Mortgage Approval 2.5 years after short sale (loan, credit card, finance, reputation)

[Aharmon499]

I am in the process of planning a job relocation to the Atlanta area and I am hoping I can get some opinions from some experienced mortgage professionals or others with similar circumstances on the likelihood we would be approved for a new mortgage given the following circumstances:

- Current mid-FICO score around 675
- Sold our home in a short sale in July '10 due to challenges in maintaining the payments given job circumstances at the time, overextension of credit card debt, and ultimately a job relocation out of state.
- During the year leading up to the finalization of the short sale we had several late mortgage payments and credit card payments
- In order to close the short sale we had to sign a $10k note with Fannie Mae which was ultimately transferred to Dyck O'Neal. We did not begin making payments on this note until March 2012 as we had requested proof of transfer from them multiple times and they did not do so until March 2012, at which time we immediately paid all past due payments and have been current on the note payments since. Unfortunately they are currently reporting us past due 120 days each month up to 3/12 (current since). I realize we should have paid them earlier and I probably did not handle this situation properly but what is done is done and I'm afraid it cannot be reversed.
- We have rented a home for almost 4 years now with a $2,500/mo payment and could certainly get a positive credit reference from our landlord
- Our credit card debt has been reduced to less than $10k and we have been current with all payments for the last couple years, as well as our car loan

We are looking at a home purchase around $500k with 20% down payment. Do we have any hope of obtaining an approval for such a purchase at this time given these circumstances above? We won't be buying until early spring either which will likely mean our scores could increase slightly from current levels and revolving debt will be near 0. I also have very solid income to cover DTI ratios involved.

Thanks!

[aneftp]

Since you will be bringing 20% down, Fannie/Freddie has 24 month wait period between delinquent short sales.

[jwiley]

The short sale will not even be your big problem as you are past the wait time, the big problem is that you signed a note with Fannie Mae directly then did not make a payment on that note until it was over a 120 days late. I understand the reason, but I doubt any lenders accept your loan due to that. If you wait for 2 years from when you caught the payments up, you may qualify, but I do not think you will get anywhere now, even with 20% down.

[SmartMoney]

Originally Posted by jwiley

The short sale will not even be your big problem as you are past the wait time, the big problem is that you signed a note with Fannie Mae directly then did not make a payment on that note until it was over a 120 days late. I understand the reason, but I doubt any lenders accept your loan due to that. If you wait for 2 years from when you caught the payments up, you may qualify, but I do not think you will get anywhere now, even with 20% down.

That was my thought as well.........however, I do have one question first. Was the 10K all that you were short? Did that note make you whole? If the answer is yes, then I may answer slightly different.

Do you not see where an underwriter would have an issue, if you have 20% to put down, why do you still have a note outstanding to Fannie Mae? You are correct, you really screwed up on skipping that payment. A sale of a note does not relieve you of the obligation of payment, at the bare minimum, payment should have been sent in to Fannie for forwarding. Whoever gave you that advice should never be listened to again. When we review applications for mortgages when there is a prior short sale, bankruptcy or foreclosure, the very first thing we look at is the credit since the credit event. If there are any derogatory issues (other than a medical collection, which are now viewed as annoying, like mosquitoes), then we reset the clock to the last derogatory event. So, if we have a 2 year rule with 20% down, the clock would be reset to March of 2012. Other items reviewed include the amount of new debt incurred since the short sale. How many new loans and revolving credit card accounts are there? What are their balances? Every attempt will be made to see what kind of shape would you be in in the event of another "event."

Now, this doesn't mean that there won't be a pocket somewhere of money that will consider the loan. When you do go shopping in the Spring, find a lender that will run your credit and give you a copy of the report. Use only that report to consult with other lenders, if that lender says no. This is a classic case where repeated pulls can really pull your score down. (Credit pulls only hurt when there is a history of problems).

[Aharmon499]

Thanks for the insight.....that was my fear with this. The $10k did not make us whole at the time of the short sale and it still shows as "settled for less than balance" on our report from Wells Fargo. At the time we had a significant amount of credit card debt as well which we have since taken down to less than $20k (from over $100k), our current CC utilization is under 30% and could easily be reduced further if it helps my cause. Just trying to balance the funds for a 20% down payment vs. paying off remaining debt. I could also settle the note with Dyck O'Neal and I am currently trying to negotiate with them to remove the negative reporting given the circumstances if I settle the note, however, based on my conversations with them I am not optimistic they are going to be willing to do this. We have had no other derogatory events on our credit since late 2009 so we would clear any two year lookback hurdles if we could only get the Dyck tradeline removed.

Trust me, I now realize we got bad advice and I should have been paying the note payments all along, especially since they were a mere $83/month. I unfortunately chosed to focus on paying down all CC debt instead since they could not provide any proof of ownership for the note for so long.....I guess I naively thought they would just go away.

[Aharmon499]

One more silly question....does the fact that Dyck is not currently reporting to TU or that it is showing on my report as and Unsecured Loan with no reference to the original Fannie Mae prommisory note help my cause at all? Would I have any case for getting the tradeline removed from my credit if I were to work through a reputable attorney based on the fact that a verification of debt was never received from them until March '12? (grabbing for straws here!)

[SmartMoney]

By all means, consult an attorney, and the Consumer Finance Protection Bureau (which now oversees mortgages and credit reporting agencies), it won't do any harm and has far more possibilities that it may be beneficial. The sale and transfer of notes is perhaps the most misunderstood aspect of the lending world. Lenders (note holders) are not required to report to the various bureaus (it costs them money and probably why TU is blank). Doesn't matter these days if they only report to one bureau, every mortgage lender I know is requiring a pull from all three.

However, a quick search and a few clicks tells me this company has a shady reputation as a servicer of loans. I think you trying to work out any arrangement with them directly would be asking for more trouble. Do get an attorney involved, if nothing but for an intermediary.

[Zippyman]

If you've got solid income and that level of debt, why jump back into the fire with another mortgage asap? Pay your bills down to zero and have a bank account for a while! You might like it.

[cpinson]

Send me an email I can put in contact with someone that may be able to help you with this situation. They deal with consumers all over the country. They can advise you on the wait period you have to secure another mortgage loan.