Chicago Foreclosure Activity: Defaults Approach New Low

By Gary Lucido, July 20, 2017 at 9:05 am         on Chicagonow.com

ATTOM Data Solutions/ RealtyTrac released their Midyear 2017 U.S. Foreclosure Market Report™ today and it continues to show that our foreclosure nightmare is slowly fading into a distant, bad memory. Chicago foreclosure activity came close to breaching the low set 17 months ago and defaults came within a hair’s breadth of puncturing the low of exactly one year ago. That latter point is exceptionally good news since that’s the front end of the pipeline.

It’s all in the graph below. Given the month to month volatility it’s helpful to look back one year ago and realize that total foreclosure activity has fallen by 26% since then. Nevertheless, Chicago remains among the top ten metro areas in foreclosure rates.

Chicago Foreclosure ActivityThe country as a whole is also making steady progress as shown in the graph below, though you can clearly see that foreclosure activity remains above pre-bubble levels. RealtyTrac makes the comparison to the pre-recession period of Q1 2006 to Q3 2007 (a bit later in the game) and notes that foreclosure activity is now 21% below the average of that period. In just the last year it has dropped by 22% and it is at the lowest quarterly level since Q2 2006.

RealtyTrac confirms that Chicago foreclosure activity is also now below the pre-recession period, though it sounds like that is not the case for about half of the larger metro areas.

US Historical Foreclosure Activity

Daren Blomquist, senior vice president with ATTOM Data Solutions, commented on one counter-trend:

Although foreclosures are fading overall, there has been a notable an [sic] uptick in foreclosures completed by some nonbank entities — counter to the sharp downward foreclosure trend among big banks and government-backed loans. These divergent foreclosure trends are likely the result of the big banks and government agencies selling off distressed loans over the past few years to nonbank entities that are now foreclosing on an increasing volume of that deferred distress.

Chicago Shadow Inventory

However, it’s a little disappointing that the number of Chicago homes in some stage of the foreclosure process remains stubbornly above 10,000 although it has been coming down lately as you can see in the graph below. It’s just that we actually went in the wrong direction in June, with an increase of 91 units.

At least we’ve dealt with more than 72% of the problem that we had when I first started to track this data.

Chicago homes in foreclosure

But it looks like government continues to stand in the way of the country making further progress on this problem. The amount of time it takes  to complete a foreclosure hit a new record high of 883 days, which is up from 631 days a year ago. WTF?! That’s going in the wrong direction.

And Illinois is one of the worst states with an average time of 1,059 days (that’s almost 3 years!) compared to Virginia, which is the best state at only 176 days. So when you wonder why there are still so many boarded up buildings in certain parts of the city now you know why.

#Foreclosures #ChicagoForeclosures

Gary Lucido is the President of Lucid Realty, the Chicago area’s full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider’s view of the seamy underbelly of the real estate industry, or you just think he’s the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.

Original article: Chicago Foreclosure Activity: Defaults Approach New Low http://www.chicagonow.com/getting-real/2017/07/chicago-foreclosure-activity-defaults-approach-new-low/

 

 


Housing Counselors Hone Skills for Service That Will Assist Those with Past Short Sale, Deed-in-Lieu or Modification Where Credit Shows Up as Foreclosure

By Pam Marron | National Mortgage Professional Magazine |July 2017

Step One… Loan Originators and Realtors need to ask ALL clients if they’ve had a short sale, Deed in Lieu (DIL) or loan modification in their past. If they have, run the loan through Fannie Mae and Freddie Mac automated systems first to see if foreclosure credit, a “dispute” or incorrect “Date Reported” exists.

Step Two… spread the word that HUD approved housing counselors can assist these clients to correct (not temporarily hide) erroneous credit to get affected consumers “mortgage-ready” ahead of signing a contract.

 Many of nearly 3 million consumers with a past short sale, over 5 million who have had a loan modification and an unknown number with a past DIL need urgent attention to correct a credit error known about since 2011. Affected past homeowners are now eligible to purchase a home again but are being denied new Fannie Mae and Freddie Mac conventional financing where their credit for a short sale, deed-in-lieu or modification shows up as a foreclosure and results in a new loan denial.

