More Input Please

[Ann]

Hi everyone!

I am in the process of hopefully getting pre approved for an FHA loan. I'm on pins and needles but I guess I'm just so anxious that I need some input here.

We settled on a second mortgage in October. This settlement was necessary since it removed the lien from our home and gave us back some equity. The mortgage broker I went to took my application and asked if the settlement was being reported. It is not. It just states it was included in the bankruptcy.

Would this be a problem when getting pre approved? Why would a settlement cause us to be denied? It's not a foreclosure and it's certainly no short sale since I will sell my home and pay off my mortgage with plenty of money left for a hefty down payment on our next.

We have steady employment, little debt which includes a car payment and have never ever been late since our discharge and will have that down payment so can anyone say what might be a problem getting pre approval?

I have read 3 years and 2 years from discharge but there is always someone who disputes that time frame. We have been discharged just a few months shy of 3 years.

Please anyone share your opinion with me on this. I so want all of this to be over.

Thank you so much! Will be looking for some opinions here.

[justbroke]

Your problem will not be with a quick (score-based) pre-approval. The problem will be with underwriting. What you have is "settled for less than" the balance. I do not know if your underwriter will catch that or not, but if they do, they could consider it along the same lines as a deed in lieu or foreclosure.

There really is no dispute on the FHA 2-year discharge requirement. The FHA requirement is simply a minimum of 2 years from discharge. However, FHA allows the lenders to add additional seasoning to the "guideline". This is why you will find some banks want 3 years from discharge. Finding a bank that only wants 2 years from discharge can be a challenge unless you have a broker that knows where to shop the loan.

[marchelala]

We are in the same boat ... discharged 3 years ago and settled #2 with Wells Fargo , and WF released the lien etc. This settlement is not reported ANYWHERE as a settlement for less than own.... nowhere. Credit Report has IIB with zero balance, and public records has it as PAID. I dont see how it can be the problem. Please correct me is I am wrong.

[justbroke]

We are in the same boat ... discharged 3 years ago and settled #2 with Wells Fargo , and WF released the lien etc. This settlement is not reported ANYWHERE as a settlement for less than own.... nowhere. Credit Report has IIB with zero balance, and public records has it as PAID. I dont see how it can be the problem. Please correct me is I am wrong.

It could only be a problem if underwriting is looking for ways to deny a loan, but that is not what underwriting is all about. I do not know the specific HUD underwriting guidelines. They are picky about people not paying their mortgages. If it were a short-payoff and you were current at the time, maybe FHA-underwriting accounts for that and does not make it a factor.

If your seasoning is there, based on the lender's additional seasoning, then it should be a non-issue for seasoning. The question here is whether underwriting will want more information about the short-payoff second. Since the lien was released and there are no other indications on the credit report to indicate a short-payoff (settlement), it may get past underwriting.

It would certainly be interesting to know for sure, whether a short-payoff (settlement) would disqualify someone because it didn't fit within the seasoning requirements.

[Ann]

It could only be a problem if underwriting is looking for ways to deny a loan, but that is not what underwriting is all about. I do not know the specific HUD underwriting guidelines. They are picky about people not paying their mortgages. If it were a short-payoff and you were current at the time, maybe FHA-underwriting accounts for that and does not make it a factor.

If your seasoning is there, based on the lender's additional seasoning, then it should be a non-issue for seasoning. The question here is whether underwriting will want more information about the short-payoff second. Since the lien was released and there are no other indications on the credit report to indicate a short-payoff (settlement), it may get past underwriting.

It would certainly be interesting to know for sure, whether a short-payoff (settlement) would disqualify someone because it didn't fit within the seasoning requirements.

I will be posting the outcome of this for sure!

[justbroke]

I am sure that many people would like to know how this is handled!

[Ann]

Well, I was able to get an automated approval and now my broker wants it to go straight to underwriting before I get the stamp of approval officially. She says that since I did not reaffirm my mortgage they (FHA) may very well look at it as a foreclosure! She will know more sometime next week.

I will be posting here for sure.

I don't see how they view it as a foreclosure? How? Nothing like that ever took place. I am so incredibly sick and tired of all of this...this ones rule and that ones rule. I feel as if I will be punished the rest of my life for having to file bankruptcy!

Can anyone here give me their opinion on this please. She said 2 years for a bankruptcy except for when a home is foreclosed on and then its 3 years after the transfer. A non reaffirmation is looked at as a foreclosure? This is unreal.

[justbroke]

She said 2 years for a bankruptcy except for when a home is foreclosed on and then its 3 years after the transfer. A non reaffirmation is looked at as a foreclosure? This is unreal.

Those are what the FHA call "minimum" seasoning. The lender can add any additional seasoning to that requirement. It is not unheard of that a lender would want 3 years from bankruptcy and 4 years from a foreclosure (short sale, deed in lieu, etc).

