FHA rule change handcuffed new home buyers

[vitman]

The FHA changed their rules last year about bankruptcy and including property. If you're gonna file Chapter 13 or 7, you have to wait 2 years from the discharge date to get a new loan. BUT, if you file chapter 7 and include a house or property then you revert to their foreclosure rule. This states that you have to wait 3 years from the date the house sells at auction!

I was discharged chapter 7 in 2009. I have 2 houses ( included in the chapter 7 ) that haven't even begun to be foreclosed on. I have no idea how much longer they will take to foreclose on them. All I can do is wait until they finally decide to come get the houses ( I haven't made a payment on either since 2008 ) and sell BOTH of them! Then I get to start my 3 year clock for a new loan. If they foreclosed on my houses tomorrow and sold them, I wouldn't be able to buy a new home until at least 2015.

Does this sound fair? How is there no grandfather clause? Our chapter 7 was discharged 2 years before this new law took effect.

[Flamingo]

Unfortunately, as much as I hate to state it, these are some of the perils that those of us who file BK go through just because we filed BK and have it sitting on credit reports for 7 years after filling a Chapter 13 and 10 years after filing a Chapter 7. During that period of time, things can still be quite tough to obtain a house, credit, etc. Foreclosures and repossessions also just make it worse. Lenders and banks have the option to change their rules at any time to protect their interests and probably with the huge glut of bankruptcies over the past several years are just protecting themselves. There is probably nothing you can do if that is the correct verbiage of the changed rule and just see if you can work through a broker experienced with BK filers and try for a conventional mortgage.

[tobee43]

i feel for you vitman. it's been over 4 years on our FHA mortgage which was included in our bk and Chase has not made a move to foreclose on the property. the other bad news about this, is that property is in new jersey where the bank has a statue of limitation of 20 years to exchange the deed to reflex a new owner, be it the bank or another buyer. so, in reality, if we sat and waited around for the foreclosure, it could be, provided that Chase decided to wait out the time allotment by statue, 23 years before we would be able to get another mortgage.

i see you are in florida, we were able to obtain an owner financed property in florida where we now live (it was a lease with an option to buy). not perfect for everyone, but an alternative around the banks all together.

as flamingo points out the banks have the ability to change the rules, and hopefully with places like florida, overflowing with inventory, it may be hopeful that the banks will see their way clear to let some of those in this situation obtain a mortgage in the future.

[btbeme]

The Golden Rule: He who has the gold makes the rules.

Some important info for all prospective homebuyers after Ch 7: Banks lend money, and do so to make a profit. They have a governing board as well as state and federal requirements to follow in doing so. Above all, they retain the right to agree or not agree to lend money based on any particular situation, and they can do so within some fairly wide interpretations of law and guidance. After all, they have a responsibility to lend money carefully. You, as a citizen, do not have a "right" to get a loan.

The FHA and other establishments can set guidelines on lending practices that they will underwrite or insure. So does FNMA and FreddieMac. Those guidelines, however, do not establish a "right" to credit on your behalf; they are simply guidelines that the bank must meet in order to receive the backing of FHA, FNMA, etc.

While it might seem that they are changing the rules as they go, the truth is that banks have always and will always retain the right to say yes or no to a loan. The guidelines and underwriting principles they adhere to are there to protect THEM from YOU, and not the other way around. The federal government has sometimes made laws to try to force banks to lend against their better judgement, and you can see the mess that created this past decade.

So the very best you can do is make yourself a model citizen for presentation to the bank. I suggest that anyone hoping to obtain a mortgage specifically start by building a relationship with a bank or credit union. Get direct deposit. Start savings accounts and deposit into them. Talk early and often to the mortgage folks at the bank and tell them that you plan to ask them for a mortgage later. Ask them what you need to do, specifically, to make their underwriters comfortable. If you can, talk to an underwriter (that is about as easy as getting an audience with the Pope, but try anyway). Establish credit with a credit card or two that report to all three credit bureaus. Obtain a secured loan (such as a car loan) that you can afford and pay it off on time.

Creditworthiness is established by showing responsibility with money on a credit card or other types of loans. Having an established history (a couple years minimum) makes a big difference. Interestingly, paying off a secured loan early can sometimes HURT you, as you want to show an extended history of responsibility. But above all, set a goal, get the right people involved, and do your part to get the credit you will later deserve.

Anyway...Mortgages are a huge leap of faith for a bank. You want proof, just look around. You absolutely have to gottawanna play the game by their rules if you want in in the future.

[tobee43]

perfectly stated btbeme! that's exactly how it goes.

when the banks start to think about letting go of all the cash they have and all the inventory they are holding, most likely we will slowly begin to see a loosening up of lending. most likely not tomorrow, but in the future with so many in a less than perfect credit standing, banks will either chose to start lending or ...not. like you said, it's entirely up to them, they only have the guidelines, but make their own rules on lending.

