coded as a Foreclosure

February 13, 2017 by · Leave a Comment 

Loan originators are unaware that there are two solutions that can work when short sale credit is erroneously coded as a foreclosure and results in an automated denial. One solution is a workaround in Fannie Mae. (There is no workaround for Freddie Mac.) The second solution is to “Submit a Complaint” on the Consumer Financial Protection Bureau (CFPB) website.

Fannie Mae workaround

https://www.fanniemae.com/content/release_notes/du-do-release-notes-08162014.pdf

Loan professionals need to know specific directions on how to use the Fannie Mae DO/DU automated underwriting system (AUS) workaround when a Refer/Caution is received and the denial is due to a short sale coded as a foreclosure.

Loan originators, upon receiving Refer/Caution:

  • Within (1)Fannie Mae DO or DU automated underwriting system, go into (2)Edit Loan: then (3)Full 1003 and then (4)Declarations, then (5)c. In dropdown box, change to (6)Yes.
  •  Click on (7)Explanation button at bottom right.  For(9), either:

fannie mae workaround 1

On (8) Declarations Explanation page:

  •  If strictly trying to correct a FORECLOSURE code noted on findings for a short sale, enter on line c.: Confirmed CR FC Incorrect
  • If “Extenuating Circumstances” and are trying to get DU/Fannie Mae approval at 2 years after short sale, enter on line c.: Confirmed CR FC EC

fannie mae workaround 2

Submit a COMPLAINT at the Consumer Financial Protection Bureau (CFPB)

When you find out that your short sale was coded as a foreclosure, one option to correct this is to Submit a Complaint to the CFPB. Let the Consumer Financial Protection Bureau know that your short sale is being coded as a foreclosure on the Fannie Mae or Freddie Mac automated underwriting system.

Take these steps:

  • Before you finish, attach short sale approval letter(s) from your lender and your closing statement (HUD-1) showing the loan closed with you as the seller, not the lender as the seller.
  • You will receive an answer back from the CFPB within 15 days so keep an eye out for their email.

Next month: How Housing Counseling Agencies can help your clients prepare for home ownership….

Loan Originators: Be aware of “disputes” on credit reports and automated underwriting findings. Also on short sales, check “Date Reported”.

January 10, 2017 by · Leave a Comment 

Do it before a contract is signed.

By Pam Marron, Jan 9, 2017 for National Mortgage Professional Magazine

Frustrated consumers looking for solutions to correct erroneous information on their credit report often turn to credit repair companies or their mortgage lender for help. A dispute is the 1st method tried but this “fix” is temporary. A requirement to delete the dispute and rerun the automated submission is usually brought to the attention of loan originators who are unaware of the existence of the dispute or where to find it… often weeks before a closing date.

When an account is put into a dispute, that credit is temporarily hidden from Fannie Mae, Freddie Mac and USDA automated underwriting systems (AUS), allowing a false AUS approval. But direction from AUS findings or a mortgage underwriter alerts us that the dispute needs to be deleted from the credit report and that the AUS must be run again. If the credit in dispute is adverse credit, the credit score goes down when the dispute is lifted and an AUS approval commonly changes to a “Refer” or “Caution”, or a loan denial.

Deleting a dispute is not a one step solution. The borrower can do the “fix” if they have 45 to 60 days to do so. But often, due to impending contract deadlines, the only option is a Rapid Rescore which can delete the dispute within 2 to 5 days. However, this is a costly remedy. Further, under FCRA guidelines, the borrower cannot pay for this Rapid Rescore cost and the loan originator or lender must pay.

There are four things a loan originator can do upfront.

  1. Disputes: check the entire credit report whether a mortgage, credit card or loan, for any dispute verbiage. Common dispute statements:
    1. DISPUTE RESOLVED – CONSUMER DISAGREES (disputes the dispute!)
    2. CONSUMER DISPUTES THIS ACCOUNT INFORMATION
    3. ACCOUNT INFORMATION DISPUTED BY CONSUMER

Go into each of the three repositories (Experian, Equifax, Trans Union) on the borrower’s credit and check which ones have dispute verbiage. These are the disputes that must be deleted. Zero balance accounts normally do not apply, but check with your lender.

If you have at least 45 days, retrieve the generic dispute form from your credit reporting agency and have your borrower follow explicit direction from your credit reporting agency on how the dispute can be deleted.

If you don’t have this time, retrieve the Rapid Rescore form from your lender and find out what is needed to delete the dispute.

