Desktop Originator is now providing Approve/Eligible results for past short sellers where short sale credit was coded as FORECLOSURE.
A few details to be aware of for loan originators inputting these loans:
Run file through Desktop Underwriter/Originator first. You may get an Approve/Eligible right away without having to go in for corrections.
If you are re-running a past submission, make sure to clear out the old casefile ID# for cases run prior to 8/16/14. This is done in your loan operating system.
(Calyx shown below).
If you have just run the file through DU/DO Fannie Mae and are getting Refer with Caution:
- Within DU/Fannie Mae, go into “Edit Loan”, then “Full 1003″ and then “Declarations”.
- Change answer to question c. to “Yes”.
- Click on “Explanation” button at bottom right on “Declarations” page.
On “Declarations Explanation” page in DU/Fannie Mae:
- If you are strictly trying to correct a FORECLOSURE code noted on findings for a short sale, enter on line c.: Confirmed CR FC Incorrect
- If you have “Extenuating Circumstances” and are trying to get DU/Fannie Mae approval at 2 years after short sale (and yes, DU can provide this, does not require manual underwrite!) , enter on line c.: Confirmed CR FC EC
Extenuating Circumstances can be found in the Fannie Mae Selling Guide under B3-5.3-08: Extenuating Circumstances for Derogatory Credit: Updated 7/29/2014
B3-5.3-08, Extenuating Circumstances for Derogatory Credit (04/01/2009)
This topic provides information on extenuating circumstances for derogatory credit information.
Extenuating circumstances are nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.
If a borrower claims that derogatory information is the result of extenuating circumstances, the lender must substantiate the borrower’s claim. Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.) and documents that illustrate factors that contributed to the borrower’s inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns (covering the periods prior to, during, and after a loss of employment), etc.).
The lender must obtain a letter from the borrower explaining the relevance of the documentation. The letter must support the claims of extenuating circumstances, confirm the nature of the event that led to the bankruptcy or foreclosure-related action, and illustrate the borrower had no reasonable options other than to default on their financial obligations.
Clarification Needed in Writing
FNMA SEL docs and directives wait timeframe if home included in a bankruptcy is 4 yrs. from bankruptcy discharge date. However, further directive given for minimum 2 year wait after a short sale. If short sold property was included in the BK but then late sold as a short sale which wait timeframe guidelines apply? Discrepancy between underwriting opinion exists, even though this scenario results in Approve/Eligible.
Distinguishing Difference Between Extenuating Circumstance and Hardship
- Hardship must be present to receive short sale approval from lender.
- Past short seller must often prove hardship again to lender upon applying for new mortgage.
- Extenuating circumstances are non-recurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligation.
- Extenuating circumstance can be the hardship.
Discrimination Still Exists Towards Past Short Sellers
Underwriters, especially those who have not seen a good number of these casefiles, often question hardship, especially when there was a bankruptcy prior or payments were made until the short sale. The perception is “if they were making payments, they must have had the resources. Therefore, when they stopped, it must have been strategic default.”
Here’s the reality: GOOD CREDIT IS OF UTMOST IMPORTANCE TO THE VAST MAJORITY OF CONSUMERS. The vast majority of underwater homeowners who have short sold have borrowed from retirement assets, other available credit and others just to stay afloat and to stay current on their mortgage to try and keep intact good credit they know will be detrimentally affected.
Now if we could just get Freddie Mac to do the same….