QWR: The RESPA Letter

 

Federal Reserve Board Building

QWR: The RESPA Letter

Most reading this post are reading it for a particular reason which is to learn about writing a letter to a mortgage lender and/or servicer regarding a specific problem or situation such as requesting the mortgage servicer report your payments to the credit bureau(s). For some, it may be that your mortgage servicer or bank is reporting incorrect information or you may need specific documentation. For others, perhaps this is being read for informational purposes. In any event, we trust the reader finds this information helpful.

 Step 1. Contact your mortgage servicer for the correct address for legal correspondence. You must use the legal (registered) address of the servicer. Some servicers actually have a specific address for a Qualified Written Request (QWR). This is  a different address than where you mail the payment or from where you get the periodic statements or notices. This procedure was established per the Real Estate Settlement Procedures Act (RESPA).

 Step 2. You may utilize the following template provided by HUD for your QWR. Or you may click here to open and read the information or you may copy and paste the pertinent paragraphs (opening and closing) as show below. Focus your thoughts and keep your letter brief and specific to the topic.

“Attention Customer Service:

Subject: [Your loan number]

[Names on loan documents]

[Property and/or mailing address]

This is a “qualified written request” under Section 6 of the Real Estate Settlement Procedures Act (RESPA).

I am writing because:

• Describe the issue or the question you have and/or what action you believe the lender should take.
• Attach copies of any related written materials (as applicable).
• Describe any conversations with customer service regarding the issue and to whom you spoke.
• Describe any previous steps you have taken or attempts to resolve the issue.
• List a daytime telephone number in case a customer service representative from the legal department  wishes to contact you.

Sincerely, [Your name – Printed and Signed]

I understand that under Section 6 if RESPA you are required to acknowledge my request within 20 business days and must try and resolve the issue within 30 business days.”

If you are satisfied with the resolution to your situation, you may wish to compliment the servicer by sending a note to the Consumer Financial Protection Bureau (CFPB or Bureau) via their Comment Form.

• If, on the other hand, you have not received a reply at the end of the allotted 20 business days – Twenty business days is about a month; for your convenience click here for a business day calculator – we suggest repeat the above process and if still no response, we suggest you contact a HUD Certified Housing Counselor (click here for a list of counselors in your area) at little or no cost to you; or an attorney familiar with the QRM/Section 6 RESPA dispute process as discussed in the 2006 Federal Trade Commission Board of Governors of the Federal Reserve System  Report to Congress on the Fair Credit Reporting Act Dispute Process.

Step 3. Send your QWR via Certified Mail Return Receipt. Keep copies of your letter and any enclosures as well as your Certified Mail Receipt from the post office and the Return Receipt from your mortgage servicer proving they have received your QRM

Finally, if you are still unable to resolve the situation, there is a complaint process that may get action. We suggest this be your last and not first step as you will then have evidence which will indicate to the Bureau that the servicer is either unwilling or unable to address your situation. Mortgage Complaint Form

There’s a New Sheriff in Town

The following is excerpted from the prepared remarks of Steven Antonakes, Deputy Director of the CFPB which he presented to the Mortgage Bankers Association National Mortgage Servicing Conference in Orlando, Florida on February 19, 2014.

“…My message to you today is a tough one. I don’t expect a standing ovation when I leave. But I do want you to understand our perspective. I would be remiss if I did not share it with you … if you choose to operate in this space (mortgage servicing), the fundamental rules have changed forever. It’s not just about collecting payments. It’s about recognizing that you must treat Americans who are struggling to pay their mortgages fairly before exercising your right to foreclose. We have raised the bar in favor of American consumers and we are ready, willing and able to vigorously enforce that bar.

Ultimately, these profound changes will be good for all Americans, including industry. But please understand, business as usual has ended in mortgage servicing. Groundhog Day is over. Thank you.”

Sheriff – Update

In a June 22, 2016, Press Release, the CFPB said, in part: “In 2013, the CFPB established mortgage servicing rules designed to protect consumers against many of the practices that plagued the mortgage servicing industry during and after the housing crisis.

According to the CFPB, the rules require servicers to maintain accurate records, give troubled borrowers direct and ongoing access to servicing personnel, promptly credit payments, and correct errors on request.”

In addition to sending your RESPA letter, do not hesitate to file a complaint, with the CFPB. Click here for the particular complaint link.

The Bureau’s Enforcement Power – One Example

As an example of the Bureau’s enforcement authority, RealtySouth™, a Berkshire Hathaway Affiliate, was recently fined $500,000.00 for a RESPA violation which amounted to failure to disclose their affiliated business relationship(s) to consumers. This is a typical example of the enforcement action undertaken by the Bureau as one may readily determine with an Internet search. For those who don’t recognize the name Berkshire Hathaway, it is largely owned by one of the world’s wealthiest persons. Clearly, wealth does not buy immunity from the CFPB.

