A grassroots effort is defined as driven by the politics of a community. While some might interpret this as a literal community, as in where one lives, it can certainly be applied to a community of mortgage professionals, as well. Letter-writing, phone calling, campaigning, all are typically associated with a grassroots effort and all are important aspects of whatever movement is seeking attention.
Pam Marron and Terry W. Clemans have taken the grassroots approach in an effort to provide a solution for past short sale credit being erroneously coded as a foreclosure, resulting in a new mortgage denial for these past short sellers. Clemans, executive director of the National Consumer Reporting Association (NCRA), had met with Fannie Mae regarding the issue of short sales and the issue affecting one’s credit when he was introduced by a mutual colleague to Marron, who had been working on the same issue herself. They began talking about the issue and hammering out a plan of action almost immediately.
Enacting change at a government level is incredibly difficult. To see two industry professionals partner up to tackle an issue head-on is inspiring in a way that we don’t often see in the business.
“Initially, I was helping past short sellers re-enter the housing market when this problem came up,” Marron, a mortgage broker, said. “I had two past short sale customers who had the foreclosure on their credit rather than a short sale. That’s when we first found this problem. After months of investigating this, it was realized that lenders couldn’t change the code, because there wasn’t a specific short sale code in the credit reporting coding system called Metro2 and used by the national credit bureaus for documenting a consumer’s credit history. Almost every short sale was being interpreted as a foreclosure when applying for a new loan, and this was resulting in a mortgage denial.”
“This wasn’t the easiest thing to grasp initially because various underwriting systems were handling things differently,” Clemans said. “Part of the problem was the dual-tracking, where lenders proceed with loss mitigation and ultimately foreclosure at the same time the homeowner is proceeding with a short sale. The national bureaus will tell you they have existing short sale code, but they don’t, as the code was a foreclosure code recently designated to be used for short sales.”
Clemans continued, “There’s a specific code in Metro 2 for almost every possible circumstance relating to the consumer’s credit history. Each of the three national credit bureau’s codes have some slight variations of their specific Metro 2, but it mostly overlaps in the pages of all the codes. It’s crazy that there isn’t a specific short sale code, especially after the historic housing meltdown we experienced.”
Tackling Fannie Mae (or any government entity for that matter) head-on seems like an insurmountable effort. However, both Marron and Clemans did it.
“After loads of calls to Fannie Mae on this matter and an awareness of the problem being called in by many in our industry, Fannie Mae was very helpful with answering direct questions of where the problem originated from. We were trying to figure out if the problem was in the Fannie Mae automated system, or the problem stemmed from before it got there. I am convinced it is a blend of both, as I have run a single borrower through their system with three different credit reports from three different agencies, resulting in three different approval statuses.”
Even with this experience, Marron is confident in the implementation of the November 16th Fannie Mae “fix” which allows lenders to get the proof of the short sale, go into the system prior to running the automated underwriting, put in the correction as to whether it was a foreclosure or a short sale, then run the findings.
“The fix that the Consumer Financial Protection Bureau (CFPB) and Fannie Mae came up with is excellent, simply inserting ‘NO’ to a foreclosure and designating a code for why,” Marron said. “There will be glitches, and we are already seeing new problems with dates now, but this is a superb start to the solution.”
Marron and Clemans are quick to celebrate one another’s efforts in working with the CFPB and other government organizations in resolving this issue. Theirs is a remarkably true story of professionals finding a problem, pointing it out and affecting legitimate change.
“We wouldn’t have gotten this far if this had not been advanced to Terry by Renee Erickson, another NCRA Board member and my credit expert at Acranet. Terry and I visited the CFPB, the U.S. Treasury, Sen. Bill Nelson’s office and some of the other hardest-hit state offices initially. Then, we came back to Washington, D.C. with a group from NCRA who went to Capitol Hill and told legislators about this problem,” Marron said. “Connecting to the right group who knows where to take a problem next made all the difference in the world. Sen. Bill Nelson saw the number of people this was impacting in Florida alone, and passionately demanded a solution within 90 days! I have incredible respect for the CFPB, who kept this problem on track to the end and did not give up until a solution was found. All of us had the same goal: To help consumers who were getting hurt because of this glitch.”
Clemans further explained, “Initially, we believed the solution was for a new code to be added to the Metro 2 system specific for short sales. However, along the way, it was deemed that the easiest and quickest solution was for Fannie Mae to make the changes that others seemed to have figured out. Sometimes you have to compromise to get things accomplished and we were open to this as a good compromise to help consumer sooner rather than later.”
Robert Ottone is senior editor at National Mortgage Professional Magazine. He may be reached by phone at (516) 409-5555, ext. 314 or e-mail [email protected].
This article originally appeared in the November 2013 edition of National Mortgage Professional Magazine.
