Can our loan be saved?

[Anonymous]

We are under contract for home at 252k. Mortgage score is 685, income 87k. With the new mortgage our dti is 34.5%

We are 3 years out of a chapter 7. No negatives reporting on credit report. We were preapproved for fha and we are a few weeks from closing.

Everything was fine until we hit a major snag this week. We relocated 5 yrs ago and rented out our home. It was included in the bankruptcy and doesn't report on our credit. The problem is that our tenants were late on rent several times and we have a few 30 day lates on that mortgage over the past year. I was under the impression that after it was IIB, that we were no longer held against us for credit as long as it wasn't later foreclosed or short sale.

Our lender requested a trade line update and it obviously shows the late payments. LO is going to run it through automated underwriting tomorrow, but we aren't optimistic that we will be approved.

Do we have any more options? We have never been late on anything, before or after bankruptcy and have a perfect rental history since we relocated. We have sold the rental house and obviously it would not be a recurring problem.

Is there any hope?

[Anonymous]

I don't understand.  The tenants were late paying y'all so y'all and that made y'all late paying the monthly payment?

Does your current score of 685 have the late payments baked in?  

Any late payments before B are not counted?  I don't know all the rules on that, but maybe someone smarter can help.

[Anonymous]

Yes, when our tenants were late paying, we were late paying the mortgage. It was included in bankruptcy but not re-affirmed, so we were no longer liable for the debt.

No, the 685 does not include the late payments. Our mortgage does not report to the credit bureaus because it was included in the bankruptcy. If it was, this would have been discovered as a problem much sooner. The underwriter asked for a statement on the account to add to our file.

We have no other late payments, before or after the bankruptcy, other than this.

[StartingOver10]

I don't know. Are these late payments more than 30 days past due? How many did you have on this mortgage in the past 12 months?

[Anonymous]

There are 3, maybe 4. Only 30 day lates. No 60 or beyond

[VALoanMaster]

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@Anonymous wrote:
There are 3, maybe 4. Only 30 day lates. No 60 or beyond

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Most underwriters will kill an FHA loan if there are any derogatory hits on the credit report after a BK and in your case the lates are on a mortgage which is a double whammy.

Here's what sucks. Your LO should be able to argue that since the mortgage was included in the BK & not re-affirmed, the underwriter has no reason to ask for a history on that account but that doesn't help you with the bigger issue which is this: 

You included the mortgage in the BK so FHA guidelines state your eligibility does not start until 3 years AFTER the bank takes back the title to the home. So in your case, the bank has not taken back title yet so you're not eligible yet for an FHA mortgage.

If I were your lender, I would look at having you re-affirm the mortgage but I would make sure that I got a prior approval from my underwriter before having you do that.

[Anonymous]

We didn't/won't have a foreclosure. We sold the house this month. December will be 3 yrs post discharge, although we qualify for FHA after 2 years because we did not have a foreclosure. We continued paying. No payment history has reported to our credit since we filed. The underwriter asked for the bank to provide the history and that's where the problem is this late in the process.

[StartingOver10]

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@VALoanMaster wrote:

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@Anonymous wrote:
There are 3, maybe 4. Only 30 day lates. No 60 or beyond

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Most underwriters will kill an FHA loan if there are any derogatory hits on the credit report after a BK and in your case the lates are on a mortgage which is a double whammy.

Here's what sucks. Your LO should be able to argue that since the mortgage was included in the BK & not re-affirmed, the underwriter has no reason to ask for a history on that account but that doesn't help you with the bigger issue which is this: 

You included the mortgage in the BK so FHA guidelines state your eligibility does not start until 3 years AFTER the bank takes back the title to the home. So in your case, the bank has not taken back title yet so you're not eligible yet for an FHA mortgage.

If I were your lender, I would look at having you re-affirm the mortgage but I would make sure that I got a prior approval from my underwriter before having you do that.

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^^^I have to disagree with this statement in red. Not all borrowers that filed Bk and were successfully discharged lost their home.  If in fact they did give up their home, then you are right. And, the majority of bk filers did give up their home - but not all of them.  

There is a small subset of buyers/borrowers that continued to pay their mortgage, on time every time, and then sold their home at some point after the bk discharge. Some people even had substantial equity in their home and were able to keep the equity after the sale. Those same people were able to get mortgages on a subsequent home purchase, but had to prove the payments were on time. I have had a couple of those buyers and they were successfully approved - but they had to show the settlement statement for the home they sold and the payments being made on time during and after the BK.  Your initial statement about lates after a Bk being a deal killer are correct from what I have seen.