NMP - April 2017 - 54

The Long
& Short

The Business of Short Sales

Drill Down on Short Sale and Modification Credit
BY PAM MARRON

ecently, a joint
effort of the
mortgage and the
housing
counseling
industries to
remedy continued credit
problems of past short sellers
who continue to receive a
foreclosure credit code on their
past short sale credit was
investigated. While reviewing
data, it was learned that this
same credit code problem also
affects consumers who have had
a modification. The foreclosure
code problem seems to be
present when mortgage lates go
past 120 days, a trait present in
many short sales and
modifications. But we were
stunned when the foreclosure
credit code also showed up on a
consumer who had excessive
mortgage lates ... but no short
sale, foreclosure or modification.
To prove the data found, nine
cases including short sales, a
modification, a Deed in Lieu and
one where none of these existed
were set up in the same format.
A tri-merged credit report was
pulled for each and a visual of
the problem credit trade line was
provided, as well as a snapshot
of the individual bureau
repositories of Experian,
TransUnion and Equifax.

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APRIL 2017 n National Mortgage Professional Magazine n

NationalMortgageProfessional.com

54

Fannie Mae
All cases were run through the
Fannie Mae Desktop Originator
(DO) automated underwriting
system (AUS) with the tri-merged
credit report. A visual of the
findings for an approval or
declination and what the blended
tri-merged credit in Fannie Mae

looks like was provided.
The Fannie Mae workaround
was used for loans that received
a Desktop Originator Refer with
Caution and it worked ... even on
the modification.
There is no workaround for
Freddie Mac.
Freddie Mac
For Freddie Mac, cases were run
through the Loan Prospector
Advisor (LPA) first with the lender
tri-merged credit report. Then,
the case was run again using the
credit in-file option allowed
internally through Freddie Mac's
LPA. A snapshot of Freddie
Mac's tri-merged credit and the
separate credit in-files was
included.
Here is what was found in
Freddie Mac:
l There is no variation for
foreclosure verbiage. Either
"13. Recent foreclosure/signif
derog appears on credit
report" appears in findings, or
it does not.
Other remarks are often
included:
l "64. Crdt rpt w/recent mtg
delinq or review mtg credit
history"
l "YW. The borrower has had a
foreclosure within the last
seven years. The mortgage
file must also contain
evidence of the completion of
the foreclosure."
Number of consumers at risk
Thanks to RealtyTrac (now
ATTOM Data Solutions), it was
learned that there were 1,978,754
short sales and deeds in lieu

completed from Jan. 1, 2010
through Dec. 31, 2016.
The wait timeframe after a
short sale or deed-in-lieu is four
years, rather than the seven-year
wait timeframe after a
foreclosure.
Thus, as of Dec. 31, 2016,
1,032,211 of those with a past
short sale or deed-in-lieu are
past the four-year wait timeframe
and are now eligible to re-enter
the housing market. Any of these
clients and additionally those
who had a modification or who
had mortgage lates past 120
days will most likely encounter a
new mortgage denial for a Fannie
Mae or Freddie Mac conventional
mortgage.
We haven't even looked at the
number of modifications affected
yet.
How problems continue
A conventional mortgage denial
occurs when the automated
underwriting system reads credit
code of a past short sale as a
foreclosure. When the lender
calls Freddie Mac or Fannie Mae,
support tells the lender that the
information is coming from one
or more of the bureaus
(TransUnion, Experian or
Equifax). Ultimately, the
consumer is told they must get
the credit fixed with the bureau(s)
where the foreclosure code is

coming from, though Fannie Mae
has a workaround for this
problem.
The borrower tries to get this
fixed by placing a "dispute" on
the account. The "dispute" hides
the actual credit from Fannie Mae
and Freddie Mac automated
systems and must be lifted from
the credit when the consumer
applies for a new mortgage.
When the dispute is lifted, the
problem credit comes back and
most often credit scores
plummet. This results in a higher
rate for the consumer and the
lender must pay for a Rapid
Rescore, the quickest way for
consumers to get a credit score
change. This is a big problem
when found during a contract
with a deadline. Lenders that end
up paying for the Rapid Rescore
often do not want to assist
consumers where this problem is
anticipated due to the cost the
lender must incur.
Another problem is the "Date
Reported," or a more recent
change to an account than the
initial occurrence date. The more
recent date often exempts a past
short seller from a new
conventional mortgage when it
falls within the minimum required
wait timeframe. This date cannot
be changed per credit reporting
agencies.
Stay tuned.

Pam Marron (NMLS#: 246438) is senior loan originator
with Innovative Mortgage Services Inc. (NMLS#: 250769)
in Tampa Bay, Fla. She may be reached by phone at (727)
375-8986, e-mail Pam.M.Marron@gmail.com or visit
HousingCrisisStories.com, CloseWithPam.com or
8Problems.com.


http://www.NationalMortgageProfessional.com http://www.HousingCrisisStories.com http://www.CloseWithPam.com http://www.8Problems.com

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