Home Loans and Support

FHA Loan with Previous Foreclosure

Discussion in 'FHA Loans, Requirements & Rates' started by stryker115, Feb 27, 2013.

  1. stryker115

    stryker115 LoanSafe Member


    In September of 2009, we foreclosed on our home in AZ. We did an 80/20 loan in 2006 when purchasing the home, so we are covered under AZ law against pursuance for the debt (the home was severely underwater).

    The 80% loan was through Countrywide and then BofA, and shows as Foreclosed with a $0 balance on my credit report. The 20% loan was through EMC and then Chase, and still shows as "Past Due" for 40 months worth of payments on my credit report. I called Chase yesterday to see what my options were for getting this taken care of, and they said within 5 business days the account would be with their Recovery Department or sent to collections (apparently before I called it was just sitting there going continually past due?)

    I pulled my FICO recently and it's around 680 even with this open balance, because aside from our foreclosure (which we chose to do, it was not based on lack of funds) my credit has been perfect. I have no debt aside from a few thousand left in student loans, and have been at my current job for 7 years and make very good money.

    Now, we want to buy a home early next year using FHA, as at that point I'm not sure 4 years past foreclosure will be enough for conventional lending. What will this "open" Chase balance do to our chances? If it is sent to collections, what should we do with it? From what I have been reading, it sounds like having that balance there will put a complete stop on FHA even if we meet all of the qualifications.

    Thank you in advance for any advice.
  2. Erik Sandstrom

    Erik Sandstrom Mortgage Expert - Call 1-619-379-8999 Staff Member

    Hi Stryker,
    I have dealt with numerous clients in the same position as yourself and have asked my underwriters directly how to deal with a scenario like this. Here is my question to underwriting and their response:

    Question: "Questions about Previous Short Sale and 2nd Mortgage Still Hanging Around"

    To underwriters:
    "Hi UW’s,</SPAN></SPAN>
    Here’s a scenario it sounds like the borrower has been running into road blocks. Prior to me moving forward with taking an application I figured I would ask your opinion. I have had a few borrowers in the same situation where the 2[SUP]nd[/SUP] mortgage is still hanging around or was reported as charged off after the completion of the short sale. Please read the scenario below and let me know what you think:</SPAN></SPAN>

    Thank you guys for all your help, It’s MUCH appreciated!"

    Below is a scenario from my previous client which is very similar to yours:

    "Hopefully you can help me out as I have been striking out lately and continue to receive contradictory information.

    It started when I was told I had to wait to refinance our primary residence until a previous short sale had been closed for 2 years. Tried to refi then and was told I couldn't refi until it had been 3 years. 3 years finally passet, that takes us to Nov 2012. Tried again and found out that the 2nd loan from Citi didn't get reported as charged off until Jan 2010 so I would need to refi after JAN 2013 and then it would have been a full 3 years.

    So, tried again this past week and was told by one lender I had to wait 4 years and another lender said 5 years. (the same lender that previously said 3 years)

    I would greatly appreciate any advice or information. Hopefully you have a program so we can refi but ultimately I would like a clear answer. I am not really one to shop around, I just want it done and only had 2 other companies run my info because they told me for sure they could complete the refi after hearing my scenario. I have had my credit run 3 times since Nov. and my credit dropped from 710 mid to 695 mid. No other accounts opened and credit card amounts owed decreased during that time so I was really surprised.

    Please let me know if you have a program so I can refinance our primary residence. I have a short sale that closed in Nov 2009. There were late payments prior to the short sale. We have lived in our primary residence for almost 5 years, never been late, can document income, 695 mid score, dti under 30%, LTV under 80%. Owe $189k on current mortgage and have over a 6% interest rate."</SPAN></SPAN>

    Underwriters Response:

    We can't be 100% sure of what is going on with the 2nd lien without reviewing a copy of the credit report, however we have seen a couple of different things. When a 2nd lien gets wiped out in a short sale transaction or get's minimal compensation for their lien, they often file a 'deficiency judgment'. FHA required 3 yrs from the settlement of a standard short sale transaction and Conventionally we can consider 2 yrs with an LTV of 80% - however, we must have an AUS accept to consider for Conventional financing (FHA can be manually reviewed with an AUS Refer). It depends upon how the 2nd lien is reporting the delinquency - if the delinquency is reporting as a 'charge off', there can be an 'unpaid balance', that supports the deficiency judgment amount. Any 'deficiency judgment' amount must be satisfied in full -</SPAN>
    You may wish to provide a copy of the borrower's credit report, but I think you may be better off altogether by trying to obtain authorization to submit to underwriting for a full 'credit review'.

    If you would like any other questions answered, I'm always happy to help.</SPAN>
  3. stryker115

    stryker115 LoanSafe Member

    Thank you very much Erik. If I am reading this right, then if Chase ends up marking that account as "Charged Off' (which is what would show if it was sent to collections, it still shows as Active and past due right now) then the underwriter will likely expect that amount to be paid in some way, even if we are not legally pursuable for it.

    How does a "full credit review" work? Is it possible to submit a request to have a specific case reviewed to an underwriter? That seems like what might help us, because we're a bit of an odd case but are definitely able to support the mortgage.
  4. Erik Sandstrom

    Erik Sandstrom Mortgage Expert - Call 1-619-379-8999 Staff Member

    Hi Stryker115,
    Anything I can do to help! You're correct with your statement that if they show the account as charged off, that amount would be required to be paid prior to the new loan closing.

    Shoot me an e-mail with the state your property is located and if our branch specifically can't help I can put you in touch with someone that can. Our branch is currently licensed in CA, NV & FL however our company is licensed in about 30 states and I have relationships with our branch managers/loan officers in the other states that I trust. My contact information is below on my signature line.
  5. TooBee

    TooBee LoanSafe Member

    eric, is that an open invitation?? LOL!! (as i'm copying and pasting your info :))

    it sounds like you are prepared to maybe take in those with what may be challenging road blocks. can i ask, does income to debt radios matter anymore?
  6. Erik Sandstrom

    Erik Sandstrom Mortgage Expert - Call 1-619-379-8999 Staff Member

    Absolutely! I would be happy to submit your file into automated and physical underwriting to determine what the outcome of that would be!

    The debt ratio's do matter depending on the program we are moving forward with. FHA limits the debt ratio for higher income borrowers around 55% in most cases. The automated system determines the max back end debt ratio. Conventional back end debt ratio maximum is 45%.
  7. TooBee

    TooBee LoanSafe Member

    what about PERFECT almost...lol...debt to income ratio's...(80%) with a bk after the 3 year mark?????? oh!!! and a GREAT down payment???

    oh!!! and there is a "vet" in the house, just in case?
  8. Erik Sandstrom

    Erik Sandstrom Mortgage Expert - Call 1-619-379-8999 Staff Member

    Honestly I'm confused by what your last statement says...

    Are you wanting to look into a VA home purchase?
  9. TooBee

    TooBee LoanSafe Member

    i'm just thinking of possibilities that we may be able to use?

    we are thinking about possibly purchasing another house, this that we purchased was owner financed, bypassing the banks completely. we should be paid off with this although it was a 30 year mortgage in about 6-10 months. we would like to buy another home in another state within the next year. we did surrender our house and it's IIB, however, it was never foreclosed.

    i was just thinking as opposed to an FHA to go maybe VA or conventional if we had enough down and being right up front about everything (i'm referring to our bk). just looking for alternatives and explore the options basically, sorry for the confusion!

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