The initial problem is when short sale, DIL and modification credit shows up as a foreclosure, often anticipated if past late mortgage payments went over 120 days.

When the affected consumer is told their credit wrongly shows up as a foreclosure, a “dispute” is placed on the account which simply hides the credit from the Fannie Mae and Freddie Mac automated systems… and then must be deleted when the client applies for a new mortgage. (A new change to the Fannie Mae “dispute” policy will take effect on July 29, 2017.)

And, because the account was re-investigated after the short sale, DIL or modification closing date, the “Date Reported” becomes more current, causing the automated system to provide a denial because it appears that the required wait timeframe has not been met.

Loan originators often proceed with processing a new mortgage after checking the required wait timeframe against the closing date of the past short sale, DIL or modification. But sometime during the process or even as late as underwriting, the loan is run through either Fannie Mae or Freddie Mac automated systems where the problem is first seen. Many lenders are unaware of the Fannie Mae workaround (there is no workaround for Freddie Mac!) and often tell blind-sided consumers to “go get your credit fixed and come back.” With the limited supply of housing inventory, sellers are reluctant to extend closing dates for additional time needed to investigate the credit error. Many homebuyers either lose the contract due to the delay to get this fixed or change their loan type to a higher interest rate portfolio loan or an FHA loan.

It makes sense to engage the housing counseling industry into a pre-purchase solution. Loan originators are driven by contract deadlines. Non-profit housing counseling agencies work with clients on the “heavy lifting” to get issues corrected. And HUD approved housing counselors were able to verify “Economic Events” for extenuating circumstances for the past FHA “Back to Work” program.

Leading this initiative is the National Foundation for Credit Counseling (NFCC.org), a non-profit organization with HUD approved housing counselors and credit counseling services. The organization is training and testing solutions to address known fixes, with an emphasis on assisting affected consumers before they even sign a contract. The goal is to alert the real estate and mortgage industries of this service to get potential affected clients “mortgage ready” before sending them back to the real estate and mortgage professionals.

Providing this individualized service to those with a past short sale, DIL or modification who want to purchase a home again is a tremendous relief to these consumers who don’t want to relive their past nightmare again.

This pre-purchase assistance needs to be promoted to affected consumers, the mortgage and real estate industries, loan processors and credit reporting agencies. Correcting issues can be as quickly as 1 day to 60 days.

This will be an up-front fee paid service from an individual housing counselor. Loan originators who wish to assist these clients can refer them to HUD approved housing counselors who have been trained on how to get these unique credit issues corrected once and for all. Then, when the client is deemed “mortgage ready”, they can come back to the loan originator who can provide a credit back towards mortgage closing costs when these folks are ready for a new mortgage.

Everyone benefits. Stay tuned.


Drill Down on Short Sale and Modification Credit

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”

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.


mortgage crisis

When Frustration Hurts the Cause

By Pam Marron | November 2016 | for National Mortgage Professional Magazine

On May 19th, 2016, I was appointed to the 1st Housing Counseling Federal Advisory Committee (HCFAC) under HUD. This committee, consisting of 12 members from the mortgage, real estate, housing counseling industries as well as consumers, was formed by HUD to find better ways for HUD counseling to assist consumers with sustainable home ownership. Our first meeting was in Washington, D.C. this week.

While in Washington, a visit to the U.S. Treasury was made to talk about a government 2nd mortgage idea that might allow a refinance for 3.2 million negative equity homeowners who have conventional 1st mortgages not covered by Fannie Mae or Freddie Mac and for negative equity 2nd mortgages and home equity lines of credit (HELOC). The idea could provide a refinance where none exists for those who are current on their mortgage and struggle to stay put in negative equity homes. Many negative equity homeowners have resetting interest only loans and most are just looking for some relief to a lower, fully amortized interest rate that allows equity to build while values return.

At the HCFAC meeting, representatives of top housing agencies that assist homeowners assembled on panels in front of us throughout the day. It was tough to contain disappointment after learning that pre-foreclosure housing counseling funds were gone from the 2017 budget. The aftermath of the housing recession was brought up in multiple conversations and I felt compelled to bring up that we can’t forget the 6.7 million homeowners who still have negative equity in their homes. I was determined to make sure that these people who were in top agencies would know “it wasn’t over yet”. The cringe on the face of a panelist after letting him know that most lenders still required negative equity homeowners to go delinquent before help is provided signaled that this probably wasn’t the first time he had heard this.

