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.
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 firstname.lastname@example.org and ask for help with resources.
Click here to view the webinar NOW.
In January 2015, RealtyTrac reported that there are approximately 7.3 million Boomerang Buyers that will have the ability to re-enter the housing market over the next 8 years. Boomerang Buyers are those who had a short sale or foreclosure in the past and are eligible to obtain a new mortgage again. A new website, HousingCrisisStories.com, was created to assist Boomerang Buyers back into the housing market, with direction for loan originators that can provide them with a new mortgage. The site also provides assistance for more than 7 million distressed homeowners who are still in underwater (negative equity) homes.
In this instant webinar:
▪ RealtyTrac Vice President Daren Blomquist will explain where the Boomerang Buyers are located, and how they can be found.
▪ Terry Clemans, Executive Director of the National Consumer Reporting Association, will tell you about the QMCR (Qualified Mortgage Credit Report), a novel credit idea that can help with persistent credit errors that hamper these folks and many others from getting a new mortgage.
▪ There’s even a HELP Network, where lenders, loan originators, credit reporting agencies, HUD approved counselors, PMI companies and government agencies that can assist Boomerang Buyers and Distressed Homeowners will be promoted for free.
▪ Jim McMahan NMLS#218164, a loan originator from Georgia, will explain the benefits of assisting these borrowers.
▪ Pam Marron NMLS#246438, a loan originator from Florida, will explain how the website helps these borrowers and loan originators, and invites those who want to assist these clients to be part of a national HELP Network.
Click here to view this FREE Webinar!
Jan 24, 2015
RealtyTrac analyzed foreclosure, affordability and demographic data to provide predictions of when and where these boomerang buyers are most likely to materialize. Nearly 7.3 million potential boomerang buyers nationwide will be in a position to buy again from a credit repair perspective over the next eight years.
Error of foreclosure placed on past short sale credit found in credit report code!
Renee Erickson, Acranet credit/NCRA board member, got the ball rolling….
Terry Clemans, NCRA Executive Director, wrote about this and took a group to Washington, D.C. to meet with U.S. Senator Bill Nelson, the Consumer Finance Protection Bureau (CFPB), and Director, Richard Cordray.
Brian Webster, who was put in charge of getting the problem fixed. Mr. Clemans, and the NCRA also worked with Fannie Mae.
The NCRA has 64 credit reporting agencies across the U.S. that work with mortgage companies and consumers to “get credit right….
“Thank you, National Consumer Reporting Association, and for your continued efforts to help consumers…”
4th Quarter 2014 Underwater and Home Equity Report | RealtyTrac Report | Jan. 14, 2015
SUPERB data collection for Distressed Homeowners and Boomerang Buyers.
National Real Estate Post explains credit scores and 7.3 million Boomerang Buyers who may be getting back into housing.
The erroneous foreclosure code on past short seller credit was taken to the Consumer Financial Protection Bureau (CFPB). Senator Bill Nelson of Fl. demanded that the problem get fixed as it was affecting the state of Florida in a big way. The CFPB worked with Fannie Mae on a solution that came out on Nov. 16, 2013, but it did not work.
So, complaints started being placed with the CFPB on banks that would not change the credit code to other than a foreclosure….. and it worked!
It was also learned that in fact the code could be changed! On August, 16, 2014, Fannie Mae came out with a second workaround and changes have bee evident since then. The problem is still in the Freddie Mac system, but hopes are this will be corrected soon. Thank you to the Consumer Financial Protection Bureau (CFPB), Brian Webster with the CFPB, Fannie Mae, Senator Bill Nelson who got the ball rolling and pushed hard to get this problem resolved, and the National Consumer Reporting Association who took this to the CFPB in the 1st place and whose 64 members have been working diligently with mortgage consumers across the U.S.!
On May 7, 2013, Senator Bill Nelson of Florida took the problem of short seller credit being erroneously coded as a FORECLOSURE to the Senate hearing on “Credit: What Accuracy and Errors Mean to Consumers.” Senator Nelson is a true hero… and took on the problem of short sale credit erroneously coded as a foreclosure that resulted in a mortgage denial for eligible past short sellers. He demanded that the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) get this problem fixed in a Senate hearing on May 7, 2013. The Consumer Data Industry Association (CDIA) was also included in that hearing.
Why did we create HousingCrisisStories.com?
We created this site to help the sheer number of those affected by Short Sale and Foreclosure issues.
8 to 9.1 million still underwater in July 2014 per RealtyTrac. This appears to have come down to 5 million per Corelogic, Dec. 2014.
That’s still a lot of underwater homeowners we want to help.
In May 2013, RealtyTrac stated that 9.1 million, or 17% of U.S. mortgage holders are still underwater + 2.2 million past short sellers = 21% of mortgage market affected!
The difference between the 1985 S&L crisis and 2006 housing crisis is that during the S&L crisis, lenders repaired damaged properties to make them safe and salable. Lenders did not do this during the recent recession, and potential buyers were worried of the “unknown”… and mortgages that could repair these homes were not widely available and had higher interest rates. This has led to a glut of homes in need of repair that sit in lender inventories.
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.
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.
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.
We worked with Renee Erickson, of Acranet and a NCRA Board member, to show where past short seller credit was showing up as a FORECLOSURE even though the consumer had proof of past short sale. This resulted in denial in both Fannie Mae and Freddie Mac automated underwriting systems. Renee took this to the NCRA (National Consumer Reporting Association).
Short Seller credit is often surprisingly good, in spite of late payments required by their lender for the short sale. Loan files were acceptable for a new loan per Fannie Mae/Freddie Mac guidelines; yet both automated underwriting systems were turning past short sellers down and showing the short sale as a FORECLOSURE! And, there was a reluctance to downgrade the credit from a FORECLOSURE, even with proof in hand!
“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 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.
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!
- Please note that this problem only existed for conventional mortgages for Fannie Mae and Freddie Mac. Because of the parallel Total Scorecard automated system, FHA and VA loans are not denied in the system. Both Fannie Mae’s Desktop Underwriter/Originator and Freddie Mac’s Loan Prospector require an underwriter to verify the past mortgage was not a foreclosure.
- The Fannie Mae”fix” did not work on Nov. 16, 2013. However, filing the complaint that with the CFPB does commonly result in the short sale credit code being downgraded.
- On August 16, 2014, Fannie Mae came out with a workaround that does work. And the Fannie Mae Desktop Underwriter/Originator automated approval system is not providing a denial or “Refer with Caution” for past short sales in most cases. However, the Freddie Mac Loan Prospector automated system still provides a denial.