From everything that I have read on the subject, FHA underwriters (not FHA themselves) consider a discharge of the loan as a "foreclosure". Yes, it makes no sense. I would think, that if you continued to pay on time, it would not be considered a foreclosure (short sale/deed in lieu). However, the fact that the debt was discharged (not reaffirmed) could very well cause them to probe further and seek the disposition of the note.

I do not consider it a punishment. It is a fact of having credit-related issues. Even though the market is recovering, banks and the federal agencies and GSEs (FHA, FDA, Fannie Mae, Freddie Mac) have tightened their lending. The banks have tightened as well. If you had foreclosed and there were no federal programs, you would wait as much as 7 years for conventional lending.

As for this specific issue where FHA considers discharged mortgages (notes) as foreclosures, I disagree with how "some" underwriters treat them as such. This is why I suggested that if the underwriter probes deeper, they will probably not like the way the second was settled. The underwriter may then consider it a short sale, deed in lieu, or foreclosure... for purposes of seasoning.

Your broker, of course, can shop this around if the first lender does not like the way the 2nd mortgage was satisfied.

[Logan]

Well, I was able to get an automated approval and now my broker wants it to go straight to underwriting before I get the stamp of approval officially. She says that since I did not reaffirm my mortgage they (FHA) may very well look at it as a foreclosure! She will know more sometime next week.

I will be posting here for sure.

I don't see how they view it as a foreclosure? How? Nothing like that ever took place. I am so incredibly sick and tired of all of this...this ones rule and that ones rule. I feel as if I will be punished the rest of my life for having to file bankruptcy!

Can anyone here give me their opinion on this please. She said 2 years for a bankruptcy except for when a home is foreclosed on and then its 3 years after the transfer. A non reaffirmation is looked at as a foreclosure? This is unreal.

I was in the mortgage business and I used to tell some clients to pretend it was you lending the money. Would you lend someone money to refinance a home when they recently went BK and shorted the 2nd mortgage and didn't reaffirm the 1st? I know I wouldn't and if it wasn't for the government offering FHA loans most of us wouldn't be able to buy a home for 4 or 5 years since that's what the banks want. This doesn't mean you won't get approved and it also sounds like you have a good loan officer working for you.

Good Luck!

[AngelinaCat]

Dear Ann:

I have now gone through several of your posts here in this thread, and broken them up into paragraphs to make the posts easier to read.

Please follow good grammatical rules when posting. That helps everyone reading to help you, and not just the ones with the patience to read a long, run-on paragraph.

Thank You
AC

[Ann]

Sorry Angelina! I guess I'm so wrapped up in all of this that every time something comes up I rush here to get some advice and get too crazy with my typing! I so much appreciate everyone taking time to reply. I promise to make it much clearer to read!

[tobee43]

i feel like a broken record when i say, just as jb points out it's the lender.

from all the reading i do, my understanding is the government is telling the banks you better start lending.............but ONLY to perfect people. or not. i repeat the 2 stories. 1 a couple with over 250k income a credit score in the highest of 800's and couldn't refi. another couple with kids, both professionals great income, jobs, credit scores excellent got approved got the moving truck moved out on their way to the closing and was told the bank said no. the first couple finally go their refi, however, the bank was not quick to release a 6.34 loan for a 4% i kept telling them move on to another lender, finally that got their loan. as for the other couple never got their mortgage since underwriting at the final hour decided they needed a co-signer, they got one, then the lender said we want another they got another and they thought of something else. there was no winning with this company and to this day i believe what they did should have reported, but reported to whom exactly...the OCC does nothing actually no one does. it's a free for all for the lenders out there, they can pick and chose as they please. making no sense more than half the time.

people need to understand pre-approvals mean absolutely nothing. recalling when my daughter got out of college we went to the bank and at first got the pre- approval, went shopping but ended up gong back to the bank, and got the mortgage in hand then went house shopping. even if only good for 90 days, it was far better to have, since she was only 21 and believe it or not was actually refused a house from a seller because of her age! buyer said i don't want to tie the house up for someone so unlikely to get a loan, little did they know this 21 year old was making close to 6 figures had 40% down etc. she got her house.

really what i'm trying to say here is frankly and simply it's just the lenders and while FHA may have their guidelines the lenders are still making it nearly impossible for many to qualify as one passes one hurdle only to be faced with another. again, why? no clue as the large property management companies are eating all these houses up like they are peanuts.

i don't mean to sound discouraging, i would just try to work with more than one lender and really shop around to see who may be more bk friendly. i know Logan got a mortgage, i did as well, but it was owner financing, bypassing the banks completely. there are other ways to buy, like land contracts and the such. don't give up, i know it might be a struggle but you'll find a way!

[Ann]

tobee: Thanks for the reply but currently I am working with a mortgage broker who looks to all kinds of lenders to get a loan. I totally agree with you about the pre approval meaning nothing. My mortgage broker doesn't trust it either that is why she went straight to underwriting as to be 100% sure that I can get a loan. I will post the outcome.

[tobee43]

good to know! and, a mortgage broker usually work their butts off for you because that's the way they make their money.

best of luck to you! i hope so much and i'm sure it will work out for you.