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.

Thank You, Ken Harney of the Washington Post

For Short Sellers, Some Good News
Kenneth R. Harney, Washington Post – Sept. 6, 2013

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

 

Short Sales may be Treated like Foreclosure by Credit-Reporting Agencies
Kenneth R. Harney, Washington Post – May. 17, 2013

Are large numbers of homeowners who have negotiated short sales with lenders at risk because of a startling omission in the American credit system? Do their credit reports and scores indicate that they were foreclosed upon, rather than having negotiated a mutually agreeable resolution with their lender? Read More

 


Short Sellers labeled as “Strategic Defaulters,” even though Lenders Required Default!

The second problem causing a backlash against short sellers is that the press was reporting that short sellers were “strategically defaulting,” or choosing not to make their payments even when possible, when reality was that SHORT SALE LENDERS REQUIRED MORTGAGE DELINQUENCY to approve a short sale. Homeowners allowed 3-way calls to confirm this was being told to them by their lenders… and the homeowners were telling the truth. Loss mitigation practices for most investors require mortgage delinquency for a short sale approval… to this day.