All Forum Posts by: Catherine Coy

I reached a "404--File Not Found" at the Freddie Mac link.

I'll keep my eyes peeled for an announcement from either camp. I found this, but it says just the opposite: The Feds are allowing Fannie/Freddie to ease access to credit.

http://topics.nytimes.com/top/news/business/companies/freddie_mac/index.html?inline=nyt-org

I don't agree. This is a cycle just like all the other cycles...just like the cycle ignited by the savings and loan crisis...just like the cycle ignited by the banking crisis of the 1920's.

I say, take advantage of this cycle and buy up as many properties as you can. They're having a sale on real estate! Whoo-hooo!

(Who's Ray Kurzweil?)

Hmmm...I haven't seen an Announcement that says this. Can you find it at Fannie Mae or Freddie Mac's site?

https://www.efanniemae.com/sf/guides/ssg/2008annlenltr.jsp?from=hp

On the contrary, I heard that, on a full doc basis--meaning the borrower can fully document his financial capacity to manage multiple loans--Fannie Mae has temporarily waived the 10-loan limitation so that investors can soak up inventory. However, I haven't found an Announcement to that effect, so it may be an urban legend at this point.

Here's Fannie Mae's page for Announcements. Do you see there the announcement limiting multiple loans to just four?

https://www.efanniemae.com/sf/guides/ssg/2008annlenltr.jsp?from=hp

Yes. If you look at it from the lender's POV, the bank went without being paid for 120 days, had to possibly file an NOD and otherwise was pulled through a knothole by this particular borrower. That the borrower brought himself current and finally paid the lender is what the borrower is contractually obligated to do.

When I counsel consumers on how to clean their credit, I'm often confronted with, "But I owe only $100 to one collection agency! Why has my score been destroyed?!" I respond, "If you owe only a hundred lousy bucks, why didn't you pay it? Why did you wait until you were hunted down like a dog--and now you want a loan--before you paid it?"

The FICO scoring model is no respecter of motive. A collection account of ten dollars is just as serious as a collection account of ten thousand dollars. I recall the only loan that ever made me cry was when I was trying to get an erroneous $47 state tax lien removed. The dollar amount had nothing to do with anything. A rose is a rose is a rose. A deadbeat is a deadbeat is a deadbeat as far as the FICO scoring algorithm is concerned.

Fair Isaac has changed their scoring model to put medical bills in a separate category, recognizing as we all do that the way medical invoices are processed in this country is inherently chaotic and rife with the potential for error.

How can I say with sufficient tenderness what must be said? The impact of a 90-day late isn't the same as a foreclosure where underwriting guidelines are concerned. Why? Because the borrower had the tenacity to pull himself out of a hole before he went NOD. That's why, in my role as a loan originator (I negotiate short sales, too), I constantly counsel borrowers to do everything they can not to go NOD (120 days late)--if they want to soften the blow to their score and still qualify, without the seasoning requirement, for a future loan. They're a completely different animal when they're 90 days late as when they're 120 days late.

Still, both events--90 days down and foreclosure--are assigned Score Factor Code #22--"serious delinquency, derogatory public record or collection filed." Near term, the effect is EXACTLY the same. They are "weighted" the same. I can't stress this enough.

Where your understanding is a little bit thin is that over time--about two years--good credit behavior can supplant derogatory credit behavior where one's FICO score is concerned. But don't forget...there's still a notation of 90-120 days down or "settled for less than owed" [short sale] on one's credit report that must be explained to a subsequent lender. When the U/W digs a bit, s/he'll know that a forelosure--as defined by Fannie/Freddie--occurred and thus NO LOAN FOR YOU! until 5 years seasoning has passed.

Please note the distinction between "seasoning"--the amount of time that must elapse between the derogatory credit and a new loan--and a healthy FICO score. A consumer can, by sheer dedication to month-after-month on time payments--raise their credit score to, say, 680 but still have a foreclosure (as defined by Fannie/Freddie) to deal with when they apply for a subsequent loan. Even if the consumer has achieved a 700 score, they will be prevented from obtaining a loan if the short sale or foreclosure appears on their credit report.

The only way a homeowner can escape the consequences (destroyed FICO score and seasoning) of not performing as they agreed is to bring the difference between what they owe and the sales price to the closing table. The homeowner earns no points for "saving the lender the trouble of having to foreclose."

If you were in the lender's shoes, you'd see it this way, too.

I reached the following recording at OCWEN the other day: "We will no longer accept calls from real estate agents." Why? Because REAs are a PITA! They defensively argue with the SS loss mit rep when the SS lender attempts a commission-ectomy instead of negotiating from a position of strength. So, as a loss mit rep at OCWEN said to me, "we don't want to even talk to REAs anymore."

Personally, I think REAs would be better off delegating the negotiating aspect of SS, even if it means they earn less commission.

Wheatie, you're correct. The OP's offer, from the end buyer's POV, is too high. From the Bank's POV, it's too low.

I negotiate for end buyers who are represented by real estate agents. This, by the way, is the preferred scenario for the shorting bank. They would rather see an owner occupant end buyer making an offer up to 90% of current or after repaired value than an investor seeking a profit.

An investor seeking a wholesale profit and doing a simultaneous (as opposed to double) closing is why many title companies no longer do simo closings.

Look at it this way: the SS negotiator represents to the SS lender that the property is worth only X. Minutes later (simo), the property is sold to a different end buyer for Y and the SS investor pockets the difference. Title company says, "Whoa! We didn't sign up for this! Put your money where your mouth is, buy the durn property and THEN if you can flip it for a profit, we don't have a problem with that. But don't make us an accessory to a representation of X and then you turn around and simultaneously sell it for Y."