  1. Run automated Fannie Mae Desktop Originator(DO)/Underwriter(DU) or Freddie Mac Loan Prospector Advisor(LPA) and USDA Government Underwriting System (GUS) upfront. Usually dispute messages are within the findings stating “there appears to be a dispute on the credit report” and direction appears for what needs to be done.
  1. Submit a Complaint to the CFPB for Short Sale Credit Code Correction

What has worked is to “Submit a Complaint” for a mortgage at the Consumer Financial Protection Bureau (CFPB) website: http://www.consumerfinance.gov/complaint/. (Visual instruction and what to attach is located at  http://housingcrisisstories.com/submit-a-complaint-cfpb/.) This is not a dispute but a request for correction to the credit.

Why this is different:

Short sale credit is often coded as a foreclosure when the late payments (still) required to get a short sale approved exceeds 120 days. Often, past short sellers have already had an experience where it was learned that their short sale was coded as a foreclosure. Many have gone to a credit repair company or have attempted a correction themselves to get the erroneous credit code changed. A placed dispute temporarily hides the credit but does not correct the code.

  1. Check “Date Reported” on credit report. Make sure the date is the same as the short sale closing date on the HUD-1 closing statement. If the borrower has previously contacted the short sale lender upon learning that their short sale was coded as a foreclosure, that new date which may also include a dispute of the account becomes the “Date Reported”, or a more recent date then the short sale closing date. If the new “Date Reported” is within four years, the wait timeframe required for a new conventional Fannie Mae or Freddie Mac mortgage, this will result in a loan denial in both Fannie Mae and Freddie Mac AUS’s. If this occurs, you will need to find a conventional lender that will do a manual underwrite.

Hunting for solutions on this now. “The valuable role that housing counselors can play in helping consumers with credit” coming soon. Stay tuned.

Erroneous Foreclosure Code Still Results in Loan Denial for Past Short Sellers in Freddie Mac Loan Prospector(LP) for Conventional Loans

August 8, 2016 by · Leave a Comment 

Loan originator is asking your assistance to share LP conventional mortgage “Caution” files of past short sellers that have passed the 4-year mark.

by Pam Marron, July 28, 2016

In August of 2014, Fannie Mae successfully implemented an automated system workaround that enabled lenders to correct conventional loan Refer/Ineligible findings when past short sale credit shows up as a foreclosure in the Desktop Underwriter or Originator. Freddie Mac’s Loan Prospector automated underwriting system never implemented a correction, and past short sale credit still results in a Loan Prospector “Caution”, or loan denial, for those trying to obtain a new conventional mortgage after a shortsale. The problem does not occur for government FHA and VA loans. Freddie Mac’s Caution findings commonly lists in the reasons for denial under Credit Risk Comments: “13. Recent foreclosure/signif derog appears on credit report”.

A Freddie Mac “Caution” denial requires a manual underwrite to overcome this error.  Lenders that will do a manual underwrite on either Freddie Mac or Fannie Mae conventional loan files are rare to find. The good news is that the credit repository(s) reporting the foreclosure is now able to be found and seen in raw data through credit reporting agencies.

This would not be of such great concern if the mortgage industry was not approaching the rollout of the new “Trended Credit Data” that will work with the Fannie Desktop automated system in Version 10.0 set to be implemented on September 24, 2016.

If there are any glitches in the DU 10.0 format, lenders will likely put their loans through the Freddie Mac Loan Prospector automated underwriting system. Because a work around was never implemented for Freddie Mac, past short sellers eligible for a new mortgage will receive an automated “Caution”, or a denial for a new mortgage.

When the problem of the “Caution” in Freddie Mac’s automated system is brought up, the response from Freddie Mac has been that their system has been corrected and problems are with individual files. This article was written to alert Freddie Mac that as more past short sellers become eligible to purchase a home again, we as lenders are experiencing the problem of the “Caution” denial of new conventional mortgages on all files that are conventional, and more often.

This is what we are finding. All files currently being entered into Loan Prospector for a conventional mortgage purchase where a past short sale exists in credit are receiving a “Caution”, even when the past short sale is past the four-year mark, the wait time required after a short sale for a new Freddie Mac conventional mortgage.

A few lenders have stated they have received an “Accept” for a past short seller on a conventional mortgage, but we have found that only loans submitted for an FHA or VA loan appear to receive an “Accept”. This is believed to be due to the fact that Total Scorecard, an additional credit mechanism found in both Fannie Mae and Freddie Mac, allows the loan to receive an Approve or Accept respectively through both systems but verification of the short sale account must be backed up with documentation proving a short sale rather than a foreclosure.

Additionally, it was checked to see if the problem was due to specific credit reporting agencies. Thus far, multiple credit agency reports for the same borrower have resulted in the same denial.

Unfortunately, Freddie Mac Loan Prospector does not designate which account it is classified as a foreclosure. However, the repository(s) that reports the short sale as a foreclosure can be visually found in raw data of the three repositories, Experian, Trans Union and Equifax in the credit report. Lenders who want to specifically see this to distinguish the problem need to make sure they contact their credit reporting agency and ask for the MOP (method of payment) and a horizontal payment history grid to be available on their report. A screen shot of raw data may ultimately be needed if where the foreclosure code exists is not evident on the visual credit report.

