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Questions For You Mortgage Brokers Out There! Is This The Luck of The Draw?

Have any of you done a loan for a customer who has been through a short sale?

Have any of you seen a credit report of someone who has already been through a short sale?

I am not talking about the ones in foreclosure, that is obvious their credit will reflect the foreclosure, I am talking about those who have no foreclosure filed against their credit.

Does anyone know exactly if there are specific guidelines set for those who have a short sale on their record with getting an FHA loan and a conventional loan?

I went on the FHA guidelines on line and only could find things involving a foreclosure. Are they looking at a short sale as foreclosure for lending guidelines?

We have clients who have completed short sales with the short sale lender giving them a fully satisfied mortgage paid off letter at the closing. Does any lender have experience with getting someone like this a home loan after?

We have clients who have not missed a payment and have no late mortgage payment history and still completed a short sale, what will their credit report show?

This is all new territory for lenders and credit reporting agencies and I am getting different answers from different lenders. I would like to know if this is a crap shoot, luck of the draw, the wild west or are there specific rules and guidelines?

We have heard for short sales it is one year for FHA before they can get a home loan but on the site I can not find that information? I need some evidence. FHA guidelines say for a foreclosure if it is less than 3 years there needs to be extenuating circumstances that have to be verified. But not the word short sale in any of the reading I could find.

If you do actually have experience and have the guidelines please share with me your experience and findings. Please don't guess; I can do that!

Thanks! Happy Easter!

Posted by Nestor & Katerina Gasset Realtors® Wellington Florida Luxury Homes on 03/21/2008 03:46 PM

Comments (24)

short sales in palm beach county, short sales, wellington florida short sales, mortgage advice, mortgage question

Originally posted at: South Florida Real Estate and...: Questions For You Mortgage Brokers Out There! Is This The Luck of The Draw?

Post is included in group: Realtors®
Post is included in group: All Things Florida
Post is included in group: Dedicated Bloggers
Post is included in group: PALM BEACH COUNTY SHORT SALES
Post is included in group: The Ninety-ninth Percentile

24 Comments on Questions For You Mortgage Brokers Out There! Is This The Luck of The Draw?

MAR

2008

I rarely check to recieve emal updates to comments, but this will be an exception. I look forward to learning the answer(s).

Katerina ~ Interesting that you have lenders, or a lender, that allowed your clients to sell short. In my modest short sale experience, the lenders did not want discuss the short payoff unless there was at least one 30-day late.

Happy Easter to you, too!

It seems self defeating not to have a penalty period or everyone would do it when they didn't have any equity.

Katerina, No, I have not seen a credit report for someone that has gone thru a short sale. If the sale was approved and close, there must be something on the report. I have heard stories about people buying a second home and then walking away from the first or using thier spouse if they were not on the orginal house. I also would like to know. AJ

MAR

2008

You have asked some very good questions. I will be watching to see if you get some very good answers.

Margaret- I may have to post this again at the beginning of a week on a weekday as it looks like the mortgage brokers may not be on til Monday.

Marzena- We have all kinds of lenders with all kinds of different rules and protocol. It is a shame that some lenders will not entertain short sales unless their borrower is at least 30 days late; a true shame. Pres. Bush asked all the lenders if they could please work with those people who are trying to do what is right and instead the lenders punish the ones who work 3 jobs to pay their mortgage and care about their credit and bail out those who are in foreclosure, don't pay and don't care. That is the shame. But we have found a few lenders who are working with us even though the sellers are paying their mortgage.

Gayle- I understand your point. But for some it is not about that. We have one client who tried to get their payment reduced. It went up from $2200 a month to $3800 all at one time! She did not understand nor was it disclosed to her how much the payment would go up. She pays but works 3 jobs to do so. They will not readjust her interest, like they should. Her only choice is to get sick and not take care of her kids to keep on making these payments or do a short sale and buy a house that will have a fixed rate with a payment of 2200 again.

AJ- I know people who buy their second house and then do a short on the first house or just let it go. But I don't see how they are qualifying unless they are renting out the first house and most of those leases are fake which is then mortgage fraud. But we have someone who is doing the short sale and was not late, so their credit will not show any lates. But what will it show? There is not credit reporting listing for short sale but if the lender gives you a full and satisfied statement like we get for our clients, then does that mean they turn around and report that it was paid less than owed?

I would love to see a credit report to see what it says!

Richard- They are not answering! Maybe no one knows or maybe I need to list this again during the weekday so more mortgage brokers will see it and answer.

Katerina - I came to your blog for the daily learning and didn't see this post until now. FHA guidelines are pretty cut and dry. Foreclosure and deed/title in lieu of foreclosure will knock a person out for 3 years as well as a notice of default. If the short sale agreement from the lender references deed in lieu then the owners will be knocked out for the sidelined period.