Exceptions to QWR: Those transactions excluded from the QWR are limited to “(1) subordinate lien loans or (2) open-end lines of credit subject to TILA, whether secured by a first or subordinate lien.”* Further, “(a) request does not constitute a QWR if it is delivered to a servicer more than one year after either the date of transfer of servicing or the date that the mortgage servicing loan was paid in full, as applicable.”*

NOTICE: I am not an attorney nor am I providing legal advise. This post is for educational purposes only. The images are for illustration only and not meant to imply in any way an endorsement or authorization by any government agency or authority of this blog or this post.

* Jonathan Foxx, President & Managing Director Lenders Compliance Group

Image Attribution: erickimphotography.com and  CFPB

Financially Speaking™  James Spray, RMLO, CNE, FICO Pro | CO LMO 100008715 / NMLS 257365 | Rev. June 16, 2016

 Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

A Bankrupted Second Mortgage Can Foreclose

Be aware, sleeping dragons can awaken.

The second mortgage can foreclose even after the Promissory Note was eliminated with a Chapter 7 Bankruptcy Discharge. Quite simply, the second mortgage initiates the foreclosure process under the rights of the second mortgage Trust Deed subject to the rights of the first mortgage trust deed.

By foreclosing under these circumstances, the holder of the second mortgage, following a specific legal action starting with the posting of a three day notice, may evict the residents. Should one be threatened with a three day notice to quit the property, you may wish to immediately call your attorney as this is a serious invitation to professionally negotiate a short settlement immediately.

By way of background, once the payments to the second mortgage aren’t made, the mortgage is in default. The mortgage holder has four separate options to protect its interest. First, it can do nothing and sit on its rights. Second, in Colorado, it can initiate a Public Trustee foreclosure. Third, it can file for a judicial foreclosure, although this rare in Colorado. Fourth, it may buy-out the first deed of trust and thereby perfect its position. If the junior (second) mortgage selects either the second or third option, it is most likely that the first deed of trust will also foreclose.

The Basics

A mortgage consists of two legal documents: the Promissory Note and the Deed of Trust or Trust Deed (TD). The second TD lives on, in virtually all cases, following the Chapter 7 Discharge.

Equity is returning to many real estate markets throughout the country. Among the markets enjoying substantial equity growth are several areas in Colorado, particularly along the Front Range as well as many mountain and resort counties.

Statute of Limitations

The Statute of Limitations (SOL) on a second mortgage is 15 years following the original due date; however there are exceptions and particular legal nuances which apply to this SOL. To determine how the SOL may or may not apply to a particular set of facts, you are advised to consult with legal counsel well versed with both bankruptcy and real estate law. One needs to understand that TD that has been written off continues to be a collectible debt for so long as the SOL hasn’t run the term. Written off is merely an accounting term, nothing more or less. Written off is not a ‘get out of debt free’ card.

The Short Payoff

Let’s discuss possible solutions to this situation which is becoming more common as equity returns to certain real estate market.

A short payoff occurs when a borrower cannot pay the mortgage on the property and is allowed to sell the property for less than the full amount due. This results in a loss to both the lender/servicer and the investor. All parties must agree to the mortgage being paid “short”. Providing there is a ‘make sense deal’, the lender will do this so as to avoid the expense and time of the foreclosure process. Given there are several parties involved in this decision making process, reaching consensus can take quite a lot of time – often months.

Short Payoff Settlement -Financial Negotiation

Typically the least successful negotiator is the one with an emotional involvement in the negotiation. The saying, often attributed to Abraham Lincoln, describes this situation quite well: “A person who represents himself has a fool for a client.”

This is a business transaction which may involve disclosing your income, assets, liabilities as well as proof of your ability to pay a certain amount to obtain a Release of the Trust Deed. It is suggested that by having a well prepared Comparative Market Analysis coupled with a professional Home Inspection Report to submit with your proof of ability to pay will be beneficial to reach a decision. You may expect the lender/servicer will pull a credit report in addition to thoroughly investigating your request for a short payoff settlement. They must and will investigate and verify who you say you are and your circumstances. Short Payoff Fraud is of great concern to lenders and investors alike which explains, to some degree, how difficult these negotiations can be.

Short Payoff Settlement – Hardship Negotiation

Hardship criteria include: involuntary unemployment; divorce; long-term disability; a change of employment that is more than 50 miles from the current home; a business failure; death of the primary or secondary wage earner; or a natural or man-made disaster.

I had the opportunity to assist a senior couple negotiate a hardship short payoff on a “written off” second mortgage last year. This second mortgage had been discharged in a 2011 Chapter 7 and had been “written off” a few years before the bankruptcy case was filed. The principle balance due on this second was $55,000.00; the final settlement to Release the Trust Deed was just under $7,000.00.

From the time this negotiation process began until it was successfully completed took 220 days. The hardship in this situation was long-term disability with both borrowers. We documented both of their hardships with letters from their physicians as well as photographs and x-rays documenting specific medical procedures. Finally we documented their ability to pay the negotiated short payoff by providing evidence of the gifted funds in a bank checking account.