Being the bearer of bad news wasn’t what I intended to relay, especially when the direction was shifting to helping consumers purchase homes again.

But, then it turned. One of the panelists was with the National Foundation for Credit Counseling (NFCC). He talked about credit, acknowledging where we had come from and that there was still work to do.

It was then that my greatest frustration was realized:  the lack of attention to damaging current loss mitigation policy that knowingly harms credit built over a lifetime…. credit that is the benchmark of the mortgage and real estate industry and the driver of our economy.

Most homeowners trying to stay in negative equity homes refuse to go delinquent on their mortgage just to get a modification, often their only option available. Five years of trying to expose current policy of most lenders that requires mortgage delinquency first before help is offered is still unbelievable to many. Policy that destroys credit of those already in trouble, that has long term negative consequences and that is affecting a growing number of elderly homeowners can be changed. Allowing for a solution that promotes keeping credit intact with sustainable refinancing can allow responsible homeowners with negative equity to stay put in homes while values return.

Realization occurred that the best agencies who can help were in this room, and that the day before the Treasury had given good news on the forefront and provided valuable information and more contacts that might be able to help. I realized that something very valuable that will come out of getting this HCFAC committee of twelve from four different sectors of housing together. It is also clear that our task will not be easy.

There is still more to be done. The Freddie Mac automated system is turning down past short sellers, reading the short sale credit as a foreclosure, even after the four-year wait needed to get a new mortgage. The fact that loan originators must pay for rapid rescores when helping eliminate disputed accounts on credit has prompted delays on mortgage closings and has resulted in a lack of loan originators wanting to help correct this credit. Finally, patience to wait until after this contentious election is over in order to push forward on getting problems resolved has been short.

But, for the first time in years, progress feels attainable. We are going in the right direction. Stay tuned.


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

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!


Credit is Central to WHY Help Network Started

History: WHY Help Network Started

The housing recession since 2007 has resulted in real estate and mortgage problems never experienced before in U.S. history. One of those newer problems was a massive number of short sales, where homes are sold for less than the mortgage balance on the loan.

In order to short sale, a common practice of nearly every lender in the U.S. was to require that the distressed homeowner go delinquent on their mortgage before the short sale approval could be given. The short sale process was lengthy and the required delinquency almost always exceeded 4 months. After 120 days of mortgage delinquency, a foreclosure code was placed on the credit of unsuspecting short sellers. The foreclosure code was not apparent to those of us in the mortgage industry until years later when the past short seller, eligible for a new conventional mortgage, received a “Refer with Caution” denial for a new loan. Lender underwriters unaware of the erroneous credit code would tell past short sellers to go back to their short sale lender and get the problem fixed. The short sale lenders would claim they had coded the short sale correctly, and point to credit reporting agencies to make the fix. The credit reporting agencies, now seeing this problem throughout the U.S., started drilling down to where the problem was in the code. This is when it was discovered that there was multiple credit code being used for a short sale, but borrowed from the Metro 2 foreclosure code. Additionally, foreclosure payment history codes of “8”(repossession) and “9”(collection) were adding to the mix. And when fixes were applied, “dates reported” were pulling forward, suggesting the credit problem was more recent than the short sale closing.

Why was this a problem for the mortgage and housing industry? A foreclosure code meant a 7 year wait to get a new mortgage, rather than the 2 year wait after a short sale in effect at the time. At that point, there were over 9 million past short sellers. That equated to over 16% of total U.S. mortgages! The slowdown of the housing comeback was critical, and stalling the reentry of 9 million past homeowners back into the housing market would affect the housing market. It was imperative for this problem to be solved.

