Home Buying in San Diego>Question Details

lisasewell04, Home Buyer in Poway, CA

FHA waiting period waived?

Asked by lisasewell04, Poway, CA Wed Mar 28, 2012

I have found a house, put in an offer, all contingencies were met and got approval on the loan. I am suppose to close on Friday and my lender just told me that I have to write a letter to the UW because I have a foreclosure that is 8 months shy of the 3 year waiting period. The foreclosure process began in April of 2009, but did not actually transfer until november 2009. Now, 3 days before the close is suppose to happen, my lender said i needed to write a letter explaining the foreclosure, which was a result of a divorce, me becoming a single mom in a high crime area and not being able to pay the mortgage. I'm wondering what the odds are that the bank will go ahead and finalize the loan??

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Cory La Scala’s answer
Hi Lisa,

Hopefully, with a foreclosure in your background, a full-doc pre-approval was required by your agent before submitting the offer. In fact, all buyers should have full-doc pre-approvals before writing offers, just to avoid easily avoided situations like these. If you had a full-doc pre-approval before you submitted your offer, the UW shouldn't be coming back with this now, you would have known about it long before you submitted an offer! Not only are you invested in the property now, but you paid out-of-pocket for an inspection and appraisal.

If you didn't get a full-doc pre-approval, your only option at this late date may be to write the letter. If this purchase doesn't go through, and for your sake I really hope it does, you might seek out a more diligent agent (if you didn't sign a buyer-broker agreement) and a better loan officer next time.

1 vote Thank Flag Link Wed Mar 28, 2012
Hello Lisa,

For the underwriter to approve the loan, the appropriate documentation is needed, and that includes the letter of explanation. A well written letter can do some serious majic.
I would not consider this a rejection at this point, and would write a great letter, explaining what happened and how you mitigated the loss to the lender. It has to come across like there was no way you could have avoided a foreclosure. Attach the documents like court order to sell the foreclosed property, or that you tried a loan modification, or a short sale, your divorce documents, how your restored your credit, everything that helps to show you as a financially responsible person.

Be your own advocate, and I very much hope that you'll get your mortgage.

Irina Karan, CDPE
Beachfront Realty, Inc.
0 votes Thank Flag Link Tue Apr 3, 2012

I am sorry to hear of this unfortunate situation. I certainly hope there is resolution in sight and also that you will post the final outcome on this thread. Of course, I am hopeful for immediate resolution; however, I cannot be certain that will happen. My best thoughts are out there for you.

I would, however, like to focus a little more on the "why" this may have happened in an effort to enlighten other consumers and/or agents. The real issue at hand likely has more to do with circumstances AFTER the discharge of your foreclosre. This is a fairly convoluted process; however, I will do my best to explain in layman's terms.

First, I would like to dispell the "your loan officer is an idiot" comments....as this may, or may not, be true. The comments that the mortgage professional or automated underwriting should have caught the issue at the point of origination is correct. From a origination standpoint, we utilize the infromation on the credit report and are looking specifically for the "discharge date" of any legal proceeding (foreclosure, bankruptcy, divorce, for example). Everything in the automated underwriting of your file is based upon the same credit report (verified by report number input into the AUS systems). Next, the underwriter will "validate" that all information put into the AUS system matches the documentation and, as long as everything remains correct and all supporting documentation validates the computer findings, everything should be fine. Or, so the common thought process dictates. Unfortunately, this is not alway true.

First, many lenders are not Fannie, Freddie, FHA or VA direct and they have the requirements of additional lender overlays or secondary sign off on every file. That alone almost always ends up with a few hiccups on the file.

Second, and more likely the culprit with your situation, is that the lender received information (likely from the title report) that the servicer did not transfer the title/deed, etc, at the time of the foreclosure. Your message states that the process began in April, 2009 but completed in Nov., 2009. IF the foreclosure was not discharged until Nov. 2009, I would have to agree with the comments below; however, IF the credit report shows the discharge in April, 2009 and there is still a problem it is likely because the actual transfer did not take place until Nov. 2009. IF the latter, there is no way the mortgage originator would know that at the point of origination and, yes, there is a likelihood that the file would encounter issues somewhere down the road.

Sorry to be so wordy; however, this situation is one of the "grey" areas of lending that can really, really get sticky.

For example, a few months ago I had a purchase file go sideways for a few days (subsequently resolved) for reasons that had absolutely nothing to do with my buyer. My client was buying a REO property from the bank. We were totally approved and ready for docs. However, the underwriter received the chain of title just prior to ordering docs and everything went to dust (momentarily) at that moment. It seems that the actual foreclosure had taken place over a year previous; however, the bank had not transferred the title out of the previous home owners name until after the new purchase contract had been signed. In other words, on paper the bank was entering into a purchase contract to sell someone else's home. The underwriter/lender had a very real problem with this fact. It was resolved; however, it did add two days to the closing and necessitated considerable efforts from my agents, title and legal departments.

The point is that many things in lending do not happen when it appears obvious. Banks are notorious for not reconveying paid off lines of credit...resulting in delays in the sale of the property while title gathers all the documents to evidence the very lien was paid off years ago. The new HARP program has incredible opportunity for creating this same drama for many consumers. The guidelines state that the current loans must be owned by Fannie/Freddie by June, 2009. That means the loans would have to have closed well prior to June to ensure the sale actually happened. With one lender that may be May; with another it may mean February.

