Unintended Consequences???? It would seem that this is another case where the real world is undermining what was hoped to be a way to help those that were hurt by our economy. I sent the following to HUD (answers@HUD.gov) and am waiting to see if this issue receives any attention. Wish me luck.
I am attempting to obtain clarification for what appears to be an unintended consequence relating to interpretation of ML13-26.
FACTS - Homeowner has a drop in income that meets the “back to work” criteria. In April, 2011 his Chapter 7 BK is recorded and his primary residence mortgage is discharged. For the protection of the lender, the homeowner was allowed to remain in the home and continued to pay utilities and maintenance. The lender paid real estate taxes and insurance. Foreclosure has not yet taken place and homeowner remains on title. It is expected that the foreclosure date will be April 2014 and at that time the homeowner will be required to vacate the home.
QUESTION: If the purpose of the program ("Back to Work ML13 – 26) is to allow a homeowner to purchase a home three years after an “economic event” that resulted in “foreclosure, short sale, bankruptcy or other negative impact…” then should not the clock start with the date of the first legal action (BK) resulting from the negative impact rather than the last (foreclosure). Because the foreclosure date is controlled by the lender and not the homeowner, the homeowner will be waiting 6 years to take advantage of a program that was designed to allow them to purchase after three years. This appears to be another case of “unintended consequences.”
RECOMMENDED CLARIFICATION: I am suggesting that the program guidance indicate that the waiting period should be three years from the first of related negative impacts to avoid actions by a lender to undermine the purpose of this program.
“ML 13-26 - Applicability
Lenders must use the provisions of this ML when considering a borrower who experienced an Economic Event, as defined in this ML, which resulted in a foreclosure, short sale, bankruptcy or other negative impact on their credit, and whose application has been issued a “Refer” recommendation by TOTAL Scorecard, or received an “Accept/Approve” but is manually downgraded.”
Your assistance would be appreciated.