This website was made to assist Distressed homeowners (those who still own an underwater home) and Boomerang Buyers (those who had a short sale or foreclosure in the past and are now eligible to repurchase). This site also offers a way for loan originators to use various renovation loans and assist realtors upfront to promote needed repairs and cost with mortgages available to buyers for owner occupied, 2nd home and investor purchases.
Florida is still in the top 3 U.S. states with the highest number of underwater homes (where the mortgage loan is greater than the value of the home) and paying attention to solutions for problems that continue to plague those still living in underwater homes as well as those who had a past short sale or foreclosure is critical.
As of 1st quarter 2015, it is estimated that there are still between 7.1 and 7.9 million U.S. homeowners who still have negative equity across the U.S. There are another 7.3 million past short sellers and those who had a foreclosure who are now or will be eligible to re-enter the housing market within the next 4 years.
Credit Reports: What Accuracy and Errors Mean for Consumers
This is the title of the May 7, 2013 senate hearing where Senator Bill Nelson of Fl. took on the problem of past short seller credit that was being erroneously coded as a FORECLOSURE. The credit code error resulted in a mortgage denial and a pro-longed wait of 7 years to get a new mortgage…. rather than the 2 year wait required after a short sale.
Boomerang Buyers Can’t Wait 7 years!
Florida, other hardest hit states nor the economy could not wait the 7 years this credit error threatened us with! We needed to “fix this” to the 2-year wait that the mortgage industry placed on past short sellers.
Credit to Event Didn’t Match
Loan originators are trained to match up credit with events and if it doesn’t make sense, loans get denied. But the short sale dynamic wasn’t making sense. Even through major financial struggle where jobs were lost or incomes decreased or families split apart, credit seemed to be intact…. up to a point. A pattern surfaced.
Lenders Required Delinquency in order to get Short Sale Approval
Underwater homeowners were preparing for problems they saw coming. They were preparing to sell their homes, but there was one difference that was a shock to all, and hard for others to believe. The same lenders that preferred stellar credit to get into the mortgage were now requiring homeowners to go delinquent on their mortgage before a short sale could be approved!
Initially not believing this, but then included on 3-way calls with lenders and affected homeowners, it was evident that homeowners were telling the truth. On recorded calls, almost every one of the lenders stated or strongly implied a short sale approval could not be given without mortgage delinquency 1st!
Press Was Reporting Defaults as Strategic
But press was telling another story, claiming that short sellers were “strategically defaulting”, or not making mortgage payments when they could, instead of being required to do so, by their own lender! The explanation for the required delinquency policy was a loss mitigation policy to “dual track” so that if a short seller did not get approved, the process would not have to start all over again for a foreclosure. But the U.S. Treasury stated that the loss mitigation policy also allowed for homeowners to stay current.
Where the Damage to Short Seller Credit was Found
Short sale processing timeframes were taking forever. Unknown to all of us was that when mortgage credit goes past 120 days delinquent, FORECLOSURE code is almost always applied. This wasn’t visible until it showed up on Fannie Mae’s Desktop Underwriting for conventional loans, when the automated system we were trying to get eligible past short sellers through after 2 years showed the short sale credit as a FORECLOSURE. The same thing happened with Freddie Mac, but it was known that their system requirements would not issue an approval until 4 years after a short sale. And, it was learned that short sale credit code was borrowed foreclosure code from the Metro 2 system, and there was no universal, specific short sale credit code like there was for a foreclosure.
HARDSHIP Reasons Were WHY Many Finally Left Homes
Calls were coming in from all over the U.S. from underwater homeowners going through immense hardship and explaining WHY they had to leave homes. Homeowners were greatly concerned about how credit built over a lifetime would fare if they went delinquent, and most had tapped into savings and 401K retirement savings to stay afloat. Others were in the midst of buying a home again only to be surprised that the short sale was showing up as a FORECLOSURE and they were getting a denial from their new lender!
It was important to listen to these calls to get the REAL story of what was happening, locations where these people were living, and where many of them were moving to.