The road to a solution started with a loan officer in Florida and a credit reporting agency, Acranet Credit, in California. The loan officer saw the seller credit was being coded as a foreclosure over and over again in the Fannie Mae and Freddie Mac automated systems and went to Acranet credit reporting agency. The Acranet credit manager was a board member of the National Consumer Reporting Association (NCRAinc.org) and brought the problem to the NCRA. The Florida loan officer attended the 2012 NCRA Conference with proof and met a representative with the Consumer Financial Protection Bureau (CFPB) at the conference.

In April of 2013, the Florida Loan officer and the executive director of the NCRA went to Washington, D.C. and, thanks to U.S Congressman Gus Bilirakis’s office, met with staff of the Senate Banking and Finance Committee. On this first meeting, multiple problems were presented and it was quickly determined that pinpointing the critical credit code problem was paramount. Offices of representatives for “Hardest Hit” states, where it was thought that the credit code problem would be most apparent, were visited. The offices of the U.S. Treasury, the Consumer Financial Protection Bureau and U.S. Senator Bill Nelson’s (D-FL) office were also visited.

U.S. Senator Nelson’s office took a special interest in this problem along with the CFPB. Senator Nelson is from Florida, a state that was 3rd from the top where housing had been hit hardest. In 2012, Florida’s average of homes sold as short sales was tipping 30%, and 48% of homes owned in the state had negative equity. This problem threatened a real housing recovery for Florida.

On May 7, 2013, U.S. Senator Bill Nelson required that the CFPB and the FTC get a solution to the credit code problem within 90 days. There was much talk about a “specific, universal short sale credit code” just like there was for a foreclosure or repossession, or judgment.

In June 2013, the Florida loan Officer, the NCRA executive director and 30 NCRA board members met in Washington, D.C. again and met with CFPB Director Richard Cordray and 4 CFPB directors.

Later that afternoon, the Florida loan officer and the Acranet credit agency manager met again with the CFPB and were stunned to learn that, though affected consumers were consistently stating they were told by their short sale lender that a delinquency of their mortgage was a requirement to get the short sale approved, in fact the lenders were telling another story…. that underwater homeowners were ceasing to make payments, waiting to be served foreclosure by their short sale lender.

To hear this was shocking. All of the press seemed to be about strategic defaulters, who are able to make mortgage payments but chose not to. Yet, we were finding little evidence of underwater homeowners who wanted to stop paying their mortgage. Instead, homeowners who called for help were bewildered that they had to destroy their credit to exit an underwater home. They wanted to make their payments but were told no help was available until they went delinquent!

While in Washington, D.C., it was also learned that the credit code change all of us were fighting for would not happen. Instead, lenders would be allowed to make a change in the Fannie Mae system when the erroneous foreclosure code showed up on past short seller credit. This would take effect on Nov. 16, 2013.

The Nov. 16, 2013 change did not work…. but 2 fixes found by accident were working! The CFPB Complaint Letter worked the most and seemed to trigger an immediate “change” in the credit that resulted in an “Approve” upon a new credit pull and resubmission to Fannie Mae. The same change occurred if a Lender Letter could be obtained from the lender stating the loan closed as a short sale and not as a foreclosure. The critical key here was that lenders were able to make a change of the code internally.

And, on August 16, 2014, Fannie Mae again made a change to their automated systems Desktop Underwriter/Originator that finally allowed lenders to go into the system and make a change when a foreclosure showed up on credit code for a past short seller.

So WHY Help Network?

Because so many lenders, loan originators, credit reporting agencies and governmental agencies are now aware of the credit code problem of past short sellers, it was decided to switch gears. Instead of using efforts to find more solutions (though this is an ongoing process!), emphasis is now on the network of help available to past short sellers.

The Help Network is a growing resource center that includes lenders, loan officers, realtors, credit reporting agencies, HUD Approved Counseling Agencies and governmental agencies and representative offices that are aware of this problem and can help.

And if you are not sure who can help in your state, email Pam Marron at pmarron@tampabay.rr.com and ask for help with resources.

 

 


Back from the Housing Brink

Back from the Brink logo

 

 

Sponsored by the Gulf Coast Chapter of the Florida Association of Mortgage Professionals, a member of the Pinellas Realtor Affiliate Business Partners Program

 

“Back from the Housing Brink” defines 3 different client types that have developed from the housing crisis and where opportunity exists for loan originators and realtors to assist these clients.