On the other hand, if the bank agrees to take less than the principal balance, and none of the above is triggered, there will be no seasoning period required since a settlement was reached.

If there were late payments on the mortgage during the process, no waiting period other than the amount of time the "black box" automated underwriting system requires in order to issue an approval. Depending on the whole credit profile, 30 or 60 day lates in the last six months do not automatically disqualify a borrower.

I will warn that these are what the guidelines state and that I have not encountered a situation whereby a recent short seller wanted to purchase. There are no instances in the 1003 (loan application), the HUD Addendum to the 1003 nor the federal and state disclosures that ask anything other than, "Have you ever had a foreclosure or deed/title in lieu of foreclosure or judgment associated with a loan?" If answered as no, the truth was given and no fraud was committed.

Mark- That is the same thought wave that I am on. I still would love to know exactly what a credit report says in this situation where there are no lates and the lender gives us the fully satisfied status on the note.

Thanks so much for your detailed remarks. As long as there is no foreclosure or deficiency judgment against them I agree with your statement.

MAR

2008

Katerina - It is a shame that some lenders won't work with home owners until they are late. I hope that the current situation will lead to a major change in the policies and guidelines that are more consumer friendly.

MAR

2008

Katerina, FHA will probably be addressing this in detail very soon because so many shart sales have taken place. A deed in lieu has been perceived as a foreclosure in the past, so the short sale will probably also be so perceived.

The CRAs will not tell us how they intend to "score" short sales, but lenders will want to know so we can "expect" them to be treated the same as foreclosures. We will only "know" this by reading between the lines. They WILL NOT tell us.

Bill Roberts

Kat..I was just told by "My" FHA expert that short sales are considered in the same line as Foreclosures and Bankruptcy..........cant have one for 2 years....2 years from when I asked????not sure about that

C ya

this is a crap shoot.

it will depend on the lender. the note is not paid as agreed and will probably state settle for less the the balance.

i have seen one. the applicant was treated like it was a foreclosure.

APR

2008

ALL, and I mean ALL mortgage lenders will defer to Fannie and Freddie and Ginnie. A short sale is synonomous with a foreclosure regardless, just as credit counseling is synonomous with a Ch. 13.

4 yrs for conventional; 3 yrs for FHA.

For more info: mortgageplanner@247refi.com

APR

2008

Mike- Our attorney just did a deal with a short sale where an FHA underwriter told him that with a short sale you have to wait only one year.

MAY

2008

i went through a short sale and my lenders placed on my credit paid in full but settle for less than owed. The short sale was just a bad as a foreclosure, it dropped my credit score about 70-100 points. I also was told that after doing a short sale (by my agent) that one year after the short sale I could purchase another home. Well guess what, that is totally untrue. I have to wait for 2 years because FHA has placed a hold on us for two years. They will allow you to purchase another home through FHA after 2 years of a short sale. It is like the last writer said a short sale is just as bad as a foreclosure.

MAY

2008

Tara- Thank you for telling your story here. A short sale does drop your credit score by 70-100 points. Were you behind on any of your payments? Being behind on your payments will affect your credit score too so even if you get a settled in full, your credit will be affected by the late payments. If you go 90 days without making a payment than the credit score will be just as bad as a foreclosure.

2 years for an FHA loan coming out of a short sale is good. Because with a foreclosure it will be even longer. It is still better that you went through a short sale because FHA does accept explanaitions and you can explain how you were responsible enough to do a short sale instead of letting your home be a foreclosure.

JUL

2008

Did you every get the answer to this. I am going thur one right now I have submitted to underwriting. The credit scores are conventional. Client got a job in another city have to sale home Home is a decling market. Short Sale the credit report read account settled for less the balance. Interest to see what the out come is going to be. Do you hold a borrower who has made his/her payment on time accountable for the market when you agree to take less then the account balance

Katerina,

If you have not asked the FHA Resource Center, I suggest that. Probably they will refer the question to the local Home Ownership Center, where it will be lost. But it is worth asking. I will ask for you if you like. Email me. I will forward the response.

My feelings are in line with Mark, but I think you are dealing with a crap shoot. The foreclosure will not show up in public records or in title. But if the lender reports settled for less than the balance, the lender underwriter will have to decide.

They will likely contact the HOC and get a finding. Underwriters have more ease of access to the HOC that us lowly LO's.

After asking the Resource Center, it might be a good idea to have a local LO to ask a preferred UW to get a finding.

Even with that, I bet you do not get a clear answer.

Crap shoot is probably right. You will know when all the documentation is submitted. The answer begins with the short sale lender's reporting.

Good luck.

Richard

Richard- But if the person is never late on a payment and does a short sale and gets the deed recorded as fully satisfied and has an acceptance letter that says this debt is paid and full and it is not on their credit report in any thing other than fully satisfied, paid in full; I would think they would have a pretty good argument that this should not be held against them. I think time will tell. THanks for your answer.

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