Frustration with Credit
Credit became key to dissect. As a loan originator and a mortgage broker, I had the ability to run these cases through both Fannie Mae and Freddie Mac automated systems and worked with over 15 credit reporting agencies trying to distinguish what worked and what didn’t.
New credit was pulled through multiple credit reporting agencies that knew of the problem to check on differences. And credit reporting agencies became frustrated when another agencies’ report produced an approval through Fannie Mae or Freddie Mac, but theirs did not. Credit reporting agencies wanted to help with this to make sure they knew what to do when they got more of these customers.
Credit reporting agencies worked with all 3 repositories: Experian, Equifax and TransUnion. Proof of the short sale was given to the credit reporting agencies, and frustration grew when Experian specifically refused to change the foreclosure code even with proof of the short sale.
So the problem went to the Consumer Financial Protection Bureau. Because of the number of cases and visible proof of the specific mortgage account showing as a foreclosure, credit code was able to be drilled into, and the problem surfaced every time delinquency went past 120 days.
And something good happened in this process. In April, upon visiting hardest hit state offices, the CFPB, the U.S. Treasury, staff for the Senate Finance Committee thanks to Congressman Gus Bilirakis’s office and Senator Bill Nelson’s office, it was a relief to see that most engaged with this growing problem. Contrary to what previously thought, those in Washington, DC wanted to know what was going on in other states, because they did not have it happening in thriving Washington, DC!
And, Senator Bill Nelson brought the problem to a senate hearing on credit, understanding the havoc this erroneous credit was causing in Florida, the land of short sales! He demanded that the CFPB get this problem solved within 90 days!
In June of 2013, the National Consumer Reporting Assoc. board went back to Washington, DC and this time met with Richard Cordray, Director of the CFPB.
Senator Nelson made sure that the CFPB and Fannie Mae worked out a solution, and this was released on Nov. 16, 2013. However, that solution did not work. So, frustrated with so many angry, complaints were put on the CFPB Complaint line…. and it worked! Lenders who received the complaint downgraded foreclosure code that then resulted in a Fannie Mae Desktop Underwriter automated approval! We also learned that the credit code could be changed!
On August 16, 2014, another workaround was implemented by Fannie Mae, and this time it worked! The Freddie Mac conventional Loan Prospector automated system still shows past short sales as a foreclosure.
As a loan originator for 30 years, I thought I’d seen it all. But, this short sale chapter was different.
Past short sellers were going through horrible hardship, and any proposition was bad. Many had wiped themselves out to stay afloat. Families were torn apart. It was a struggle for them to tell the real story, more than the 1 page letter they wrote to their short sale lender pleading for a short sale. Instead, many had a root of the problem not previously shared, and this became an emotional task to get to the bottom of each story. These were not stupid people. Most were ashamed by the “strategic defaulter” label placed en-masse upon them, and EVERY ONE of them told of their lender, attorney or realtor that had said they had to go delinquent to short sale the home. Many had lost more than the equity they had invested. Credit was damaged, yet the great majority were incredibly concerned about how this required delinquent mortgage credit would affect them going forward.
WHY HousingCrisisStories.com can help loan originators and lenders
This REAL story is what loan originators need to be able to present to lenders in order to help past short sellers get into a new mortgage. Lenders are overly fearful of past short sellers. Our job is to show them WHY past short sellers will never go through this again.
WHAT you need to ask for is on www.HousingCrisisStories.com.
How to help those who can stay in underwater homes
Shorten terms with lower rates to regain equity the quickest.
And mortgage industry, we need the same option for non-Fannie Mae/non-Freddie Mac homeowners to do the same NOW!
Take a look at the National Consumer Reporting Association Qualified Mortgage Credit Report solution. This blends “getting the real data” with up to date technology! Lenders who are interested in this concept can contact NCRA Executive Director Terry Clemans at TClemans@NCRAinc.org. or call 630-539-1525.
HOW MANY potential mortgagors are out there?
 PennyMac was the only lender that did not require a delinquency through the end of the short sale.
 Past short sellers coming into the market in 2010-2012 were fewer, so fewer cases were available to run through Freddie Mac.