GulfCoast Chapter of the Florida Association of Mortgage Professionals wishes to thank the Pinellas REALTOR Organization for joining with us to support this program!


Pro member

nonPro member

 

Special Guest Daren Blomquist, Vice President of RealtyTrac

RT.Daren lg
Status of Distressed Homeowners and Boomerang Buyers
  • Defined, statistics, where these homeowners are at and where they are moving to in the U.S. and specifically Florida.
Assist 7.1 million Distressed Homeowners (still in underwater homes) to stay put
  • PURE HARP refinancing, shorter term
  • Hardest Hit Funds available for principal reduction through Florida
Assist 7.3 million Boomerang Buyers (had past short sale or foreclosure) eligible to re-enter housing market over next 8 years
  • wait timeframes for all mortgage types
  • Shorter wait time frame underwriting criteria for FHA “Back to Work” and conventional mortgage “Extenuating Circumstances”
Assist real estate agents to sell damaged housing by providing repair list with costs and renovation loan financing at listing upfront
  • Retrieve “feasibility report” commonly done by FHA Inspectors and useful to attract buyers and for mortgage financing. Report cost: $200-$250.
  • Provide financing option upfront for either FHA 203K (owner occupied loan) or conventional Homestyle renovation loan (owner occupied, 2nd home, investor)

Challenge to mortgage and real estate industries:
Need for refinance option of non-Fannie Mae, non-Freddie Mac 1st mortgage and 2nd mortgages and HELOCS for 7.1 million homeowners still underwater! Only option currently is modification that requires delinquency.

Realtor/Loan Originator resources:
  • Specialized lists from RealtyTrac
  • Free promotion of industry professionals who would like to assist these clients at HELP Network on *HousingCrisisStories.com

*HousingCrisisStories.com is set up to provide buyer and loan originator assistance to prepare cases for underwriting FHA “Back To Work” and where “Extenuating Circumstances” may exist for a conventional mortgage. Lenders who provide FHA Back to Work, allow Extenuating Circumstances and provide pure HARP 2 will be promoted.

Homebuyers/Homeowners resources:
  • Downpayment assistance: Hillsborough, Pinellas, Pasco, Hernando, Citrus counties, state of Florida
  • “Fix It” programs for those with no equity: Pasco County
  • Student Loan consolidation/refinance program

 


USDA Wait Timeframe

There are no extenuating circumstances available for USDA loans and a short term.

USDA Chapter 10: Credit Analysis 7 CFR 3555.151 Effective 9/1/2014 https://usdalinc.sc.egov.usda.gov/docs/rd/sfh/3555/ByIndividualChapter/Chapter10_Credit_Analysis_DRAFT.pdf

Evaluating Credit Involving Short Sales (Pg 10-24)

  • A short sale is considered a pre-foreclosure activity or event.
  • An applicant is ineligible for a mortgage loan if they pursued a short sale agreement on their principal residence to take advantage of declining market conditions and purchases at a reduced price a similar or superior property within a reasonable commuting distance.
  • If an applicant was current at the time of short sale, they may be eligible for a new mortgage loan. The prior mortgage payment history must reflect all mortgage payments due were made on time for the 12 month period preceding the short sale and all installment debt payments for the same period were also made within the month due.
  • An applicant in default on their mortgage at the time of the short sale (or preforeclosure sale) is not eligible for a new mortgage loan for three years from the date of pre-foreclosure sale.

 

Indicators of unacceptable credit: (Pg 10-9)

  • Foreclosure within 3 years:

o Including pre-foreclosure activity, such as a pre-foreclosure sale or short sale in the previous 3 years;

  • Bankruptcy within 3 years:

o Chapter 7 bankruptcy discharged in the previous 3 years;

o Chapter 13 bankruptcy that has yet to complete repayment or has completed payment in the most recent 12 months;

  • Late mortgage payments if any mortgage trade line during the most recent 12 months shows 1 or more late payments of greater than 30 days.

FHA: Economic Events

FHA is allowing for the consideration of borrowers who have experienced an Economic Event and can document that:

  • certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrower’s control;
  • the borrower has demonstrated full recovery from the event; and,
  • the borrower has completed housing counseling.