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Financially Speaking™  James Spray, MLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | April 15, 2014

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

Settlement for Deletion

First, it’s best to never have a collection agency account on your credit report. Should you end up with such, particularly a medical collection which as this New York Times article explains is quite common; you may be able to negotiate a settlement of the collection account for a deletion of the collection account from your credit history. All collection accounts are subject to a negotiated settlement for deletion.

This negotiation should be approached as a matter of fact. Your expectation is to negotiate a settlement of the collection account in return for a deletion of the collection account from your credit report as the conclusion. For best results, avoid confrontation and keep in mind it’s easier to catch flies with honey than vinegar.

This is a simple business proposition; there is no need to complicate the matter with emotional involvement. Some may fare better with a professional third party negotiator as opposed to attempting to bring a successful resolution on their own. Engaging a third party is, of course, a cost -vs- benefit analysis. This cost analysis must include the benefit of having the collection removed from your credit history. 

The Settlement for Deletion Process Involves Two Distinct and Separate Steps

The steps are these: [1] Contact the collection agency and negotiate the settlement. This will involve a mutual agreement to an amount and a date by which you will provide good funds to the collection agency. [2] In exchange for this settlement agreement, the collection agency shall agree to provide a letter outlining the terms of the agreement which will state the amount, the date and the fact that the collection agency will delete the collection item from your credit report upon receipt of your good funds.

You may expect to have to make more than one effort to achieve success. Experience proves it is easier (relatively speaking) to negotiate such an agreement closer to the end of the month or quarter than at the beginning of the month or quarter. The reason is this: their collection goals may not have yet been met and the end of the goal period grows nearer.

You may expect the agency will not remove the derogatory item from your credit report. This is where your mortgage professional will be of great help for you in helping you get this item removed from your credit report by assisting you in getting the item permanently deleted from your credit report.

Removing a Disputed Item from a Consumer Credit Report

The quickest way is for the borrower to obtain a letter from the creditor or collection agency (the letter must be from the same entity reporting it to the bureau(s) stating specifically that the dispute has been deleted.  The mortgage professional can have this processed directly with the bureaus as a “re-score” in three business days.

 This “re-score” procedure is available only to mortgage professionals who subscribe to participating credit report providers which work directly with the three credit reporting agencies. The following guidelines have no tolerance for deviation:

•             Letter must be from creditor reporting information

•             Must be on company letterhead

•             Must contain the account number

•             Must be dated after the last time creditor reported information to bureau

•             Cannot be hand-written

•             Must come from a person (not a department) and have a phone number

•             There is a cost which is based per trade line, per bureau.

Incidental Related Information

Aged collection accounts are not as harmful to your credit as are newer collection accounts. Either may be settled for deletion. Older derogatory accounts count less against your credit score than newer derogatory accounts.

Accounts that were credit reporting accounts which become collection accounts do much more damage to your credit than the odd medical bill that may have ended up in collections. Of special note regarding small-balance collections accounts: the latest FICO 8 scoring engine ignores small-dollar “nuisance” collection accounts in which the original balance was less than $100.

The Date of Last Activity (DLA) show on consumer credit reports determines, in large part, the Statute of Limitations of when a debt will no longer be collectable. Again, the older the account, the less it counts against your credit score. Paying an older account will likely do more harm to your credit score than good. Yes, this thinking is counterintuitive; however discuss this with your mortgage professional before paying an aged collection or ‘charged-off’ account as such action will update your DLA resulting in new derogatory information.

Judgments and Open Credit Report Disputes

A step far worse than a collection account on your credit history is a legal action against you over a collection account which results in a judgment reported against your credit history. To be clear, a judgment is a legal action which becomes a public record. This is a now a debt with legs, so to speak, and may have further negative repercussions. Other examples of a legal action resulting in the creation of a public record are, among others are: bankruptcy and foreclosure.

Open disputes on your credit report (other than certain medical items) are a problem with mortgage underwriting. Until such time as disputes are resolved and closed, they may prevent you from obtaining approval for a home loan.

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Financially Speaking™  James Spray, MLO, CNE, FICO Pro | CO LMO 100008715 / NMLS 257365 |March 14, 2014 – Updated February 12, 2018

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

The Chapter 13 Payment

That which matters is when your payment is posted to your account in the moth it is due. For example, if the payment is due in December, it must be posted in December.

While your Chapter 13 payments are not reported to the credit bureaus, when you apply for a mortgage (refinance or purchase) while in a Chapter 13 Plan or within two years of your bankruptcy Discharge, your Chapter 13 payment history will be reviewed by the underwriter. This review will consider your Chapter 13 payment with the same weight as a mortgage payment.  Just one 30-day late payment will disqualify an otherwise approvable loan applicant.

Exactly What Is A 30 Day Late Payment?

