Make no mistake, the economy appears to be roaring back! However, as of the fourth quarter of 2014, RealtyTrac reported1 there are still more than seven million homeowners or 13 percent of all residential mortgage holders, that are more than 125 percent underwater.
Large pockets of seriously underwater homeowners still exist in Florida, Nevada, Ohio, Illinois, Michigan and Georgia. For many in these states, positive equity is not coming back soon enough.
And, contrary to past press about "strategic defaulters" defining a great number of these folks as leaving homes even though they could afford to pay but chose not to, evidence points to unemployment and not enough assets leaving little choice but to exit these homes.2
Most shocking, but cited by nearly all short sellers was that the only way to get help was to be delinquent on their mortgage payment first … an option most often told to them by their own mortgage lender. And when that mortgage delinquency exceeded 120 days, credit often showed as a foreclosure even when the home closed as a short sale.
But a recent report by RealtyTrac focuses on "Boomerang Buyers,"3 or those who lost their homes to foreclosure or short sale and may now be eligible for homeownership again.4 "We expect about 500,000 potential boomerang buyers nationwide in 2015, but that number will nearly double to more than a million potential boomerang buyers in 2016-2019," cited Daren Blomquist, RealtyTrac vice president.
This is good news for the mortgage and real estate industries! However, problems surrounding the credit of past short sellers persists to this day. The lender loss mitigation policy that requires mortgage delinquency in order to provide a short sale approval has inadvertently wrecked future credit options for many past short sellers. Clear wait timeframes before a new mortgage approval are in writing for both foreclosure and short sale, but because there is no specific short sale credit code, short sale credit most often shows up as a foreclosure.5 A foreclosure requires a seven-year wait before a conventional mortgage can be approved, rather than the two-year wait minimum after a short sale. And past short sellers who tried to get this fixed are finding that "disputes" put on the erroneous credit for their short sale must be taken off. The result is that erroneous credit of these past short sellers gets worse, and costly and time consuming rapid rescores are holding up the reentry of those who can positively affect the real estate market and the U.S. economy.
The National Credit Reporting Association introduced the QMCR (Qualified Mortgage Credit Report) which provides a deeper review of the consumer's credit and includes verifying disputed data, the inclusion of non-traditional data and alternative data not currently reported to credit reporting agencies. Credit reporting agencies can accurately code a short sale with proper documentation provided by the past homeowner or creditor. But, because of a desire for credit reporting in seconds rather than the 72 hours needed to accurately document, there is pushback to this idea.
Here are four areas of great importance to "get right" for more than seven million severely underwater homeowners and another 7.3 million Boomerang Buyers potentially able to come back into the housing market within the next eight years:
1. Dissect the real hardship for why a short sale was done. Allow third-party certification to be done by those trained to verify for conventional mortgages, similar to HUD's option that provides for HUD Approved counselor certification on the "Back to Work" program.
2. Seriously look at the NCRA’s idea for the QMCR (Qualified Mortgage Credit Report). 72 hours is not long to wait to "get credit right!" Lenders would be relieved to have accurate information, and affected consumers would have an option to correct credit with other than a dispute.
3. Loss mitigation policy for short sales needs to be changed to allow underwater homeowners that must short sale to continue making payments through a short sale if they can.
4. Make HARP 3 refinancing available to non-Fannie Mae and non-Freddie Mac mortgage holders, and discount rates for a shortened term, the quickest solution to gaining equity back!
A new Web site called www.HousingCrisisStories.com was created to provide support for affected underwater homeowners and past short sellers. The site will promote lenders, originators, credit reporting agencies, HUD approved counselors, PMI companies and governmental agencies that can help affected consumers. Please call Pam Marron at (727) 375-8986 or e-mail [email protected] for further information.
Marron is a mortgage broker in Florida, a state severely hit with underwater properties. Marron, along with Daren Blomquist, RealtyTrac vice president, and Terry Clemans, executive director of the National Consumer Reporting Association (NCRA), will provide a Webinar through National Mortgage Professional Magazine in February 2015 to introduce the Web site and discuss credit issues and numbers of those affected.
Pam Marron (NMLS#246438) is senior loan officer with Innovative Mortgage Services Inc. (NMLS#250769). She may be reached by phone at (727) 375-8986 or e-mail [email protected].
Footnotes
1—RealtyTrac, Jan. 22, 2015 (www.realtytrac.com/news/mortgage-and-finance/year-end-2014-underwater-home-equity-report/).
(www.urban.org/events/upload/Gerardi-Kerkenhoff-Ohanian-Willen-Strategic-Default.pdf).
www.realtytrac.com/news/foreclosure-trends/boomerang-buyers).
www.realtytrac.com/news/realtytrac-videos/where-boomerang-buyers-will-emerge-over-the-next-8-years-realtytrac-report).
