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 ”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 9.1 million per RealtyTrac in July of 2014).
FHA has “Back to Work” Certification
The Federal Housing Authority (FHA) has a ”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
 Desktop Originator/Desktop Underwriter Release Notes/DU Version 9.1 August Update/June 17, 2014 https://www.fanniemae.com/content/release_notes/du-do-release-notes-08162014.pdf
 U.S. Homes Underwater Stalls at 9.1 Million in Second Quarter as Home Price Appreciation Slows in Many Marketsc.com/July 24, 2014/RealtyTrac http://www.realtytrac.com/content/foreclosure-market-report/us-q2-2014-home-equity-and-underwater-report-8118
Back to Work Program: Get Your Certificate http://backtoworkprogram.org/