Requesting a credit supplement during underwriting

[luvtwilight]

Ok so here's the story, I sold a home as a short sale, it was a usda loan and due to special circumstances they granted me a short sale without ever having defaulted on a payment. This saved my credit score immensely and has allowed me to be eligible to buy another (much cheaper) home. I was pre-approved, found a house, we're under contract... now underwriting is HELL! USDA came back at me for a debt settlement and I had to agree to pay back $5000, which I have been making my payments just as our debt settlement stated. The problem is, they are reporting the payments as a mortgage payment on my credit report, instead of a debt settlement/monthly installment payment. The underwriter said they want to order a credit supplement to see if they can get usda to change the way they are reporting this debt settlement. It is most definitely not a mortgage anymore,  I have proof of the satisfaction of mortgage and deed transfer. 

Anyone been in a similar situation or have any idea if this could be a deal breaker for us? My stomach has been in knots since underwriting started, everything is on hold right now waiting to see what the underwriter decides and my realtor is trying to hold off the sellers but not sure how much longer they are going to wait for us to straighten this out!

[ShanetheMortgageMan]

Have you provided the underwriter all of the documentation from USDA regarding the $5k?  It seems like this is unsecured debt, and even if they are reporting it as a mortgage, the paperwork would prove otherwise. 

Are you applying for FHA, USDA, VA or conventional financing?

[luvtwilight]

Yes I have provided them with all of the documentation related to the short sale and debt settlement, but they still want to request this credit supplement. Which I would like to have it fixed and reported correctly on my credit report as well, I just hope Usda will respond and change it, I'm not sure how the process of requesting this works, I know the loan officer will be handling it. And I hope this isn't going to be a deal breaker if we can't get it changed, because I know from my past experience with usda it's like pulling teeth to get them to work with you. 

This new loan will be FHA and probably the 203k streamlined. 

[ShanetheMortgageMan]

Credit supplement is just an addendum to the report already pulled, it doesn't actually modify anything at the credit bureaus.  When a credit supplement is request, it's the credit vendor who analyzes the provided paperwork or calls the creditor (USDA) to confirm the change.  I've never had to get a credit supplement on a mortgage from USDA so I'm not sure how difficult that would be, but if the credit vendor has the paperwork then it should be easier to get the credit supplement.

I'm sure your underwriter already checked this, but since you had a short sale on federal debt, do you know if you passed CAIVRS?  When a default on government debt occurs and a claim is filed, it'll come up in CAIVRS and can be an issue when qualifying for any new government debt (FHA, VA, USDA).  I'd ask your loan officer just to be sure that has been checked.  The $5k you are paying back could be to avoid USDA filing a claim.

[luvtwilight]

Thank you for the prompt response and the explanation of the credit supplement, I had no idea. Also I have never heard of the CAIVRS I hope the loan officer already checked that but I will look into it as well, thanks. All I do know is that I passed through FHA's automated underwriting system.