To illustrate, let’s say your payment is due on December 25th. Your payment has always been made on the 25^th. In fact, your November 25^th payment was received by the Trustee and posted in November as it was since your first payment. However, your December 25^th payment was not posted until January 2^nd. Oops, you now have a 30-day late payment.

The Payment Was Sent the Same Day as Always

We understand. However, the underwriting guidelines do not understand accidental, postal or electronic delays. Indeed, the system can be harsh. Being armed with this knowledge allows you to plan for the unexpected.

Rehabilitation Expectation – Minimum of 12 Months On-Time Payments

A minimum of twelve consecutive months of on-time payments immediately prior to applying for mortgage credit is essential for approval. This supposes that all payments have been posted on time with the Trustee’s office. However, there can be an exception of a 30-day late during the payment period so long as that isolated incident is not within the last twelve months. The exception of a 30-day late payment or an interruption of on-time monthly payments must be documented and sourced as completely outside the control of the debtor.

The Blizzard Made My Payment Late

A few years back, one of my prospective Chapter 13 home buyers diligently worked to get into a position to be approved for a new home loan. By way of background, at the time he lived in a cabin at St Mary’s Glacier. That year, there was a particularly severe snow event which left my prospective client snow-bound for several days. Still, his payment to the Trustee was only one day late. We argued that this was an Act of God and entirely out of my prospective client’s control. This held no sway with the underwriter and my prospective borrower was not approved. In the interest of full disclosure, this prospective client had another 30-day late payment about 15 months prior to the blizzard. The ‘Act of God’ defense might have worked had the previous late payment not been of record.

Automatic Bill Pay – Be Aware

Those of us that use on-line bill pay through our credit union or bank love the convenience. No stamps, no envelopes and no checks are but a few of the nice features. While in a Chapter 13 bankruptcy repayment plan, set your payment date early enough so there is sufficient time for the Trustee’s office to 1) receive your payment and 2) post your payment. Be aware of Federal holidays and back your payment date up a couple of extra days to make sure you never have a Chapter 13 late payment.

The Trustee’s Staff Said a Late Payment Is OK

We understand. While a single late Trustee payment (or two) will generally not cause for a Chapter 13 to be problematic or Dismissed, keep in mind, the Trustee is not your mortgage loan originator or mortgage lender.

The Trustee said it is ok do pay my Plan payments ahead of time. Talk to your attorney, this could be a problem.

What Is the Take Away of This Post?

For those with payments due to be in the Trustee’s office near the end of the month, we strongly suggest that you mail your payment a few days early every month to help ensure the payment is posted in a timely manner. Better yet, set the bankruptcy payment to be made via payroll deduction. If payroll deduction is not available, schedule an automatic monthly payment via your on-line banking.

Unpaid Mortgage Payments Can Cause a Discharge to be Denied

As discussed above, on time mortgage and Chapter 13 payments are essential to a successful plan. Let’s say one is nearing the final month or so of their Chapter 13 Payment Plan and the Trustee learns the mortgage payments, which were to have been paid outside the Chapter 13 Plan, were not paid as agreed. The Discharge can be denied and instead after all this time, the case is Dismissed. A Dismissed case is a failed Chapter 13 from a mortgage underwriting standpoint.

We wish you success with your Chapter 13 Payment Plan!

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Financially Speaking™  James Spray, RMLO, CNE, FICO Pro  | CO LMO 100008715 | NMLS 257365 |December 2, 2013 | Updated January 10, 2018 | Copyright 2013-2018

 Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part provided you give complete attribution to James Spray.

2013 Colorado Flood: Mortgage and Housing Help

]There are Federal Guidelines Mortgage Service Companies and Banks Servicing Mortgages have to provide disaster relief. Among the programs is mortgage payment forbearance relief for up to a year. For additional mortgage specific information refer to the following resources.

COLORADO FLOOD DISASTER RELIEF

The National Association of REALTORS^® (NAR) REALTORS^® Relief Foundation (“RRF”) is donating up to $100,000; matching CAR’s contribution of $50,000 plus additional donations CAR receives for the victims who were impacted by the recent horribly destructive floods here in Colorado. Click this link for more information.

FHA [HUD]

U.S. Housing and Urban Development Secretary Shaun Donovan today announced HUD will speed federal disaster assistance to the State of Colorado and provide support to homeowners and low-income renters forced from their homes due to severe storms, flooding, landslides and mudslides.

Mortgage Insurance for Disaster Victims Section 203(h) Summary: The Section 203(h) program allows the Federal Housing Administration (FHA) to insure mortgages made by qualified lenders to victims of a major disaster who have lost their homes and are in the process of rebuilding or buying another home.

