The Hidden Costs of Buying a Home

Wednesday, 14 Dec 2016 | 8:30 AM ET

Buying a home can end up costing an owner many times the sticker price in goods, services and fees, so home ownership might not make sense for everyone. Click on the video image below to see this quick video from CNBC.

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
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!

What Could Drive Another Mortgage Crisis?

Continued Policy That Damages Credit of Responsible Homeowners and the Apathetic Reason Nothing is Done

By Pam Marron
For National Mortgage Professional Magazine | Sept. 2016 Issue
There is no refinance available for as many as 6.4 million negative equity homeowners who have a conventional first mortgage not backed by government sponsored enterprises (GSE) Fannie Mae or Freddie Mac, or a second mortgage or home equity line of credit (HELOC) that is “underwater”, where more is owed on the mortgage than the home is worth. Many of these mortgages are interest only loans that are now resetting to fully amortized payments with increases seen as high as 400%+. Simply, because these loans have negative equity, there is no refinance available to reduce initial higher interest rates from years ago. The only option for affected homeowners is a modification or a short sale and both require the homeowner to be delinquent on their mortgage first.
These homeowners struggle to “stay put” in negative equity homes awaiting home values to return. If this problem is not taken seriously, the result will be a new wave of short sales that will have a negative impact on the housing industry. It is already happening.
And this time it is affecting the elderly.
Caps placed on the maximum loan-to-value of non-GSE 1st mortgages and the combined loan to value when 2nd mortgages and HELOCs exist are what holds back a refinance for these specific negative equity loans. Compound this with the interest only reset of many of these loans, and the problem is disastrous.
For too long, there has been a lack of attention to a refinance where none exists for negative equity homeowners. Many believe these homeowners “did it to themselves” and massive press about short sellers labeling them as “strategic defaulters” (or those able to make payments but refuse to) was overshadowed by the fact that negative equity homeowners who worked with banks to short sell homes were told by their own lenders that they could not get approved for the short sale until they were delinquent on their mortgage first. This policy continues to this day for most lenders.
But since 2013, reports have proven that 1”ruthless” or “strategic” default during the 2007-09 recession were relatively rare. In a 22015 follow up of this study, job loss and adverse financial shocks in addition to divorce, large medical expenses and other severe income loss attributed greatly to mortgage default. Most importantly in this report… While household-level employment and financial shocks are important drivers of mortgage default, analysis shows that financially distressed households do not default. More than 80% of unemployed households with less than 1 month of mortgage payments in savings are current on their mortgage payments.
Disdain of reasons for why negative equity occurred is often the primary focus of apathetic attention to a refinance solution. Instead, focus should be on a sustainable refinance for those on time with their mortgage payment to assist them to “stay put” longer.
There is no argument of “moral hazard” or “strategic default” for a refinance option that allows responsible homeowners breathing room to stay put. When homeowners are not struggling to make their payments, they keep up homes which increases the value of our communities.
We can continue to think that the negative equity problem has gone away in the United States but it has not.  More calls are coming in from elderly with no chance of increase in their income. Many of them did a refinance or a second mortgage to help other family members but are now stuck themselves. The reason for a refinance should not matter. And we shouldn’t require affected homeowners to be delinquent on their mortgage first causing a destruction of good credit that results in negative unintended consequences for future credit.
Instead, we should be questioning how we can stabilize areas where negative equity still exists.
There are solutions available with existing mortgage programs now. A white paper entitled “Urgent Attention Needed: Two Problems and Solutions That Exist for Responsible Homeowners Who Have Negative Equity in Their Homes” that provides U.S. and Florida data showing how many negative equity homeowners can be helped is at

1 Unemployment, Negative Equity, and Strategic Default | August 2013 |Federal Reserve Bank of Atlanta | 2  Can’t Pay or Won’t Pay? Unemployment, Negative Equity, and Strategic Default | Sept. 21, 2015 |

Refinance Sought for Millions Trying to Remain in Underwater Homes

Pete Smith, an underwater homeowner in Chicago, Ill., is frustrated by the only option available for homeowners who have negative equity on their second mortgage.

