Loan originators are unaware that there are two solutions that can work when short sale credit is erroneously coded as a foreclosure and results in an automated denial. One solution is a workaround in Fannie Mae. (There is no workaround for Freddie Mac.) The second solution is to “Submit a Complaint” on the Consumer Financial Protection Bureau (CFPB) website.
Fannie Mae workaround
Loan professionals need to know specific directions on how to use the Fannie Mae DO/DU automated underwriting system (AUS) workaround when a Refer/Caution is received and the denial is due to a short sale coded as a foreclosure.
Loan originators, upon receiving Refer/Caution:
- Within (1)Fannie Mae DO or DU automated underwriting system, go into (2)Edit Loan: then (3)Full 1003 and then (4)Declarations, then (5)c. In dropdown box, change to (6)Yes.
- Click on (7)Explanation button at bottom right. For(9), either:
On (8) Declarations Explanation page:
- If strictly trying to correct a FORECLOSURE code noted on findings for a short sale, enter on line c.: Confirmed CR FC Incorrect
- If “Extenuating Circumstances” and are trying to get DU/Fannie Mae approval at 2 years after short sale, enter on line c.: Confirmed CR FC EC
Submit a COMPLAINT at the Consumer Financial Protection Bureau (CFPB)
When you find out that your short sale was coded as a foreclosure, one option to correct this is to Submit a Complaint to the CFPB. Let the Consumer Financial Protection Bureau know that your short sale is being coded as a foreclosure on the Fannie Mae or Freddie Mac automated underwriting system.
Take these steps:
- Go to: http://www.consumerfinance.gov/.
- Go to SUBMIT A COMPLAINT at the top left and click on Submit a Complaint.
- For suggestion on how to complete each page, go to http://housingcrisisstories.com/submit-a-complaint-cfpb/.
- Before you finish, attach short sale approval letter(s) from your lender and your closing statement (HUD-1) showing the loan closed with you as the seller, not the lender as the seller.
- You will receive an answer back from the CFPB within 15 days so keep an eye out for their email.
Next month: How Housing Counseling Agencies can help your clients prepare for home ownership….