I was privy to a lengthy memo authored by one of the head honchos at First American Title that outlined why they won't do simo closings anymore. They'll do double closings, of course. In that case, unless the SS lender does a post-closing title search, what they don't know won't hurt their collective corporate feelings. :roll:

Fair Isaac's scoring model is "predictive"--that is, it seeks to identify those whose past payment history predicts how they would handle a future negative situation. What the defaulting homeowner's past payment history says to potential future lenders is: "We had better not take a chance on this borrower. We already know what they did in the past when faced with payment pressure."

I've never yet heard of a SS negotiator who obtained from the shorting lender a "paid as agreed" notation. This would be an "I-1" or MOP-1" notation, as opposed to "I-9" or MOP-9" notation. If there's a SS negotiator on this board or the entire planet who successfully wrestled a "paid as agreed" (I-1 or MOP-1) notation for a SS, please tell us how you did it. What possible reason could a SS lender have for letting a homeowner completely off the hook, only to possibly face him/her again in the future via loan application?

MOP stands for "manner of payment"--1 being as agreed; 9 being defaulted.

In any event, a SS negotiator would be well-advised to get such a promise in writing, but don't hold your breath. Look at it from the lender's POV: "Hmmm...let's see. We think we'll let this borrower screw us and we will not learn from this experience." Lenders simply don't operate that way.

In CA, a non-recourse state, there is no deficiency judgment. In a recourse state, obtaining a waiver of deficiency judgment is, in fact, a benefit, but it's the only one. Most lenders don't pursue deficiency judgments, anyway, although that stance could change in the future, depending on the circumstances.

All I'm saying is that SS investors had better be careful how they promise benefits to the hapless homeowner faced with foreclosure. That's not to say there's no benefit to avoiding foreclosure. The "F word" still carries significant social stigma, and some homeowners don't want to face themselves in the mirror and say, "I was foreclosed." They'd much rather say, "I sold my home" a mindset that maintains their dignity--a subtle to nearly worthless distinction from a FICO/future qualifying POV but meaningful to some homeowners.

I intended to post URLs to support what I said in my initial post but, apparently, as a new poster, I cannot post URLs until a couple of days has passed. I would, however, like to do that so y'all don't think I'm talking off the top of my head.

As to the no discernable difference between SS, foreclosure and 120 days late, that's the glaring failure of FICO scoring, in my opinion. Because Score Factor Code #22 is the ONLY category into which any of these derogs may fall, it's completely true that, once one's credit score has been decimated, there's no incentive for the consumer to NOT file Chapter 7 and/or walk away from their upside down property and scrape the whole damn mess into the dumpster.

There are three conduits, if you will, for dealing with a consumer: bankruptcy laws, FICO scoring models and lenders' underwriting decisions as dictated by Fannie/Freddie. They are not all congruent with each other! So the over-burdened homeowner must pick what hill he's going to die on and decide what's best for him in terms of immediate relief and future borrower eligibility.

BTW, a thirty party with a vested interest in the outcome--for example, a real estate agent who stands to make a commission on a SS listing--and who is LICENSED needs to tread particularly carefully. If you're an unlicensed investor, I guess your conscience is your guide.

I feel like I should inform you all that a short sale will impact one's credit score EXACTLY the same as a foreclosure. Also, the "seasoning" period for becoming eligible to obtain a new loan with an institutional lender is EXACTLY the same: now 5 years.

It's a total myth that somehow a short sale is less damaging to one's credit. Why? Because the following events are all the same; that is, the definition of a "foreclosure" by Fannie Mae and Freddie Mac is:

Foreclosure

None in past 5 years with minimum 3 active trade lines more than 24 months old, with no late payments or derogatory credit after the foreclosure.

Definition of Foreclosure: Any 120 day mortgage late within the last 24 months, any notice of default or settlement on a real estate secured trade line (short sale), any deed-in-lieu or forbearance agreements.

The above is straight out of the Fannie Mae Selling Guide, so it's not speculation or conjecture. All underwriters know the facts: foreclosure/short sale = same/same.

The hit to one's FICO score is EXACTLY the same because each of the above events results in Score Factor Code #22--"serious delinquency, derogatory public record or collection."

If a loan has defaulted, and you call the lender, you'll hear a recording, "This is an attempt to collect a debt." You've gone over to the Dark Side and you are now in collection. Therefore, Score Factor Code #22 applies, and your credit will take a hit JUST AS IF the property went to sale on the courthouse steps.

The FACT I have explained above is now making its way into the collective consciousness of consumer awareness and doesn't bode well for short sale investors whose goal is to put the property under contract by convincing the homeowner that a short sale is somehow better. It isn't, so short sale investors had better be careful what they say. I predict there'll be a lot of lawsuits by homeowners who, once they fully understand the impact of a short sale--that is, it's EXACTLY the same as foreclosure--will be looking for someone to point the finger at. A typical response might be: "What the...?! The guy who bought my house through a short sale told me that a short sale would be less damaging! I could've stayed in my house expense free for a few more months! Who do I sue?"

The response by the lender as I've described it only makes sense. Whether a loan is foreclosed, or the homeowner agrees to a short sale, or gives back the keys, the lender got shafted. They don't care HOW they suffered a loss, only that they did. They want to ensure they don't lend to homeowners who shafted them for at least 5 years. They report to the gossip mongers (the 3 major credit bureaus) and the homeowner is toast for at least 5 years. The resulting point loss is EXACTLY the same for a short sale as for a foreclosure and it takes the same amount of time to recover.

If anyone wants corroborating URLs, citations from lender's guidelines or a list of Fair Isaac's Score Factor Codes, just say so and I'll post them.

Based on my experience as a short sale negotiator, unless the property is trashed, your offer is too low. I'm finding accepted offers in the 80-82% of FMV range.