“I’ve tried to find a refinance option, a modification option, and the only advice that my lender has given me is to go delinquent,” said Smith. “They claim that as long as I pay on time, I have no option as far as a modification with them.”

This same response is heard again and again by homeowners with these three types of negative equity mortgages:

1. Portfolio conventional first mortgages (non-Fannie Mae and non-Freddie Mac)

2. Second mortgages

3. Home equity lines of credit (HELOCs)

A refinance is what many of these folks are looking for to stay put in underwater homes, where the mortgage is greater than the value of the home. Most are stunned to find that the only option available is not a refinance, but a modification that requires mortgage delinquency first and proof of hardship.

Affected homeowners with these three mortgages are either still living with initial, higher interest rates from years ago, or their loans may be interest-only and are now resetting to fully-amortized, higher payments. Underwater elderly homeowners on fixed incomes are most at-risk and struggle to pay the steep increase when the interest-only payment changes to a fully amortized payment.

The difference between a refinance and a modification
A refinance allows underwater mortgage holders to stay current on their payment and take advantage of today’s lower rates, enabling homeowners to stay put and avoid a short sale.

A modification requires mortgage delinquency, resulting in the inability to get future credit, prolonged time-frames in order to get a refinance or a new mortgage, and the possibility of erroneous foreclosure codes on their credit when delinquent mortgage payments go past 120 days late. If the underwater homeowner must ultimately short sell the home, they often pay higher rent due to damaged credit as a result of the required mortgage delinquency required to modify.

A modification also requires proof of hardship. Underwater homeowners seeking a refinance may not be experiencing a defined hardship and are most often told they cannot receive help unless they are delinquent on their mortgage.

How a refinance can be done
Putting two finance programs in place at the same time is key to how this refinance can be accomplished.

Using government entity funds as a new, replacement second mortgage; and combining these funds with five existing mortgages, can provide a refinance for second mortgages and HELOCs, and can accommodate a restructure of funds to allow an FHA Short Refinance to replace an underwater portfolio conventional first mortgage.

The combination of government entity funds with these mortgages allows for an unlimited combined loan-to-value (CLTV) of the first and secondary loans together, a replacement refinance of the secondary loans, and the availability of a new refinance for the portfolio conventional first mortgage.

These five existing first mortgage programs are:

1. Fannie Mae DU Refi-Plus Home Affordable Refinance Program (HARP): For negative equity Fannie Mae first mortgage. No maximum loan-to-value (LTV) or CLTV.

2. Freddie Mac Relief Refinance Open Access (HARP): For negative equity Freddie Mac first mortgage. No maximum LTV or CLTV.

3. FHA Short Refinance: Available for negative equity non-FHA mortgages, the new loan’s maximum LTV ratio is 97.75 percent of the current property value and the maximum CLTV is 115 percent of the current property value. However, there is no maximum CLTV ratio for second loans held by government entities or instrumentalities of government.

4. FHA Streamline Refinance: Available for negative equity FHA mortgages.

5. VA Interest Rate Reduction Refinance Loan (IRRRL): Available for negative equity VA mortgages.

Note: the USDA Refinance was also researched. Their correspondence directs the homeowner to the specific lender who is responsible for servicing their loan.

Strategic default concerns do not exist when underwater homeowners are trying to stay put in homes. A large number of the 6.4 million underwater homeowners that still exist throughout the U.S. have the three types of loans where no refinance exists. Most of these homeowners are simply trying to stay put in their home seeking a sustainable refinance option to better rates that does not require mortgage delinquency first.

Because there are still so many seeking sustainable payments and program expiration deadlines are looming, diligent effort is being made to work on solutions with current programs available … 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 ( 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 and ask for help with resources.