FNMA [Fannie Mae]

Mortgage Assistance – Fannie Mae works directly with mortgage servicers to offer special options for those impacted by disasters. Eligible homeowners in single-family properties with a Fannie Mae mortgage loan who are experiencing difficulty paying their mortgage may qualify for:

•          Forbearance that can temporarily suspend or reduce mortgage payments
•          Suspension of legal actions in process (i.e., foreclosures)

FHLMC [Freddie Mac]

Freddie Mac’s disaster relief policies enable servicers to help borrowers with homes in presidentially declared Major Disaster Areas where federal Individual Assistance programs are being made available.  Under the directive issued by Freddie Mac today servicers can place borrowers with properties affected by the flooding on forbearance and suspend foreclosures for up to 12 months.  This forbearance need not be reported to the nation’s credit bureaus.  Servicers can waive late fees assessed against borrowers whose homes were damaged by the disaster.  Evictions and lock-outs can also be suspended for up to 90 days.

When forbearance ends, a new Freddie Mac option allows servicers to add missed mortgage payments to the outstanding loan balance and extend the term of the loan in order to keep the monthly mortgage payment essentially unchanged. Freddie Mac is also reminding servicers to consider Freddie Mac’s standard relief policies, including forbearance or mortgage modifications, for borrowers who work in eligible disaster areas but live in unaffected areas. For additional information refer to these helpful tools for you to use with your discussions with your lender.

Flood Damage to Properties Under Contract – Compliments of Colorado Association of Realtors (CAR)

The “Principal of Compensation” is always controlling when a parcel of land’s boundary line is actually a moving body of water such as a stream or river. When a title company insures a legal description and one of the boundary lines becomes a river channel or a stream, the title commitment will alert the purchaser that the property is subject to the “principal of compensation ” as an exception to the title disclosed under Schedule B-2 of the title commitment. Sometimes the course may run along the bank, shore, side or edge. Sometimes the course may run to the center or thread of the flow. If the stream was considered navigable at the time of statehood, the bed of the stream or river is owned by the state. Every state defines navigability differently.

 A parcel of land may be subject to the following:

1. Accretion (gain of land deposits) by water flow

2. Reliction (gain of land deposits) by water receding

3. Erosion (loss of land by water encroaching

4. Avulsion (loss of land by sudden change in course)

For additional disaster relief services one may wish to refer to, among others, the following resources:

From Senator Michael Bennet: All Coloradans who have suffered damage due to the flooding should register with FEMA even if their counties have not yet been declared in the Presidential Major Disaster Declaration.

From Senator Mark Udall: As Colorado’s senior senator, I want to make sure flood victims also have the tools they need to rebuild. That’s why I have gathered
many of the most helpful resources on my website,

7th Congressional District Colorado 2013 Flood Response and Resources

Disaster Assistance

FEMA [Federal Emergency Management Services]

Help Colorado Now

Colorado Housing Search is helping flood victims in Boulder and Larimer Counties. Donations for VACANT rental properties, vacation homes, can be listed through Colorado Housing Search. Donated rooms in homes can NOT be accepted 

Colorado Farm Bureau Foundation

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Financially Speaking™  James Spray, CCMB, CNE, FICO Pro – September 18, 2013 – CO LMO 100008715 | NMLS 257365

 Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give complete attribution to James Spray.

Reverse Mortgage After Bankruptcy

 

The Bankruptcy

Frank and Sarah Woodford* have owned their lovely home near a university town in Colorado for over 20 years. In early 2011 they had to file Chapter 7 bankruptcy following several years of serious medical issues and the resultant medical bills. Their bankruptcy was Discharged in mid 2011. Both Frank and Sarah are over age 62. They had both first and second conventional mortgages. Neither mortgage was owned or insured by the Federal government. Following the advice of their attorney, they did not reaffirm either the first or second mortgage.

Both the first and second mortgage notes were Discharged with the bankruptcy. This is a matter of law on the filing itself. The bankruptcy could not, however, remove the trust deeds which were recorded with the county Clerk and Recorder’s office.

As a result of their separate serious medical issues, neither is able to work as both are totally disabled. One is legally blind.

The First Mortgage

Even with the relief of the bankruptcy, the Woodford’s could still not afford their home on their now fixed, limited household income. For more than six months, they worked with the bank’s loan modification department and ultimately received a reasonable permanent loan modification on their first mortgage.

It bears pointing out that this mortgage was not reaffirmed yet it was favorably modified.

The Second Mortgage

This still left the second deed of trust in place which would always pose a threat to the Woodford’s security as the bank owning the second trust deed could, at any time, exercise their rights and foreclose.

It is at this stage, February, 2013 my office entered the case on reference from their bankruptcy attorney. The first thing we did was investigate to learn the second trust deed of had been ‘written off’ in the amount of $55,000. Fortunately, in this case, the bank still held the trust deed in the banks collection department.

To be clear, no payment had been made on this mortgage for several years. The mortgage had been written off and no monthly payments could be made to the bank or would be accepted by the bank.

The next thing we did was get a professional valuation done on the property to see if a reverse mortgage could work for them. Based on the valuation, we determined that it would be close but possible. This professional valuation had nothing to do with automated valuations such as Zillow as they are not reliable.

We then ascertained the Woodfords could obtain a gift from a relative of up to $20,000 to settle with the bank for a release of the second deed of trust.