Because of the concern that mortgage traffic will increase in Freddie Mac Loan Prospector if a problem arises in Version 10.0 of the Fannie Mae Desktop Underwriter with the introduction of Trended Data Credit, we are proactively and respectfully bringing this known problem of short sale credit that shows up as a foreclosure on conventional loans only again to Freddie Mac’s attention. If you are a loan originator or lender that encounters a “Caution” denial in the Freddie Mac Loan Prospector automated underwriting system for past short sellers trying to obtain a conventional mortgage, please contact Pam Marron at 727-375-8986 or email pam.m.marron@gmail.com.

To best prepare, make sure that you run past short seller files through both Fannie Mae Desktop Underwriter/Originator and Freddie Mac’s Loan Prospector automated underwriting systems upfront. Don’t wait until the final submission to underwriting.

Stay tuned.

Post-Foreclosure Consumers Are Ready to Rejoin Economy

July 11, 2016 by · Leave a Comment 

From Bloomberg News, July 7, 2016

Millions of Americans lost their homes to foreclosures or short sales during the housing crisis. Fortunately for the economy, time heals most wounds — and credit reports.

The number of people joining the rolls of those knocked from homeownership peaked seven years ago, so those blotches to their histories are starting to roll off the books right about now. The resulting improvement in credit scores means more Americans will find themselves with the ability and means to once again apply for loans, and not just for home purchases.

“Improving credit scores might entice households to start borrowing more in general,” said Ralph McLaughlin, chief economist at real estate search engine Trulia. And what better time than now, when interest rates are so low.

That, combined with sustained gains in employment and bigger increases in pay, could give consumer spending, which accounts for almost 70% of the U.S. economy, an added lift over the next couple of years. The impact, though, is hard to quantify because it’s difficult to estimate how many people will once again be emboldened to borrow after experiencing such a shock, said Jacob Oubina, a senior U.S. economist at RBC Capital Markets in New York.

read more…

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.

 

 

 

 

Short Sale Code Problem and Workable Solutions

May 28, 2014 by · Leave a Comment 

 Short Sale Credit Code Problem: HOW Changing BOTH the “Root” of the Problem and “Current Short Sale Code” will Help 11.3 Million Past and Future Short Sellers

Download/read the full report below.

2.Short Sale Code Problem.Change BOTH Root and Short Sale Code.probs.workable soluts.5.12

WHY Specific Short Sale Code for 11.3 Million Who Were or Are Underwater is Worth It

May 28, 2014 by · Leave a Comment 

For a long time, a battle has been waged to get a short sale credit code for past short sellers. Almost all  who have short sold will tell you that they were told upfront that the only way to get short sale approval was if they were delinquent on their mortgage first… told to them by their short sale lender, a realtor or an attorney.

Why the need for a specific short sale credit code?

Getting a specific short sale code will stop the mortgage denial that most short sellers face when they apply for a conventional mortgage two years after the short sale when a foreclosure code shows up on past short sale credit. This is because mortgage credit that goes past 120 days late is coded as a pre-foreclosure or foreclosure.

A specific short sale credit code could be the alternate code used by lenders to change a short sale coded as a foreclosure to a true short sale. And, this specific short sale code could be applied to all short sales going forward.

Why there is great worth for a specific short sale credit code

In almost every single case I see, credit was pretty good before the short sale, until the homeowner had to go delinquent, most often a lender requirement for a short sale approval. Credit is also pretty good after the short sale, and eagerness to improve credit after the short sale is apparent as consumers point out how they are “making it better”.

The ironic flip side to this is that the rebuilt good credit and the ability to come up with 20% down two years later for a conventional mortgage prompts those who have not gone through a short sale to to speculate that “maybe there wasn’t a real hardship”, and fuels the fire of “strategic default”.

From personal experience, I will attest that those who don’t believe these folks are “having hardship enough” need to take a closer look. The hardship is there and painful for most to relay again, as they convince the new lender of why a short sale will never happen again. You may be surprised at the reality of what happened, and be prepared that most will not expose this unless prodded to do so.

A unique difference that is apparent in almost every short sale case is the presence of a dangerously high back end debt to income ratio (DTI), often over a period of time, when underwater homeowners grapple with how to exit their home. Homeowners hang on for as long as possible, borrowing against other credit to stay solvent. A great number of these consumers have wiped out retirement assets and borrowed from others, until there is nothing left to do but short sell.

Why underwater homeowners and past short sellers should fight for a specific short sale credit code

A great majority of underwater homeowners aren’t the “strategic defaulters” that the press and so many others have made short sellers out to be. It is apparent that many stayed in negative equity homes longer than they should have, not quite sure what to do. Every one of them has a story of trying to “do the right thing”, and almost all didn’t tell the real story in their hardship letter to the bank. There seemed to be confusion, as if they were trying to convince the lender that they were worthy of being approved for the short sale, with very little said about the hardship.

