In the February 2013 issue of National Mortgage Professional Magazine, my column focused on the troubles encountered by consumers who had a short sale transaction more than two years ago when trying to re-enter the housing market. These are consumers not with totally shattered credit histories, but consumers who had FICO scores above the required threshold and meet the rules for homeownership after the short sale. Some had little to no bad credit other than the troubled mortgage account represented by the short sale transaction; however, they were still being denied.
That article was written in the middle of a campaign to understand and resolve these problems, with the help of a tireless Florida mortgage broker Pam Marron (who is quoted in the February article) and several National Credit Reporting Association (NCRA) members who took to the streets of Washington, D.C. in June of 2013 to continue to highlight this problem that was brought to the Senate Commerce Committee’s attention by Sen. Bill Nelson of Florida. I got the pleasure of working with Pam and the staff of Sen. Nelson’s office on several occasions. Also paramount to this story is the help of some members of the federal government, most notably, Brian Webster at the Consumer Financial Protection Bureau (CFPB). Thanks to all of these individuals, this problem was resolved the week of Nov. 16 when Fannie Mae made changes to the DO/DU system.
These changes were announced by Fannie Mae on Aug. 22, 2013 in the DO/DU Release Notes Version 9.1. This update will include a feature to allow lenders to overriding the credit code used by the national credit repositories and mortgage servicers that is causing the loan to be denied as reported in the February 2013 article. To get these short sales, shown as Deed in Lieu (DIL) and Pre-Foreclosure Sale (PFS), approved loan originators will need to work with the mortgage credit reporting agency to assist the borrowers in obtaining a new loan in an appropriate timeframe. The change will allow DU to disregard the foreclosure information on the credit report when instructed to do so by the lender on the online loan application.
To make this change, you need two things. First, the consumer with the past short sell needs to have proof of the past short sale available (commonly received from the listing real estate agent) and a HUD 1 Closing Statement to show the date of the short sale (both of which can be often received from the real estate agent or title company that handled the short sale) and provide those to the lender.
Next the lender should run the DU and get the finding. If a reject comes up, Shown as a “Refer With Caution,” go back into the loan application (URLA form 1003). When DU identifies a foreclosure on a credit report, find the trade line that appears to be one that shows the DIL or PFS. Then, you must instruct DU to disregard the foreclosure information on the credit report by entering “Confirmed CR DIL" or “Confirmed CR PFS" in the explanation field for Question C. This is the declarations section of the online loan application. You can then resubmit the loan case file to DU, which will read this indication and override the foreclosure information on the credit report represented by the DIL or PFS trade line and the remarks code associated with it.
After thee corrections are made and the lender has rerun Desktop Underwriter the “Refer With Caution” should be replaced with an approval and the consumer will be back on track for homeownership.
For questions regarding the support of this field by a lender’s loan origination system, lenders should contact their technical support team, and may also contact their Fannie Mae Account Team for additional assistance or follow the links below for access to supporting documents for this story.
►February 2013 article from National Mortgage Professional Magazine:
►Fannie Mae’s DO/DU release notes.
►A media release from Sen. Bill Nelson.
►A video presenting the short seller’s account his problems trying to get back into a home.
Terry W. Clemans is executive director of the National Consumer Reporting Association (NCRA). He may be reached at (630) 539-1525 or e-mail [email protected]