[MELLISSAMM]

I filed bankruptcy but included my foreclosed home. (It sold at auction 7 months before my bankruptcy discharge). The home was only under my name and not my husband's. My bankruptcy was also filed under my name only and not his. His credit is satisfactory. Does he have to follow the same rules (waiting 3 years) if he wants to buy a home under his name only. (we are still married) in California.

[SMinGA2]

It may not sound 'fair' but then again - you've lived rent/mortgage free for ~4 years now. I imagine the upside/downside average out.

[tobee43]

It may not sound 'fair' but then again - you've lived rent/mortgage free for ~4 years now. I imagine the upside/downside average out.

i'm not certain if you were referring to my mentioning the 4 years....we never lived there. we left after rec'ing the first summons. i think we stayed maybe 4 months without paying the bank something. we were in the middle of a loan mod with Chase when we got served the papers. actually was paying something on the mortgage every month until the last 3 because they said we had to be 90 late to qualify for the loan mod...however, that was untrue and we got served, instead of answering within the 30 days time period we left. so we never lived 4 years without paying a mortgage. just in case you were referring to my post

[btbeme]

I filed bankruptcy but included my foreclosed home. (It sold at auction 7 months before my bankruptcy discharge). The home was only under my name and not my husband's. My bankruptcy was also filed under my name only and not his. His credit is satisfactory. Does he have to follow the same rules (waiting 3 years) if he wants to buy a home under his name only. (we are still married) in California.

The simple answer is "no" - if his credit is fine, then he can get a mortgage. Now, there are a few things that may come into play...

For instance, if your income is necessary to qualify for the loan (his alone is not, let's say) then your info will go on the mortgage application as well. It will have a negative impact on acceptance.

[vitman]

Cont...

I understand that they have the ability and right to change their rules. I guess my point is that the whole reason for the BK was because of the houses that were killing us. My attorney advised the BK because of the imminent foreclosures and, at the time, the foreclosures were wrapped up in the BK. After the nightmare was discharged in 2009 we went back to work rebuilding credit. Until the beginning of the week, I thought that we had met all of the FHA benchmarks for getting financed. It had been 2 1/2 years since we were discharged, we had lived in the same place for 3 years with excellent payment history, re-established secured credit history, had a stable job of 12 years with an annual 60-70K income, and a mean credit score of 683. Figured we would have to pay a little higher interest rate but it wouldn't be a problem to get a new loan. Then I learned about the new guidelines pertaining to foreclosed property. It was just frustrating to think it might be over and then to learn that it could be several more years. We've learned a lot over the past few years and we're determined not to make the same mistakes Anyway, Thanks for the comments guys...Keep it up and God bless.

[tradinglife]

I understand that they have the ability and right to change their rules. I guess my point is that the whole reason for the BK was because of the houses that were killing us. My attorney advised the BK because of the imminent foreclosures and, at the time, the foreclosures were wrapped up in the BK. After the nightmare was discharged in 2009 we went back to work rebuilding credit. Until the beginning of the week, I thought that we had met all of the FHA benchmarks for getting financed. It had been 2 1/2 years since we were discharged, we had lived in the same place for 3 years with excellent payment history, re-established secured credit history, had a stable job of 12 years with an annual 60-70K income, and a mean credit score of 683. Figured we would have to pay a little higher interest rate but it wouldn't be a problem to get a new loan. Then I learned about the new guidelines pertaining to foreclosed property. It was just frustrating to think it might be over and then to learn that it could be several more years. We've learned a lot over the past few years and we're determined not to make the same mistakes Anyway, Thanks for the comments guys...Keep it up and God bless.

Did you apply for a loan or are you just assuming you will get turned down? From what I've read some people are getting approved before the 3yr period. It seems like it depends on which bank or underwriter does the deal. Agreed though, it seems like they will have to loosen up eventually to get the housing market off the bottom. It would seem if someone has money down and would pay a couple points higher on mortgage, would be a good opportunity for some lender to make a good profit from a huge segment of the market who cannot buy because of these rules.

[btbeme]

Did you apply for a loan or are you just assuming you will get turned down? From what I've read some people are getting approved before the 3yr period. It seems like it depends on which bank or underwriter does the deal.

Exactly the point.

Starting early and being "forward-leaning" on this issue will make a difference. I promise that it isn't just about credit scores and time - it has to do with establishing a relationship. If not your bank, then some other one. But start early on paving that road. Credit unions are a good place to start. Independent mortgage brokers who work with a variety of banks are also a good place to try, as they might be able to route loans through alternates lenders.