The Settlement

We counseled the client to offer part of the gift funds in the amount of $15,000 to secure release of the second trust deed in order that the Home Equity Conversion Mortgage (HECM) could be placed. As the bank reviewed the hardship letter and financial documentation, the Woodfords nervously, but patiently waited for the banks reply. Frank and Sarah held tight with our counsel and did not attempt to negotiate further with the bank. They realized to do such would be contrary to their best interests.

Simply put, they awaited the bureaucracy of this large financial institution to make its determination on the facts provided. About five months after submitting their request along with all pertinent documentation they received a request from the bank to prove the settlement proceeds continued to be available. Upon providing a current bank statement showing the funds were available, their patience was rewarded when the bank agreed to release the second trust deed for $6,992.

Peace of Mind

From start to finish this process took more than 220 days (but who’s counting, right). It was necessary for the Woodfords to take two mandatory reverse mortgage home owner classes – their first Housing Counseling Certificate expired at six months.

The upshot is that the Woodfords now have housing stability and peace of mind. They no longer have a concern that the foreclosure shoe could drop at any time.

Due to the benefits of the HECM, they also have the benefit owning their home without having to make another out-of-pocket mortgage payment for the rest of their lives, or for so long as they continue to reside in their home. The only out of pocket payments required of them are payment of the property insurance and real estate taxes.

Should they determine to sell their home in the future they may, it is their home. For more information on the HECM program read: The New Reverse Mortgage and Purchase Reverse Mortgages.

Note: With some exceptions, the bankruptcy must have been Discharged for two years to become eligible for a reverse mortgage. Contact your reverse mortgage professional for further information specific to certain situations.

*The name is fictitious. With that exception this report is factual. Finally, there was no need to name the bank(s) to accurately portray this situation.

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Financially Speaking™ James Spray, MLO, CNE, FICO Pro

CO LMO 100008715 | NMLS 257365 | September 8, 2013 ~  Rev. April 27, 2015

 

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

Back To Work_FHA Mortgage After Bankruptcy, The New Improved Rules

 

In announcing the new rules, FHA Commissioner Carol Galante stated:

“As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a pre-foreclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected. FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage”.

Effective August, 15, 2013, the Federal Housing Administration (FHA) is allowing borrowers who went through a bankruptcy, foreclosure, deed-in-lieu of foreclosure, or short sale to reenter the market in as little as 12 months, pursuant to a 15 page mortgagee letter titled Back to Work – Extenuating Circumstances.

The FHA insures mortgages, it does not make mortgages. The point is this: that investors, including banks, mortgage companies and credit unions make mortgages which may be insured by FHA. These investors also make overlaying rules known as underwriting guidelines to manage their risks or perceived risks. FHA cannot insist that an investor must approve any mortgage applicant.

Foreclosure

Prior to this new FHA policy, borrowers who went through the foreclosure process had to wait three years following the foreclosure sale date before getting the opportunity to qualify for an FHA loan. However with the new guideline, certain borrowers who lost their home as a result of an economic hardship may be considered eligible earlier. To be qualified under the shortened foreclosure timeline, twelve months must have lapsed since the date of title transfer to the foreclosing lender.

Recession Related Financial Event

The Back to Work program will require prospective borrowers to comprehensively document the nature of the “Economic Event” (Event).  It will be necessary to show the Event is that which resulted in derogatory credit, and that there has been a satisfactory recovery from the Event pursuant to the new guidelines. 

The Event to have caused the derogatory credit is defined as a reduction in income or loss of employment with at least one of the following:

1. A written termination notice.
2. Other publicly available documentation of the business closure.
3. Documentation of the receipt of Unemployment Income.

Further, it must be proved that the prospective borrowers had satisfactory credit prior to the Event onset and that the prospective borrowers’ derogatory credit occurred after the onset of the Event.

Additionally, the Event caused a reduction in the borrower’s household income of 20 percent or more for a period of at least six months.

Recovery from the Economic Event

1. Prospective borrowers (prospects) have reestablished satisfactory credit for at least 12 months since the end of the Event.
2. Prospects have no thirty day late housing or installment debt payments for the past 12 months.
3. Open mortgage accounts are current and have been paid on time for the past 12 months.
4. Prospects must obtain a HUD Counseling Agency certificate of participation in pre-purchase counseling. At minimum, this is a one hour of one-on-one counseling provided by HUD-approved housing counseling agencies. This counseling must be completed a minimum of 30 days but no more than six months prior to submitting a loan application to a lender.

While FHA says it has realized that, sometimes, credit events may be beyond one’s ability to control, and that credit histories don’t always reflect a person’s true ability or willingness to pay on a mortgage. We shall see if this program truly offers benefits for homeownership prior the program’s termination on September 30, 2016 or if it is a merely a program of limited utility. My hope is on the former.

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Financially Speaking™ – James Spray, MLO, CNE, FICO Pro

CO LMO 100008715 | NMLS 257365 | September 1, 2013 | Updated September 2015

 

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

Boomerang Buyers – Welcome Home!