Definitions: An Economic Event is any occurrence beyond the borrower’s control that results in Loss of Employment, Loss of Income, or a combination of both, which causes a reduction in the borrower’s Household Income of twenty (20) percent or more for a period of at least six (6) months.

Please read the FHA Back to Work – Extenuating Circumstances Mortgagee Letter 2013-26 dated August 15, 2013 for all criteria that allows exception for a new FHA mortgage as soon as one year after a short sale, foreclosure or bankruptcy, within the three year required wait period of FHA.


Better Details Needed for FHA Back to Work & Conventional Loan 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.

 

 


HOW Lender Required Mortgage Delinquency resulted in FORECLOSURE coding for Short Sellers

Lenders require mortgage delinquency in order for underwater homeowners to get a short sale approval.

When the mortgage goes delinquent past 120 days, the mortgage is credit coded as a FORECLOSURE.

Many past short sellers are not aware of this until they apply for a new conventional mortgage 2 years later.

 


FORECLOSURE Code in Conventional Fannie Mae and Freddie Mac Loans

The first time the FORECLOSURE credit for past short sellers was seen was on new conventional Fannie Mae and Freddie Mac findings for eligible past short sellers trying to re-enter the housing market again.


FORECLOSURE code did not affect FHA or VA

The FORECLOSURE code did not affect FHA or VA loans due to the Total Scorecard secondary automated underwriting system that runs parallel to the Fannie Mae and Freddie Mac automated system. Total Scorecard allows an approval but designates there may a property in foreclosure and requires that this be checked in underwriting.


Confusion about Short Sale: LENDERS require delinquency, but CREDIT IS IMPORTANT to homeowners!

“One time life event mortgage defaulters are vastly different than chronic mortgage defaulters,” states the May, 2011 Financial Summit/TransUnion/Life after Foreclosure and Hidden Opportunities article.  

Judgment en-masse… how could people undergoing such hardship  have credit that seemed to be intact? And if credit was intact, these homeowners must really be strategic defaulters.

The reality was that short sale lender policy required mortgage delinquency in order to get short sale approval… then… and most still require delinquency now. And homeowners were wiping themselves out financially and feeling humiliated that they had not seen this coming. 

 The common thread in hundreds of cases we have worked on can prove that homeowners did everything that they could to stay afloat and hang on – until they could not any longer. Credit was of utmost importance to the overwhelming majority of the homeowners who were affected by short sale.


The Root of Problem: Lender required delinquency policy needs to be changed!

Loss mitigation practices for most investors require mortgage delinquency for a short sale approval in the first place and that policy continues today.

If underwater homeowners were given an option to stay current through the short sale process, lenders would receive a greater net amount for the property.

If given the option, homeowners would stay current to keep credit built over a lifetime intact, even with hardship.

That is how important credit is to these consumers. Credit is the benchmark for the mortgage industry. This policy is knowingly destroying consumer credit and needs to be changed!


Real Hardship: Be Grateful That You don’t Have It

By Pam Marron

Troubled by negative comments directed at Senators Warren, Menendez and Merkley about their questioning of Federal Housing Finance Agency director Mel Watts’ reluctance to allow principal reduction for underwater homeowners, I had to write.

Every discussion about how to help millions of homeowners that are STILL  underwater (in a negative equity position) starts like this: “If they hadn’t taken out a second mortgage to buy all of those toys” or “bought more house than they could afford”, they would not be in this position.

Here’s the reality of the majority of these cases. Divorce happened. Families grew or kids moved out, resulting in need of a move for growth or downsizing. Jobs were cut and folks had to move to regain employment, or couldn’t afford their existing mortgage with a new job obtained. All of these reasons are why folks have to move. But, when an underwater homeowner must move and a short sale is contemplated, there is harsh judgment for how they got underwater, even when the need for a move is from real hardship.

The problem worsens when lenders require mortgage delinquency first to approve the short sale. This is still required today and I have seen very few exceptions where short sellers were allowed to make payments to the closing date. Little attention is given to the lender servicing practice that requires the delinquency. Instead, loads of press has reported on the “strategic defaulters”, those who can make their mortgage payment but choose not to. There has been virtually no press that many so-called strategic defaulters weren’t making their payment because it was the only option they were given to get short sale approval and exit their home…. advice given to them by their lender.