Many in this unique financial meltdown were affected simply because they were in an area of the United States where home values plummeted.  Though there are those who tried to scam the banks, the majority did not and have been humiliated by this process, keeping silent even afterwards.

Why this is important for those affected

This is now a fight for those affected, for a credit standing that many of you have built over a lifetime. Erroneous credit can affect interest rates and program eligibility for you in the future. You did the right thing by working with the bank on a short sale and not going into foreclosure. Your credit should not reflect a foreclosure.

underwater_homes_top_states_march_2014

 

9.1 Million U.S. Residential Properties Seriously Underwater in First Quarter, Lowest Level in Two Years/RealtyTrac/April 15, 2014/ http://www.realtytrac.com/Content/foreclosure-market-report/q1-2014-home-equity-and-underwater-report-8037

 

And here’s a news flash. Those who were approved for a short sale and are paying back on the deficiency…. they can’t get back into the housing market either.

Why the mortgage and real estate industries need to fight for a specific short sale credit code

There’s a pattern here, a good one, where importance of credit is apparent, except for the stint of late payments required to exit an underwater home. For a conventional loan, you can re-buy a home 2 years after the short sale with 20% down. Most of the time, past short seller loan files are impeccable, a loan that any lender would jump at.  Short sellers have often been maligned as “strategic defaulters” who willingly stopped making payments. This is often far from the truth, and it can be proven that many lenders, or “investors”, still require underwater homeowners to be delinquent on their mortgage before a short sale approval will be granted, to this day.

There are [1]2.2 million past short sellers across the U.S., many ready to come back into the housing market.

And quietly, another 9.1 million still underwater homeowners are inquiring about what will happen to them when they have to exit their home.

Yes, values are finally rising again. But in many areas, the increase is not enough to pull negative equity homeowners above water, and we are starting to see a new trend of short sellers coming into the real estate market. Many must sell because they have to, not because they want to. Many are calling to inquire about what their credit will look like, preparing for problems they hear and read about after a short sale. These are not deadbeats, but homeowners who are preparing to go through the arduous short sale process with the lender.

Others are already helping

There is already good dialogue between credit reporting agencies who are aware of the foreclosure code being placed on past short seller credit and who are trying to help affected consumers. The National Consumer Reporting Association (NCRAinc.org), a nationwide trade organization of credit reporting agencies, has helped to bring this problem to the forefront.

In May 2013, Senator Bill Nelson of Florida, was made aware of the problem, saw the credit impact and demanded a solution for the problem from the Consumer Financial Protection Bureau (CFPB). The CFPB, already aware of this problem, worked diligently with the Fannie Mae Desktop Underwriter (DU) system on a fix, but the “fix” has posed confusion. Lenders are supposed to be able to instruct DU of an erroneous foreclosure. Instead, the Fannie Mae system must see a conflict in credit code on their end first, and provide a message to the lender for entry to Fannie Mae’s DU system to correct the problem. In other words, Fannie Mae must give permission to do the correction, but only when they see a problem.  Fannie Mae permission to correct the erroneous foreclosure code is given only occasionally, and lenders across the country have given up on this fix.

A few solutions have come out of this problem, often stumbled upon when comparing data.

Full directions for two of the solutions can be found at Directions to SUBMIT A COMPLAINT to the Consumer Financial Protection Bureau and Lender Letter

An intro video to the short sale credit code problem and the two working solutions can be found on the YouTube video “2 Working Solutions for past Short Sellers with FORECLOSURE on short sale credit” at   https://www.youtube.com/watch?v=D2YMtM3ILa4

2 working solutions

 


[1]Boomerang buyers return to market after foreclosure/By Les Christie  @CNNMoney March 11, 2013 http://money.cnn.com/2013/03/11/real_estate/foreclosure-homes/

Why NOT TO DISPUTE Erroneous Foreclosure on Credit Report

November 25, 2013 by · Leave a Comment 

When the erroneous FORECLOSURE account is disputed, it drops off of the automated Fannie Mae or Freddie Mac underwriting report. However, the findings notate the account as a “dispute” and lenders must delete dispute from credit report, obtain new credit and rerun Fannie Mae AUS. Then, the FORECLOSURE account comes back with the date of un-dispute as the new “date reported” making the account look like the erroneous foreclosure (that is a short sale) just occurred! Now you have THREE problems:

1) deleting the dispute

2)correcting the date of the short sale (noted as a FORECLOSURE) 

3)getting the FORECLOSURE code corrected to a short sale!

Please use these two fixes:

pict dispute for WP

pict 2 disp for WP

 

 

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