Settled 2nd - need lender for new mortgage

[jrice]

We were discharged over 2 years ago.
Applied for a VA Loan, everything looked great.

However, we had settled our 2nd earlier this year so that we could sell our current house.
It was not even on our credit report (not listed at all) but when the lender had Equifax call HSBC to update the info, they are reporting it at "charge off - settled in full". They claim that is legally how it must be reported.

So... our lender now will not approve our mortgage since they say a charge off (even if settled) is viewed as a short sale.

Any advice/recommendations on finding a lender to work with? We're supposed to close on May 7, all inspections are done, everything was fine with our credit, bank accounts, employment, etc... Final underwriting was the problem. We're in over $500 so far in inspections and such. Ugh!!!

[HHM]

It is not an issue with the lender. The guidelines are set by the VA guarantee program, so it is not a question of "finding a lender", you will have the same problem no matter where you go.

What you will need to do is dispute the credit report entry with the credit reporting agencies. Presumably, the 2nd mortgage was included in the BK and therefore should be reflected as IIB on the credit report.

However, I am not sure that will solve the problem. You still "settled" the 2nd mortgage and that is an adverse event from the perspective of the lender (the 2nd mortgage took a loss on the property). Granted, it is not "your" problem, the 2nd mortgage lender assumed the risk that the value of the collateral could decrease and it took a settlement. Unfortunately, underwriters at this point look for any reason NOT to lend.