A Public “Thank You!” to Fannie Mae and a Request for Conventional Hardship Counseling Certification for Past Short Sellers

A Public “Thank You!” to Fannie Mae and a Request for Conventional Hardship Counseling Certification for Past Short Sellers

Dear Mr. Watts;

First, Thank You to Fannie Mae for the August 16, 2014 Desktop Originator [1]”fix” that provides  for past short sale credit reported as a FORECLOSURE to be corrected! This allows thousands of eligible past short sellers to  re-enter the housing market!

There is another problem we need your help with: confusion of real hardship with strategic default.

Underwriters are now reviewing more borrowers  who had a past short sale. Many underwriters have a problem with the fact that the mortgage was on time and then all of a sudden went delinquent right before the short sale and  assume these folks were strategic defaulters. However, an overwhelming majority of underwater homeowners were told by their lenders that they could not receive help unless the mortgage was delinquent. A massive number of short sellers will tell you they went delinquent because it was the only option given to them by their lender to get a short sale approval. Further, it can be proven that a massive number of these folks stayed in their homes until they could not do so any longer.

Staying current was a struggle. Hardship is what forced the short sale.

In the midst of  the worst recession in U.S. history, many underwater homeowners wiped themselves out, emptying 401K’s and savings to stay afloat. The hardship was the circumstance that occurred when these folks were at the end of their rope, and had no option left except to short sale.

And, yes, there were those who took advantage of the system. But the great majority continued to make payments, expecting to gain back equity and eventually move on. However, there are areas across the U.S. where appreciation has not happened fast enough and life events have resulted in continued short sales for underwater homeowners (approximately [2]9.1 million per RealtyTrac in July  of 2014).

FHA has “Back to Work” Certification

The Federal Housing Authority (FHA) has a [3]”Back to Work” program, where those who have had a past short sale, foreclosure or bankruptcy can get a certificate from a HUD Approved Counselor where hardship existed and where  a 20% reduction in income was sustained for 6 months or more. In acceptable circumstances, a new FHA mortgage can be approved one year after the short sale, foreclosure or bankruptcy as another option to the three year wait required now.

Could FHFA allow a Hardship Certification from a HUD Approved Counseling Agency or Private Mortgage Insurance Company (PMI) for conventional mortgages?

Why? Because underwriters unfamiliar with problems surrounding short sales are turning down qualified conventional borrowers with extenuating circumstances at the two year mark after a short sale.

Real Hardship Examples

A husband loses his job after a brain aneurysm. The medical crisis causes the couple to file bankruptcy, but they continue to pay the mortgage on the wife’s salary alone. Soon, it is evident the husband will no longer be able to work. It takes 18 months to get Social Security Disability for him and the underwater home is put up for a short sale. The short sale takes almost two years with two contracts that fall apart due to the lengthy short sale process.  The employed wife struggles to make the house payments, wiping out the 401K’s of both her and her husband. The wife is told she must go delinquent in order to get a short sale approval, so she does. Two years later, the wife attempts a new mortgage. The underwriter turns her down, stating she made the mortgage payments after the bankruptcy. The wife asks, “how hard does my hardship have to be?”

Another couple kept their underwater property as a rental. Both moved to another state for jobs, rented out their home and paid monthly for  the difference between rent received and the mortgage payment. 401K’s and savings reserves were wiped out to cover the difference of funds needed. When they lost their final tenant, the options were to short sale or go into foreclosure, as all funds were depleted. They short sold the property.

Please allow trained HUD Counselors or PMI Underwriters to provide a certification for hardship to prove Extenuating Circumstances.

Lenders will not approve a short sale unless a hardship exists. Questioning hardship requires that borrowers must revisit a difficult time all over again. Allowing those trained with allowable criteria to determine real hardship and provide borrowers with an option to layout their story to an unbiased third party can make a difference in the growth of the housing market.


Pam Marron NMLS#246438

Florida Mortgage Broker


[1] Desktop Originator/Desktop Underwriter Release Notes/DU Version 9.1 August Update/June 17, 2014
[2] U.S. Homes Underwater Stalls at 9.1 Million in Second Quarter as Home Price Appreciation Slows in Many 24, 2014/RealtyTrac           
[3]Back to Work Program: Get Your Certificate