NMP - July 2018 - 38

Addressing Post-Housing
Crisis Issues

How Sen. Nelson Helped Fix the Housing Market
BY PAM MARRON
n 2013, U.S. Senator Bill
Nelson (D-FL) did something
that helped 7.1 million
consumers who had lost
their home in a short sale.
An erroneous foreclosure
code was being applied to the
credit of past short sellers and,
instead of the two-year wait (now
four years) to get a new mortgage,
the foreclosure code resulted in a
seven-year wait before a
conventional mortgage could be
obtained.
There is a difference between a
short sale and a foreclosure.
On a short sale, the negative
equity homeowner agrees to work
with their mortgage holder to sell a
home where the amount of the
mortgage owed is greater than
what the home can sell for. To be
approved for a short sale, the
homeowner must prove an
acceptable hardship as the reason
to sell the home.
On a foreclosure, the
homeowner either cannot prove a
hardship for a short sale or they
simply stopped paying and walked
away from the property.
During the housing crisis, nearly
all lenders required mortgage
delinquency in order to be
considered for a short sale.
Consumers who had an
acceptable hardship, but were
determined to stay current on their
mortgage throughout the short
sale process, were sent a denial
letter with the reason for denial left
blank.
For both a short sale or a
foreclosure, after 120 days of
mortgage delinquency, the
foreclosure credit code is applied.

I
JULY 2018 n National Mortgage Professional Magazine n

NationalMortgageProfessional.com

38

This is not apparent on the face of
a tri-merged credit report. Where
the foreclosure code stems from
can be visibly evaluated when the
three credit bureau(s) of Experian,
Equifax and TransUnion are
individually shown. Meridian Link,
a platform available through many
credit reporting agencies, can
show this data. The Fannie Mae
Desktop automated system also
specifies which account shows as
a foreclosure. The Freddie Mac
Loan Product Advisor automated
system specifies that a
foreclosure exists, does not name
the foreclosure account, but does
separate the three bureaus to
research individual payment
history.
Efforts to get this error fixed
were taken to the highest levels of
the lending industry. Off the
record, many were convinced that
affected consumers were
"strategically defaulting," and
there was little desire to fix this
issue.
It's no picnic going through a
short sale. In October 2015, the
working paper "Can't Pay or Won't
Pay? Unemployment, Negative
Equity, and Strategic Default"
found that ... job loss and adverse
financial shocks ... and
households that experience
divorce, report large outstanding
medical expenses, or have had
any other severe income loss are
much more likely to default.1
Letters of hardship often
chronicled that homeowners
waited too long, wiping out
savings and retirement funds while
waiting for home values to
recover.

Legislators in nine of the
hardest hit states, the U.S.
Treasury and the CFPB were all
visited about the foreclosure code
error. But, U.S. Sen. Bill Nelson's
office pushed for a solution and he
personally took the issue to a
senate meeting on May 7th, 2013
questioning the CFPB and the
Consumer Data Industry
Association (CDIA) on why this
credit code issue existed and that
it was hampering eligible
consumers from re-entering the
housing market. Sen. Bill Nelson
then worked with the CFPB and
Fannie Mae and a workaround
was initially put in place in
November 2013 and fine-tuned
again in August 2014.
Confirmation of the foreclosure
credit code placed on short sale
credit was explained by attorney
Chi Chi Wu with National
Consumer Law in her paper
"Solving the Credit Conundrum:
Helping Consumers' Credit
Records Impaired by the
Foreclosure Crisis and Great
Recession"2.
Attorney Wu cited ...

Reporting short sales as
foreclosures: This error is caused
because there is no specific code
in the standardized format for
credit reporting (called the "Metro
2 format") for a short sale. Instead,
a short sale is reported under the
Metro 2 format as a loan that is
"settled for less than full amount,"
and in many cases also as
"foreclosure started."
For over seven million past
homeowners who have had a past
short sale, for loan originators,
lenders and the real estate
industry ... U.S. Sen. Bill Nelson is
owed immense gratitude for
realizing this problem existed and
for pushing hard for a fix to a
problem that was keeping eligible
consumers out of the housing
market. That's what we expect our
public officials to do.
Thank you, U.S. Sen. Bill Nelson!
Disclaimer: While I am a
member of the HUD Housing
Counseling Federal Advisory
Committee, the opinions noted
are those of the authors only.

Footnotes
1-Can't Pay or Won't Pay? Unemployment, Negative Equity, and Strategic Default.
Kristopher Gerardi, Kyle F. Herkenhoff, Lee E. Ohanian, Paul S. Willen. October 2015:
BostonFed.org/Publications/Research-Department-Working-Paper/2015/Cant-Pay-orWont-Pay-Unemployment-Negative-Equity-and-Strategic-Default.aspx.
2-"Solving the Credit Conundrum: Helping Consumers' Credit Records Impaired by
the Foreclosure Crisis and Great Recession." December 2013. Chi Chi Wu. Page 7.
Https://www.nclc.org/images/pdf/credit_reports/report-credit-conundrum-2013.pdf.

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) 3758986, e-mail PMarron@InnovativeMortgage.onmicrosoft.com
or visit HousingCrisisStories.com, CloseWithPam.com or
8Problems.com.


http://www.NationalMortgageProfessional.com http://www.BostonFed.org/Publications/Research-Department-Working-Paper/2015/Cant-Pay-or-Wont-Pay-Unemployment-Negative-Equity-and-Strategic-Default.aspx Https://www.nclc.org/images/pdf/credit_reports/report-credit-conundrum-2013.pdf http://www.HousingCrisisStories.com http://www.CloseWithPam.com http://www.8Problems.com

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