By Pamela Marron | September 2017 | for National Mortgage Professional Magazine
Though the consumer pays for this service upfront, loan originators can provide a credit towards the cost at the closing of a new mortgage. Loan originators who agree to provide this credit will be promoted on the Foreclosure Credit Fix Network map at http://foreclosurecreditfix.com/network along with lenders, realtors and credit reporting agencies who want to assist these clients.
What do nearly 3 million past short-sellers and over 5 million homeowners who have had a modification have in common? All of them may be affected by a foreclosure code that continues to be applied to mortgage credit of a past short sale or modification and results in a new conventional mortgage denial.
HUD approved counseling agencies have launched an effort to check for a foreclosure code on mortgage credit of past short sellers and those who have had a modification and get it corrected before the consumer attempts to get a new mortgage. Though this service is for the affected consumer, it is also the resource for loan originators, lenders, realtors and credit reporting agencies to send clients to for help. Thanks to the National Foundation for Credit Counseling (NFCC.org) and member HUD approved counseling agency Navicore Solutions, affected consumers can get this problem checked out and resolved before they purchase a home again. Clients can call 1-866-702-4557 or email email@example.com. When the problem is corrected and these clients are “mortgage ready”, they can be referred to loan originators, lenders and realtors.
The foreclosure code issue affects past short sellers and those with a modification who apply for a new conventional mortgage. There are three reasons why this problem is not being caught and dealt with by lenders ahead of a purchase.
- Affected consumers have met the four-year wait timeframe required after a short sale or the two-year wait timeframe required after a modification.
- The foreclosure code is not visible on a tri-merged credit report.
- Because of the 2 previous reasons, there is no urgency of lenders to run these loans through the Fannie Mae and Freddie Mac automated underwriting systems upfront.
The problem is often found during a live contract when the loan is run through both the Fannie Mae and Freddie Mac automated underwriting systems. When it is found, the consumer has four options:
- Re-run the loan through the Fannie Mae Desktop underwriting system using Fannie Mae’s workaround. (Freddie Mac does not have a workaround.)
- Change the loan to an FHA mortgage which allows for a manual underwrite.
- Change the loan to a portfolio conventional mortgage which is usually a higher interest rate with greater costs and more down payment required.
- lose the contract.
The solution can be a two-step process. The first step determines if the foreclosure code exists and could include utilizing the Fannie Mae workaround. The second step is to make sure that a more recent “date reported” of the affected account does not exist. If the automated system reads that the short sale or modification occurred within the minimum wait timeframe, this can be a reason for a denial. The “date reported” problem often occurs when a “dispute” is put on the affected account. Because the account is re-opened, the more recent “date reported” is recorded and cannot be changed.
Other pre-purchase housing and credit counseling is also available from HUD approved counselors about buying a home, renting, default, foreclosure avoidance, credit issues and reverse mortgages. Some services are free and others are on a sliding scale basis. To find counselors in your area, go to HUD Approved Housing Counseling Agencies at https://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm, click on your state and check under Counseling Services and for agencies in your area.
For more in-depth credit counseling and debt management (NOT to be confused with credit repair), go to the National Foundation for Credit Counseling (NFCC.org) agency locator at https://www.nfcc.org/locator/. All member agencies have HUD approved housing counselors with additional specialized training to deal with credit issues.
As we turn the corner on the housing crisis, lingering problems still need our attention. Thinking of those who were affected by Hurricane Harvey, the mortgage and real estate industries have an opportunity to form new, strong alliances with housing counseling agencies for specialized services that we are not equipped or trained to deal with.