Ability to Purchase After A Short Sale: Update

Now that several years have passed since many of the first short sales have been consummated, many homeowners, who went through a short sale desire to get back into a home and take advantage of the great buying opportunity which exists right now. Every day lenders receive requests from both agents and their clients to determine the eligibility to purchase again. The most often stated re-approval terms, if late mortgage payments existed at time of sale, are a 2 year wait when financing conventional with 20% down and a 4 year wait with 10% down. It is a 3 year wait with FHA which is 3.5% down. As it turns out, it is not that cut and dry like we all thought. As we work through individual case files we have uncovered a serious defect to the system that is causing havoc to the process. Credit reporting with the bureaus does not truly reflect the terms of the escrow the seller really went through. Here is what I mean and the actual guidelines from Fannie Mae are posted below for you to examine. A short sale is known by Fannie Mae as a pre-foreclosure in all of their guides. DU is Desktop Underwriter which is the proprietary underwriting system of Fannie Mae. In order to sell a loan to Fannie Mae the case file of the borrower must be entered into DU in order to receive a finding of an “accept” or approval. A “refer” means there is a problem. Now, here is the real issue. When the short sale lender reports to the credit bureaus that a short sale has taken place, the bureaus report it as a pre-foreclose, an 8 or 9 to the seller’s credit files. When we run the credit years later and then run a DU, we are receiving “refers” because the system says it is a foreclosure and not eligible to have an approval as the waiting period should be 7 years, the waiting period for a foreclosure. We contact the bureaus and say we have paperwork that shows the previous bank’s written authorization for a short sale as well as a HUD closing statement to back our claim. The credit bureaus will not change the information in their systems because…..a short sale is a pre-foreclosure which is a form of….foreclosure. As you will see below, Fannie Mae guidelines state the lenders must manually apply the pre-foreclosure sale requirements. Perfect a solution. No it’s not. Why? Because the investors will not buy the loans unless there is a “DU ACCEPT!” Pre-foreclosure Sales or Short Sales • DU is not able to identify pre-foreclosure or short sales in the credit report data. Lenders must manually apply the pre-foreclosure sale requirements to DU loan case files, regardless of the underwriting recommendation received from DU. • DU will issue a message on loan case files where the borrower's credit report indicates an account may have been released to a pre-foreclosure sale. The recommendation on the loan case file will not be changed when this information appears on the credit report, though as stated above, the lender must ensure the loan complies with all other requirements specific to pre-foreclosure sales as specified in B3-5.3-07, Significant Derogatory Credit Events — Waiting Periods and Reestablishing Credit.. DU applies the following guidelines to prior foreclosures: • Mortgage accounts, including first liens, second liens, home improvement loans, HELOCs, and mobile home loans, will be identified as a foreclosure if there is a current status or manner of payment/MOP code of “8” (foreclosure) or “9” (collection or charge-off). This issue is just now coming to light and as I suspect, will grow large enough creating awareness to Fannie Mae to adapt new procedures so new potential homebuyers are not shut out improperly. Personally, I intend to elevate this as much as possible and as frequently as possible to help keep it on the radar. My advice to all is to make sure any person wanting to purchase again after going through a short sale, get fully approved through DU prior to writing any offers to purchase a home.

Foreclosure Stats

The number of new foreclosure filings fell below 200,000 for only the second time in more than four years. California was responsible for more than half of the latest improvement. Meanwhile, Boston saw a major increase in new filings. Residential loan servicers filed foreclosure notices on 188,780 properties during April. Filings include default notices, scheduled auctions and repossessions. The last time foreclosures were this low was in July 2007, when 179,599 U.S. properties were hit with a filing. A month earlier, filings were made on 198,853 properties, according to RealtyTrac, which provided the report based on data from 2,200 U.S. counties. The total was 219,258 a year earlier. Year-to-date foreclosure filings totaled 761,708, though some properties might have faced filings in more than one month. More than half of last month's improvement was out of California, where the total tumbled to 39,008 from March's 45,122. Still, the Golden State had more foreclosures than any other state. "Rising foreclosure activity in many state and local markets in April was masked at the national level by sizable decreases in hard-hit foreclosure states like California, Arizona and Nevada," RealtyTrac Chief Executive Officer Brandon Moore said in the report. "Those three states, and several other non-judicial foreclosure states like them, more efficiently processed foreclosures last year, resulting in fewer catch-up foreclosures this year." Moore abandoned his usual warnings that suggest a foreclosure tsunami is ahead. Among the 20 biggest metropolitan statistical areas, Phoenix saw a 23 percent decline from March, the biggest improvement of any city. At the other end of the spectrum was Boston, where filings skyrocketed 47 percent. One foreclosure was filed in April for each 698 U.S. housing units. The rate was better than one-in-662 the prior month and one-in-593 in the same month the prior year. With a foreclosure filed on each 300 housing units, Nevada grabbed the title of the state with the worst foreclosure rate. At one-in-351, California had the second-worst rate -- though the rate improved from one-in-303 a month earlier. The Golden State was home to the Riverside-San Bernardino MSA, where the one-in-213 foreclosure rate was the worst among major MSAs. The next-worst state was Florida, with a one-in-364 rate, then Arizona's one-in-377 rate and Georgia's one-in-398 rate. The trio was home to the MSAs with the next-worst rates: Miami's one-in-273, Atlanta's one-in-298 and Phoenix's one-in-313. Tampa's one-in-315 rate was the fifth-worst of any area.

Interesting Statistics...FYI

I came across some interesting statistics on the economy and homeownership in particular. In January 2012 the average mortgage interest rate was 3.9%, which is an awesome rate. The interesting part of this statistic is that according to the 2012 UCLA Anderson Forecast, the expected average mortgage interest rate is expected to be 7.3% within two years. If that is not a motivating factor to try to jump into this housing market, I don't know what is. This change in interest rate will be gradual, but what that does to your monthly payment would be to increase it by $1,000 per month. This is based on the current median sales price. I don't know too many people that can handle an increase of $1,000 per month to their overhead over the course of two years. By purchasing at today's lower interest rates with the reduced prices of homes, that would amount to a savings of $345,000 over the course of a thirty-year fixed-rate loan.