I am a mortgage broker in Florida, where 28% of home mortgages are still underwater. Three years ago, the percentage was around 62%. My sites were set on helping folks back into the real estate market when they could re-enter. During these years, a pattern became evident. Underwater homeowners were being told by their lenders that the only way they could get approved for a short sale was to go delinquent. These homeowners were bewildered that their credit had to be stellar to get the mortgage initially, and now they were being told that to exit the home the credit had to be delinquent.

Not believing this, desperate homeowners allowed me to be on calls with their lender to confirm what they were telling me. It was clear, and with multiple lenders and homeowners. The requirement to be delinquent on mortgage payments in order to get short sale approval was told directly to affected consumers by their mortgage lenders, and on recorded calls.

The reality was that many underwater homeowners were willing to make mortgage payments during the short sale process, but mortgage lender servicing rules required these homeowners to be delinquent.

Underwater homeowners face a lose-lose proposition. If the homeowner must sell but does not have the funds to pay the difference needed between the mortgage balance and the lower house value, a short sale, foreclosure or renting out the home are their only options.

Loss on Three Options

1. Short sell: the homeowner works with the lender on a lengthy process that, to this day, requires delinquency of the mortgage. Hardship must be explained by the homeowner and acknowledgment is part of the approval process for the lender short sale. Credit is incorrectly coded as a foreclosure after 120 days of delinquency which results in a new mortgage denial years later when past short sellers are eligible for a new conventional loan. And, a foreclosure requires a 7 year wait rather than the 2 year wait after a short sale, per Fannie Mae and Freddie Mac [1]Seller Guides. And recently, we are seeing [2]Fannie Mae and [3]Freddie Mac coming back after past short sellers for deficiencies, per 9/24/2013 FHFA Recovery Reports.

2. Foreclosure:  the homeowner ceases to make payments or is turned down for a short sale. Credit is coded as a foreclosure which results in a 7 year wait for a new conventional mortgage.

3. Renting Out Underwater Home: many did this years ago when a move from the home had to be done. However, many who rented are now preparing for a short sale, financially wiped out after years of making up the difference between rent received and the mortgage payment.  Many tried this option hoping to eventually have enough equity to sell the home without a loss. However, the rate of appreciation has not happened quick enough, and those who are still trying to dig out of these properties often have little or no choice but to short sale.

And for those underwater homeowners trying to stay in their home, a refinance available called HARP 2.0 has had limited success because many lenders cap the amount of negative equity… for a program that has no cap on negative equity! And, if you have a conventional mortgage that is not owned by Fannie Mae or Freddie Mac, there is no refinance for you.

So how do you answer the common perception that “those who are underwater got there on their own accord” and “what will be done for all who are NOT underwater?”

Here’s the answers:

  • Be grateful that you are not in the shoes of those still underwater, that your credit is not wrecked, and that you can get on with your life.
  • U.S. Housing: Seriously work on and get implemented HARP 3.0, or an alternative refinance plan that allows unlimited loan to value (like it is supposed to!) for all conventional mortgages including Fannie Mae and Freddie Mac. Give a pricing incentive to lenders who apply REAL written guidelines to these loans, instead of so many overlays and limits that fewer homeowners can get any benefit. This is not a handout. These are performing loans and banks will make a profit while building goodwill.
  • Don’t take advantage of these folks, who are either locked out or still having trouble getting a conforming mortgage, even though Fannie Mae and Freddie Mac have specific rules that allow these mortgages. Non-QM mortgages at higher rates have come into the mortgage marketplace and qualified consumers must often settle for a higher rate with non-QM lenders even though they meet criteria for a new mortgage with Fannie Mae and Freddie Mac.
  • Pay attention to the credit of these consumers that is being destroyed! There seems to be little regard for credit that continues to be screwed up for folks who have gone through a short sale. Credit is the key to the growth of our country. New credit products promising better service continue to be pushed, while consumers with credit problems who have proof of the real credit have to pay enormous amounts of money just to get corrections.
  • Stop ignoring the underwater mortgage problem and judging those affected as “strategic defaulters en masse”. The majority of those affected are trying to get on with their lives and want to contribute. There will always be takers, but [4]reporting of strategic default has been over stated.
  • Ask these folks what REALLY happened, and you will hear unbelievable stories of hardship where great thought went into how to dig themselves out.
  • States that have Hardest Hit Funds available for underwater homeowners need to promote this.