As was written so eloquently by John Rebchook of Inside Real Estate News in his June 20, 2013 article Boomerang Buyers return to market , “Tens of thousands of home owners who lost their homes in the Denver area during the Great Recession may now be qualified to once again buy a home.

“’Depending on the loan program the formerly distressed home owner had, the circumstances of the default and efforts made to improve their credit scores, they may be able to qualify for a new mortgage in one year*,’” said Jim Spray, a veteran lender… ‘“A large number of industry professionals, including me, are calling these Boomerang Buyers…’”

Homeowners are returning to the housing market following a short sale, foreclosure or deed-in-lieu of foreclosure. This phenomenon of rebound or boomerang buyers is not without critics, but they enjoy the strong support of Housing and Urban Development Secretary Shaun Donovan, who was quoted in a November 2012 Denver Post article titled FHA providing buying opportunities to those who defaulted on homes, “the FHA has tightened its standards significantly but must still lend to those who wouldn’t otherwise qualify for a mortgage. It’s crucial for families to ‘show that they are responsible, that they have worked hard to reestablish their credit.’”

Simply becoming eligible based on the mandatory mortgage market time-out does not by itself mean that buyers will necessarily qualify to be approved for a mortgage. Lenders require borrowers to have strong FICO®  scores and qualify with sufficient acceptable income. An excellent tool to help determine your FICO score range is the FICO® Score Estimator. If it is not a FICO Score, the chances are the score is what I call a FAKO Score.

The Chart Of Facts: How long after bankruptcy or foreclosure must you wait to get a mortgage?

FACT: One can qualify for a new home purchase loan three years after a short sale, foreclosure or deed-in-lieu of foreclosure. Such requires a proactive approach by the borrower.

FACT: One can qualify for a new home purchase loan just two years after a Chapter 7 Discharge. Again, this requires a proactive approach by the borrower.

The number of potential Boomerang Buyers, just in Colorado is substantial. There were 42,692 foreclosure filings in the state in 2010 and 27,113 Chapter 7 Bankruptcy cases filed.  Giving people a second chance — even a third chance — is as deeply ingrained in the American psyche as is owning a home, the American Dream. Welcome home Boomerang Buyers!

 Boomerang Buyers Are Expected To Boost The Economy In 2014

According to a poll of LoanSafe.org and AfterForeclosure.com’s members:

• 79 percent of those who lost their homes are interested in buying again.
• 41 percent have incomes higher than when they first purchased.
• 63 percent report that their other debt obligations are lower (30 percent said “significantly lower”).
• 46 percent report the desire to purchase in a lower price range, and 29 percent report wishing to purchase in the same price range.

According to an article in Bloomberg Businessweek, it is possible that rental payment reporting may become a part of certain credit reports; time will tell is this information is accepted by the mortgage giants Fannie Mae and Freddie Mac.

Update: As reported in Distress Servicing on July 25, 2016 under the headline – Boomerang Buyers Bounce Back

“It was also reported that boomerang buyers are, on average, four times more likely to finance with FHA loans than traditional non-distressed, owner-occupied repeat buyers. FHA loans are, as a general rule, easier to obtain than conventional loans for cash-strapped borrowers with past foreclosures in their credit history because FHA guidelines allow potential borrowers to apply for a loan three years after the foreclosure sale date with a minimum 3.5 percent down and a credit score of at least 580.” Click here for the full article.

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Financially Speaking™  James Spray, MLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | Updated August 1, 2016

 Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

*Correction from two years to one year made on 8/20/2013.

Dear Daughter: About Building and Responsibly Using Credit

Dear Daughter:

In the beginning, select and join a credit union. Use this financial institution as your primary bank. Credit Unions are unique financial institutions. As a member you are an owner, not just a customer.  Your credit union is almost everywhere you are with shared services. Most credit unions offer free checking, free debit card services, free ATM’s, no monthly service fees, low cost auto loans, low interest rate/no fee credit cards and more. Search for one near you, just click here.

Credit Unions are insured by the National Credit Union Association and backed by the Federal Government up to $250,000.00.

 Begin developing a strong relationship by being responsible with your accounts. This will help you establish a solid reputation with your primary credit union.  In many ways, this illustrates your self-respect in the financial world.

·         Balance your checkbook at least monthly; ask a credit union officer to show you how.

·         Do not rely on overdraft protection; set up shares/savings secured in case you need it.

·         Overdraft protection is there to cover math errors only; if you have to use it, pay it off immediately.

·         Do not live on credit – it is but a tool, use it wisely as such.

·         Avoid credit monitoring/score watching services – these are a waste of time and money.

Build emergency savings for emergencies; they happen. Build separate savings for play such as getaways and vacations. You can set up special savings accounts with your credit union.

Building credit requires using credit and using it wisely. Limit your use of credit by using it wisely. Don’t pay interest on disposable goods such as food, gas, clothing, entertainment or vacations.

