Interface error, keeping good buyers out of homes
One of the major repositories and desktop underwriting have a problem. The are not passing information back and forth. Here is how it plays out . You get a borrower that had a short sale in the last few years and the loan officer will will provide a pre-approval letter, the bower will go out and find a home, then the loan officer will submit the deal to Fannie”s desktop underwriting and it will suddenly show up as a foreclosure with out ever having anything indicating a foreclosure on the credit report. why is this happening? watch now to find out why. . IT starting to show up, on a more frequent basis and Here is what is happening.
1 The buyer has a short sale and waits 2-3 years to get back in the “mortgage pool”
2 They go to a loan officer and a credit report is accessed.
3 The report indicates the account was settled for “less than full balance” and normally would show a $0 balance.
4 The Loan Officer reports back to the borrower/ Realtor the they look good at this point, and tell the borrower and realtor to go ahead and look for a home.
5 They find a house and the LO submits the loan to Fannie and BOOM! That short sale is now listed as a foreclosure and they cannot close the loan……………
6 Unless the original creditor(the one that was shorted) would agree to providing a letter that said “paid in full” period. Not “settled for less” not “Zero balance settled” not “paid in full, settled” Just “PAID IN FULL”.
7 As you can imagine this is a rather difficult document to obtain, some have, many have not and simply give up.
As you know all credit accounts have a two digit code associated with it.
00 – Too new
01 – As Agreed
02 – 30 days late or current was 30 days late
03 – 60 days late or current was 60 days late
04- 90 days late or current was 90 days late
05- 120 days late or current was 120 days late
06 – Settled
07- Wage earner plan
09- Charge off or Foreclosure
What is happening is the bank is correctly reporting the short sale as a 06 – settled and Fannie is reading that and making it a 09 and rejecting the loan based on a foreclosure. The only way to remedy this is to go to manual underwriting or try, beg or plead to get the bank to give you a letter like described above. It started out with just one of the three bureaus but now I am starting to see it across all three.
Just last week, a Loan Officer call me on a borrower that he had refinanced two years ago with the short sale and now could not because of this issue… he even tried another credit bureau and he got the same error.