By Pamela Marron | August 2017 | Written for National Mortgage Professional
HUD approved housing counselors can still assist homeowners struggling to stay put in negative equity homes. But a new effort will check credit of those who have had a past short sale, modification, deed in lieu or excessive mortgage late’s where foreclosure code is applied and causes a mortgage denial for past homeowners eligible for a new mortgage.
Current funding still exists to help homeowners with negative equity who are struggling to stay in their home, but not for long. National Foreclosure Mitigation Counseling funding will expire on September 30, 2017 so here’s a shout out to loan originators and realtors: Refer clients that you know are in need to HUD approved housing counselors that can be located in each state at HUD.gov.
As we turn the corner from the housing recession, problems continue to linger. In 2011, it was found that short sale credit was often coded as a foreclosure and is easily spotted where mortgage delinquency over 120 days occurs. In 2013, Senator Bill Nelson of Florida demanded that this problem be corrected and a workaround was done in the Fannie Mae automated system. But there was never a workaround done in the Freddie Mac system and due to the popularity of the Freddie Mac Home Possible program, past short-sellers with the foreclosure code issue are now being denied through the Freddie Mac Loan Product Advisor automated system. Further, all were stunned when an initiative started by the housing counseling industry for affected past short-sellers resulted in finding that the foreclosure code was also being applied to those with a modification and often a deed in lieu.
The root cause of this problem is not the Fannie Mae or Freddie Mac automated underwriting systems. Recently, a past homeowner who did not have a short sale, modification or deed in lieu but did have excessive mortgage late’s before she sold her home applied for a car loan at a credit union. She was denied the loan because her past mortgage credit showed up as a foreclosure and the loan was never run through the Fannie Mae or Freddie Mac automated systems.
The root of this problem appears to be that foreclosure code is applied to a mortgage when delinquency over 120 days occurs. The verbiage “settled for less than full balance” or that a loan is classified as a modification or deed in lieu does not appear to be superior to a payment history that is 120 days or more delinquent.
There is no specific credit code for a short sale or modification and there needs to be. And we need specific clarification to use credit code “89” for a completed deed in lieu. We need this now so that past homeowners who did the right thing and worked with their lender or a housing counselor to stay in their homes for as long as they could do not have their credit wrongly coded, causing future turmoil when they try to purchase a home again. We haven’t even scratched what this problem is doing to their other consumer credit.
Credit…. Having good credit…. Is what every American is taught about at an early age and what they strive for. Credit is what makes the economy run and better credit leads to better reward. It is frustrating that we are still dealing with a problem that the masses have known about for years, but that is adversely affecting the credit for millions and stalling many from reentering the housing market.
Last week, the offices of two Senators and three Congressman who get this problem were visited. The problem and a way that the housing counseling industry can help were shown to mortgage industry stakeholders at the HOPE NOW Fly-In. Presently, the housing counseling industry is fine tuning a process that will provide affected consumers with a correction to this problem…. before they purchase a home again. Our hope is to promote this service to loan originators and realtors and to have them refer potentially affected consumers to housing counselors who will take care of this problem before consumers purchase again. All of this is being done while we work on a bi-partisan effort with legislators to get a specific credit code for both short sales and modifications.