For all homeowners who are not underwater, be damn glad you are not in their shoes.

 

 

[1] Requirements for an FHA, VA and USDA mortgage are different.
[2] FHFA Can Improve Its Oversight of Fannie Mae’s Recoveries from Borrowers Who Possess the Ability to Repay Deficiencies http://fhfaoig.gov/Content/Files/AUD-2013-011_0.pdf
[3] FHFA Can Improve Its Oversight of Freddie Mac’s Recoveries from Borrowers Who Possess the Ability to Repay Deficiencies  http://fhfaoig.gov/Content/Files/AUD-2013-011_0.pdf
[4] Unemployment, Negative Equity, and Strategic Default/Federal Reserve Bank of Atlanta/August 2013 http://www.urban.org/events/upload/Gerardi-Kerkenhoff-Ohanian-Willen-Strategic-Default.pdf

 


New Buyers Hurt by Servicing Transfer Policy for Short Sales and Foreclosure Properties in Loss Mitigation

By Pam Marron

Sept. 19, 2014

The practice of transferring servicing from one servicer to the next is often a surprise to unsuspecting homebuyers. The transfer can start the short sale process all over again with no regard for buyers already in the purchase process who are trying to close on a newly purchased property. Some are losing appraisal  fees, home inspection costs, and repair estimate fees when servicers opt for foreclosure rather than to extend the contract.

The practice of servicing loss mitigation properties is taking a toll on new buyers who have signed contracts to purchase these homes. Servicing contracts for loss mitigation properties appear to span four to five months. Buyers of these serviced properties are unaware of the contract timeframes and may sign a purchase contract within this term. When servicing is at the end of a cycle, buyers are given little notice of the servicing deadline. Buyers have often paid for appraisals, home inspections, and estimates for needed repairs to make the applied for mortgage approvable on “As Is” contracts.

Servicer transfer dates are not told to the buyers until shortly prior to the date, and in most cases, new buyers and their lenders are unprepared to close before that date. Then, buyers are further delayed as they wait for the new servicer to order a brand new BPO and go through the loss mitigation cycle again. Often, new BPO’s are ordered for a property that has a valid appraisal already done and paid for by the purchaser. And, if the servicer opts to foreclose, the purchaser of the home is out all of the funds they spent upfront, even if they are not notified of the deadline date until after the mortgage process has started.

Title companies, frustrated with contracts where this is happening on a regular basis, tell of this common problem. Realtors aware of this practice are reluctant to show short sales, where this happens the most, fearful they will never get the new buyer to the closing table. And unsuspecting buyers are left stranded, stunned that there is no protection for them through the daunting mortgage process.

Homeowners going through a short sale or foreclosure are notified that servicing is changing and who the new servicer is. However, homebuyers trying to purchase these homes are not given the same information nor the ability to access loss mitigation negotiators for an extension of a contract already in process.

The [1]”Protecting Tenants at Foreclosure Act of 2009″ was legislation that allowed renters who suddenly lost their lease due to a foreclosure to stay until the end of the lease or be entitled to a 90 day notice before having to move. The same protection for new homebuyers who are investing upfront in a property that can improve a community when closed, needs to be applied.

Why should this policy be changed?

Buyers who purchase these often distressed properties are clearing out problematic mortgages for servicers and are almost always paying for repairs needed on these homes. Coming up with a sound policy to insure protection for the process to finish for these buyers can only improve values – and encourages realtors to sell these properties. A better policy that encourages and better accommodates a short sale will provide a higher net than a foreclosure will to servicers and investors.

[1]

Protecting Tenants at Foreclosure Act of 2009  http://www.occ.gov/publications/publications-by-type/comptrollers-handbook/ptfa.pdf