Past short sellers who are now eligible to re-enter the housing market again are stunned to learn that their past short sale is credit coded as a foreclosure. The problem is typically seen for the first time in both Fannie Mae and Freddie Mac automated underwriting systems (AUS). Fannie Mae's Desktop Underwriter (DU)/Originator (DO) notates in the findings which account is flagged as a foreclosure. Freddie Mac's Loan Prospector (LP) system that was presumed to provide an automated approval four years after the short sale does not, and the LP findings do not notate the specific account, only stating "significant derogatory/foreclosure" in their findings.
Additionally, when more than one mortgage existed for the short sale account in question, it is not uncommon to see one or both of the two mortgages listed with an adverse foreclosure comment. Also, the "date reported" is causing added conflict, showing up as a more current date within the last 24 months after the date of the short sale when the short sale is disputed or when a deficiency required by the short sale lender is paid off. Costly rapid rescores don't seem to help.
On Nov. 16, 2013, Fannie Mae was supposed to make changes within their automated system that would allow lenders to alert the Fannie Mae DU/DO systems that the foreclosure code was an error and to gain entry to make a correction. Instead, the Fannie Mae system must see the error first and then provide a message giving entry to make the change to the lender. This fix has frustrated hundreds of lenders who are attempting to provide new conventional mortgages for past short sellers now coming back into the housing market.
Here are two fixes found by accident that appear to be working. Try both as soon as the foreclosure code for a past short sale is found. You will need to have the short sale HUD-1, the short sale approval letter(s) from the lender(s), and the paid off letter for any deficiencies where payments were made to the short sale lender after the short sale.
First, go to the Consumer Financial Protection Bureau (CFPB) Web site at www.CFPB.gov and file a complaint. This is a computer generated complaint and a resolution is typically sent back to the consumer via e-mail within 15 days. However, if the lender was a credit union or a banking institution with less than $10 billion in assets, the CFPB will not be able to intervene, though where to go for help is given within their email upon resolution. This has been the quickest method of resolution, and dialogue can be reopened if the consumer is not satisfied. Also, there is a complaint phone number on the CFPB.gov website for those who still have questions.
Second, contact the short sale lender for a Lender Letter that specifically states when the short sale closed, and that the loan closed as a short sale and not a foreclosure. If there was a deficiency paid, a second letter will be needed for that account as well. Most lenders provide this letter through an "Executive Complaint Escalation Department" and getting that phone number from each lender can be tricky. This letter can take up to three weeks to receive and is sent directly to the past short seller.
Past short sellers should provide the emailed CFPB Complaint resolution and the Lender Letter to the new lender upon receipt, and the lender should pull a brand new credit report and then new findings from DU/DO or LP. Often, credit seen in raw data after these two processes appears to be downgraded, resulting often but not always in a loan approval.
If an "Approve/Ineligible" appears on a Fannie Mae finding, it can also be from the "date reported" showing within the past 24 months. Credit reporting agencies with the Sharper Lending platform seem to have remedied this specific problem, so check with your credit agencies.
For specific directions on the CFPB Complaint and the Lender Letter, please visit http://closewithpam.com/ and click on each fix under “Short Sale Credit Fixes.”
Pam Marron is senior loan officer with Innovative Mortgage Services Inc. She may be reached by phone at (727) 375-8986 or e-mail
[email protected].