Once you have your credit union account set up, you may wish to ask a parent or relative with good (740 FICO) to excellent credit (780 FICO) to allow you to inherit their credit reputation. This tool, properly used, can greatly enhance the ability of one with a thin or young credit file to build one’s own credit in a more expedited manner.

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Financially Speaking™ James Spray, MLO, CNE, FICO Pro

CO LMO 100008715 | NMLS 257365 | July 8, 2013

 

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

Internet Mortgages: Are Ya’ Feelin’ Lucky?

This is a true story involving one of my clients. This is not about one of my mortgage customers. This is a client who hired me as an expert witness. He brought me aboard to help clear up a mess created when he sought and was approved for a mortgage refinance via an out-of-state lender he found on the Internet.

We’ll call my client Jed (not his real name). He determined that it was time to refinance and take advantage of the lowest mortgage interest rates in history. He searched the Internet, found a lender and applied for a plain vanilla, no-cash out, rate-term refinance. In other words, he simply wanted to shorten his loan from 30 to 15 years and get a lower interest rate.

Everything on the Internet is true… Right?

Jed found an out-of-state Internet lender who, for discussion purposes, we’ll call KwikNEZeeLoans.k0d (KNEZL)*. Jed researched KNEZL as best he could prior to submitting his refinance loan application. Not surprisingly, the information Jed was able to gather on the Internet about KNEZL was positive. Indeed, they have a high powered CEO who, prior to founding this company, had an impressive track record with one of the original Internet mortgage lenders. As we all know, everything on the Internet is true.

The initial interest rate offered was great! Almost unbelievably great, as the rate offered was 2.5% while most others were quoting rates in the range of 2.75/2.875% for Colorado at the time of his loan application.

Rate increase was not surprising.

Sufficient groundwork has been established, so let’s jump to one of the endings – indeed, the most obvious ending. You are quite right, perceptive reader; Jed did not get the initially promised deal. He ended up with an interest rate of 2.75%. Although a great rate, it’s not the rate initially offered. However this was not the most disturbing problem and the rate bump wasn’t really a huge surprise.

Was this attempted theft by conversion?

Let us now get to the real thrust of this story, and why Jed hired me in the first place. Jed paid his original lender the August payment. Jed’s loan with the Internet lender closed in August. The payment to Jed’s original lender was shown on the HUD1 Settlement Statement at closing as a credit to reduce the principal balance. In fact, it was not credited to the principal so he paid, in essence, an unearned bonus to the Internet lender in the amount of his entire monthly mortgage payment – principal, interest, taxes and insurance in the amount of about $2,500.00. Note that this amount was disclosed, just not credited in fact for Jeb’s benefit. Had this error not been corrected, it is conceivable this could be considered theft by deception and may have required a lawsuit to resolve. On such a lawsuit, it is possible the damages could have been trebled as well as having all legal fees paid. In such a situation as this, where an expert is required, it is typical for the expert fees to be paid along with all other legal fees including attorney fees and court costs.

Or just an honest mistake?

On the surface, one could have observed this Internet lender casually pocketed Jed’s August payment and only properly credited it for him when two events occurred. First, I had been retained to investigate the transaction. And second, upon my strong suggestion, Jeb filed a complaint with the Consumer Financial Protection Bureau (“Bureau”). The Bureau is perceived as being the nine hundred pound gorilla charged with protecting consumers of virtually all financial services conducted in the United States.
I am truly hopeful this oversight was not done as a normal course of business by this Internet lender. If this was deliberate, such activity is outrageous as very few customers would ever notice such deceptive accounting as the correct amount was printed on the Settlement Statement. As such, all appeared to be straightforward and honest.

The rest of the story.

Jeb’s loan closed in August 2012. He was concerned that the August payment he made to his former lender prior to the closing was not reflected on his final statement from the previous lender. The funds appeared to have vanished. He began writing letters to his new lender and his former lender attempting to get an accounting of his missing money. He received no responses from anyone. His phone calls were likewise ignored. Out of exasperation he called me in late October and explained the situation. I suggested that rather than engage me, just yet, he should go around all the middle people and write directly to the CEO of his new lender to see if he could get satisfaction. By the time he hired me in early December, he still could not get a response from his new lender. After four months he was fed up with getting the complete brush off. He was quite ready for me to document the problem(s) in order to file a lawsuit and force the issue into open court. For what it’s worth, KNEZL reimbursed Jed for my fees.

Jed is very detail oriented and a sophisticated borrower. 

He knew something was wrong, just not what it was. Rightly, he sought the help of an expert to help find exactly what was wrong. Frankly, though, no one should have to hire an expert to audit the closing trail to assure that the promised refinance was delivered as promised.

* KwikNEZeeLoans.kod (KNEZL) is a fictional name created entirely from my imagination.

 

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Financially Speaking™ James Spray, MLO, CNE, FICO Pro 

CO LMO 100008715 | NMLS 257365 | January 11, 2013

 

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.