Again, I do wish and hope this is all resolved in your favor. However, I would suggest that often times people expect mortgage professionals to predict the future and, while there are many times we can, it is not always possible. Others may be right and I, too, would declare your mortgage person an "idiot" if I reviewed your entire file...I just don't think I could throw the stones without all of the facts. Best of luck to you!
0 votes Thank Flag Link Mon Apr 2, 2012
Well...this sucked for lack of a better term. One day before closing, all packed, movers scheduled and it's a no go. I'm sooo disappointed. I think the lender should have informed me way before I paid for inspection, etc. They told me that I will be fine after sept..but that obviously doesn't help ,
Me now.
0 votes Thank Flag Link Thu Mar 29, 2012
In the same spirit of Dan, I can credit 1% or more of the buyer's agent commission to you to help out as well and would love the chance to help turn things around here. So if you decide to start fresh, we could team up to get a deal closed. I represent clients throughout Southern California.

CA DRE 01775528
(760) 525-8698
0 votes Thank Flag Link Wed Mar 28, 2012
Regarding your second post below:

Unfortunately, banks have little to do with the FHA guidelines. We as lenders just have to make sure that you "fit" into the FHA "box". So, FHA makes the rules, and the banks just carry it out... This is really unfortunate, but I am pulling for you...

Should have never happened...

There might not be much that you can do now, but if you do end up wanting to buy later, I can credit you the cost of this appraisal and inspection for your next purchase... Maybe that can help take the sting away a bit...

By the way, you might want to look for another real estate agent as well... This due diligence should have been done...
0 votes Thank Flag Link Wed Mar 28, 2012
I dont think they will, unfortunately. Typically a hardship resulting in a waiver of a 3 year foreclosure waiting period has to do with a death of a wage earner, or something similar.

I REALLY hope they do help you, but your lender for lack of a better term is an idiot. It is complete common knowledge that you dont start the 3 year period until the foreclosure is completed.

I really hope the underwriter sees it your way, but this should have never come up.

If the loan falls apart, and you want a new lender, feel free to contact me and I will make sure that you are taken care of. Sorry, but honestly, this is really slim...

Web Reference: http://www.lehmangrp.com
0 votes Thank Flag Link Wed Mar 28, 2012
There is no excuse for a buyer to find themselves in this situation - meaning agents and lenders should have advised you from the get go on this potential circumstance.

Obviously, the foreclosure would have shown up on the credit report - which is pulled in the pre-qual process. I second Cory's 2nd paragraph and hope for the best for you Lisa.

CA DRE 01775528
0 votes Thank Flag Link Wed Mar 28, 2012
This is an FHA loan. We had loan approval and my lender said everything was good to go. But then today he said to write this letter and I did that explaining the circumstances. I too don't know why this wasn't brought up way before. He said that he was told by underwriting that it was fine, but then now it has to be sent to the corporate office for a 2nd sign off because of being short of the 3 yr period. I guess my question is can banks waive that 3 year requirement? He indicated to me that the head underwriter and 2 operations managers were meeting tomorrow morning and I should know something by tomorrow, but i'm wondering if there are banks that actually are able to proceed being 8 months shy?? And yes, i've already paid for inspection, appraisal, etc.
0 votes Thank Flag Link Wed Mar 28, 2012
Unfortunately, banks have little to do with the FHA guidelines. We as lenders just have to make sure that you "fit" into the FHA "box". So, FHA makes the rules, and the banks just carry it out... This is really unfortunate, but I am pulling for you...
Flag Wed Mar 28, 2012
Hi Lisa!

The answer is not good. The loan officer should have questioned you about the foreclosure back when he/she took the application as it is on the loan application, If he/she had ran the automated underwriting thru Fannie or Freddie it should have been caught there. For it to come up at this late date with the 'live' underwriter is a real problem. If they are just getting to the automated underwriting.....oh brother....... ;-(

The problem you have is all these loans are now bought and sold in the secondary mortgage market and with the mortgage crisis over the past three, four years, everything is tightened up. The lender has to deal with not only is the loan a good one but can it be sold after the close. there is little common sense undderwriting these days.....

You didn't indicate what kind of loan or what kind of lender is involved but if it is a conventional loan with mortgge insurance, it has to get through both the lender and the MI company. You can look at all the MI underwriting guidelines online depending on which MI company the lender is dealing with.

If FHA or VA, there is more leeway but not much since lenders have their own set of "credit overlays" that differ from FHA and VA. Again these loans needs to be sold on the back end.

Sometimes more money down can help but I think a foreclosure can't be solved with more money.

Your agent should hammer the loan officer for not having a plan around this foreclosure or not noticing that there was a foreclosure on your credit report and throwing up red flags. This problem should not come as a surprise to the lender and you. If the lender gave you a pre-approval letter with this foreclosure and it was not a problem......well......OMG... better make your letter of explanation is air tight with lots of documentation...............

Take care,
0 votes Thank Flag Link Wed Mar 28, 2012
I am surprised that your loan officer did not pick up on this early in the process. The lenders that I work with get the credit package underwritten early in the process so all we need is the appraisal.
Get advice fro your loan officer as to what they want in the letter and write it right away so you can close.

I am never too busy for your referrals

Jerry Heard
Your Broker
The San Diego Property Shop
Direct 619-920-9796
Office 619-269-5545
Fax 619-269-9168
CA DRE # 00648687
0 votes Thank Flag Link Wed Mar 28, 2012
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