So what can be done? For now nothing and if I were you I would be really mad that your Loan Officer was such a Rookie that he or she didn't heed your warning about having defaulted on a previous FHA. That in my mind is the caliber of LOs out there since the Safe Act and the Dodd-Frank Act passed. Many of the old dogs just got tired and left the business due to the FEDs over regulation of this industry. Having said that, I am afraid you'll need to sit on the sidelines and wait the full 2 years and put down 20%, or wait 3 years and put up down 10%, or wait 4 years and you're back at 3-5% down. Sorry my friend, but I have yet to see a single borrower find a lender who could overlook a Federal Credit Alert System Warning...commonly known as...CAIVRS.
Best of Luck!
Per the VA lenders handbook:
"CAIVRS is a Department of Housing and Urban Development (HUD) maintained computer information system which enables participating lenders to learn when an applicant has previously defaulted on a federally-assisted loan.
The database includes default information from the Department of Agriculture, Department of Education, Department of Justice, HUD, Small Business Administration, Federal Deposit Insurance Corporation, and VA.
The VA default information included in the database relates to:
â€¢ overpayments on education cases,
â€¢ overpayments on disability benefits income, and
â€¢ claims paid due to home loan foreclosures.
An applicant cannot be considered a satisfactory credit risk if he or she is presently delinquent or in default on any debt to the Federal Government until the delinquent account has been brought current or satisfactory arrangements have been made between the applicant and the Federal agency."
Simply put if you caused a loss to the Feds they will not consider you credit worthy. Not to mention the risk the new lender has as they would soon have a prioritized lien against their collateral.
The FHA short should fall off in 38 months but something like a student loan must be consolidated (try William D Ford Foundation) or rehabilitated directly with the servicer (this takes 6 months). You may contact HUD and see about paying back the claim perhaps but I am not certain. Other items such as taxes or other liens would require them to be paid before they would no longer report.