As mortgage brokers, we see and hear amazing stories and events in the lives of our clients and this one is no exception to amazing, I assure you. While I am not “the broker” in this story, but merely one of the “other brokers,” I asked this consumer to put his story in writing and allow me to submit it to National Mortgage Professional Magazine so that he could enlighten us all with what has been happening in recent years in the mortgage industry, with the involvement of the government, from the consumer’s perspective. So that we could all read what is going on today in the mortgage industry, with the involvement of the government, from the consumer’s perspective. So that we can be prepared and forewarned for what may be coming in the mortgage industry, with the ever-increasing involvement of the government, and better prepare our clients with the hope of changing the consumer’s perspective. His story is as follows.
In 2008 my wife, Amy, I found ourselves, like many Americans, facing foreclosure on our first home. Our first child was just turning six months old the week we moved all our property out of the house, watched as agents of the bank changed the locks, and asked for the keys to the mailbox.
Humbled and humiliated, we took what lessons we could from the whole experience and set about regaining our financial footing. We found out the “waiting period” for a new home loan would be three years from the foreclosure. So, for three years, we cut every expense we could. We paid down debt, and started saving for a downpayment for when we’d be eligible for a loan again.
We searched public records and found the date of the Public Trustee Sale was Aug. 19, 2009. This meant we would be able to apply for an FHA home loan as soon as August, 2012. So, in January 2013, we contacted a real estate agent and mortgage broker and started looking for a home that was large enough for our family which had grown from three to six with the addition of another daughter in 2010, and twin sons born in August 2012.
In early February 2013, we discovered a hidden jewel of a house in a great part of town. We put in an offer which was accepted and went under contract. Then, our mortgage broker came back with bad news. Even though our income and downpayment were sufficient for pre-approval of the loan on the house, there was a problem. According to the U.S. Department of Housing & Urban Development (HUD), our information was still reported on CAIVRS, the Credit Alert Verification Reporting System. Whenever someone defaults on a federally-guaranteed loan, such as an FHA, or VA mortgage or a federal student loan, their information is “flagged” in the CAIVRS system.
Still, we knew we were past the three-year waiting period, so it didn’t make sense that we were flagged in CAIVRS. Days working on the problem stretched into weeks. The owners of the house simply could not wait for us any longer, and we were forced to cancel the contract. By March 5, the owners had accepted a backup offer and the house was no longer available. We were devastated.
Our broker referred us to other brokers who had experience with CAIVRS issues, but the story was always the same: No one could figure out why the CAIVRS was still reporting three-and-a-half years after the Trustee sale date. And more disheartening than that, no one we talked to had ever seen a CAIVRS issue fixed.
Over the next two weeks, we spent countless hours on the phone with HUD’s National Servicing Center. Eventually, we were able to find out two very important pieces of information.
First, we learned that our CAIVRS report was not set to clear until December of 2013. This meant that as far as HUD was concerned, our foreclosure was in December of 2010—over 15 months after the Public Trustee sale according to county records. Next, we discovered that the CAIVRS report is not initiated until the bank executing the foreclosure files a claim on the mortgage insurance. For some reason, the claim was not filed by the bank until 15 months after they had foreclosed. This would turn out to be the key to resolving the issue.
HUD guidelines, which are published online, list timeframes by which foreclosures should be executed according to state law. For the state of Colorado, the timeframe is seven months. Our lender failed to follow HUD guidelines and didn’t file the claim for over 15 months.
Armed with this knowledge, we started a new round of calls with HUD’s National Servicing Center between March 10 and March 15. Increasingly, we spent more time on hold than we did speaking to operators. We started to get the impression that we were purposefully being ignored in hopes that we would go away. When it got to the point that operators would say, “I’ve got your file pulled up here, please hold while I take a moment to review it,” and then never come back, we decided a face-to-face meeting was necessary.
We went to the HUD offices in downtown Denver on the morning of March 15. Initially, we met with a young man who was “acting” in his boss’ position. After explaining that over three years had passed since our foreclosure, but the bank’s conveyance of the property to HUD was a year late, a violation of HUD guidelines, he disappeared upstairs. Ostensibly, this was to consult with someone with more authority. When he returned, he was joined by another young man who also patiently listened to our explanation and reviewed our paperwork. Eventually, they admitted we had a point, but said that the regional office in Denver was unable to do anything about it. So, I suggested we call the National Servicing Center where the database was maintained. We were on speaker phone when the operator told us that we were correct: The bank had failed to meet HUD guidelines in conveying the property to HUD in a reasonable amount of time.
Then, she said something that confirmed my worst fears about government bureaucracies: “Well, it’s a guideline, but it’s not really a guideline.” The HUD employees at the table with us actually dropped their eyes in shame.
The phone call ended and a superior came down to the conference room to retrieve the two employees we had already spoken to. To their credit, the gentlemen already at the table pressed our case with the new woman and promised to initiate a formal inquiry within HUD’s grievance system. Though, both of them admitted they had never seen a formal grievance produce any results.
When we walked out, we were frustrated, and to be honest, heartbroken that we would still have to wait several months to be eligible for a new loan. We had already lost one property and the market was starting to bounce back—the properties in our price range were disappearing within hours of being listed, sometimes with multiple offers over asking price. Soon, properties that were big enough for our family would be out of our price range again.
When we left, we had no real plan, but, we called the HUD office from the car to get the names of the people we had just met with. The operator told us he had been instructed to tell us no one was available to meet with us. Far from being a resource we could turn to, HUD was now part of the problem. It was infuriating.
“Oh that’s fine. Just give them the message that we’re going to file a complaint against them with our congressman,” my wife, Amy, said.
The operator whispered back, “That’s exactly what you need to do. I couldn’t tell you when you were here, but that’s the best thing that you can do.”
So we drove straight to Congressman Ed Perlmutter’s office in Golden, Colo. to meet with a member of his constituent services staff. We explained the situation to her and she initiated a congressional inquiry that day, March 15, 2013.
Not knowing if this last, final effort could be effective, we all but stopped looking for a house. For two weeks, we were in limbo. Almost on a whim, went to look at another house that had been languishing on the MLS for over a month. It turned out to be an even better option than the first house we lost, and in an even better neighborhood. It made the pain of the CAIVRS issue seem even more acute.
A week later, three weeks after the congressional inquiry was initiated, we received word from the Congressman’s office that they had heard back from HUD. The final decision, which was reviewed by four HUD officials, was that the bank had indeed failed to follow HUD guidelines. Officially, the bank had until December 2009 to convey the property to HUD. By that measure, our CAIVRS report should have been dropped by December 2012. Since the bank’s actions were beyond our control, HUD suppressed our CAIVRS report effective March 27, 2013.
Finally, we were able to move forward. We closed on the second house on May 20 and have been enjoying our new home ever since. We are deeply grateful for the Congressman’s help in resolving this, and are happy to share our story since there may be many people out there who have similarly been harmed by lenders who ignored or skirted HUD guidelines during the foreclosure crisis. Also, we felt at points in our journey, HUD’s refusal to act on an obvious mistake made them just as much part of the problem, and, were it not for the leverage of a congressional inquiry, this issue may not have been fixed at all.
Adam P. Smith is president of Greenwood, Colo.-based The Colorado Real Estate Finance Group Inc. He may be reached by phone at (866) 423-0564 or e-mail [email protected]