- Desktop Originator/Desktop Underwriter Release Notes | DU Version 9.1 August Update | June 14, 2017: https://www.fanniemae.com/content/release_notes/du-do-release-notes-08162014.pdf
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 firstname.lastname@example.org. 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.
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.