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Effect of multiple 120+ lates

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Senior Contributor

Re: Effect of multiple 120+ lates

I went to talk to a mortgage specialist today at Bank of America.  Explained the situation and that I wanted to make sure I would be able to qualify for a loan in January when I hit three years of no late payments.  He had no idea what I was talking about.  Said that 120 day lates aren't considered foreclosures and that I should be able to qualify now.  He said I could come back whenever I was ready to go forward and he would pull my credit.

 

Can anyone point me to where the 3 year requirement is spelled out in FHA's guidelines?  I find lots of info on it when discussing foreclosures, but I can't find anything official that comes right out and says that 120 day lates are treated as a foreclosure.  Also, I've read it can be five years if you can't demonstrate extenuating circumstatnces (although that may be for conventional financing only).  I'd like to be armed with the right documents next time I go to meet someone.  I don't want to get to January, have a bunch of credit pulls while I'm shopping around, and then be told that it's actually going to be 5 years. 

 

Thanks again for all your help. 


Starting Score: ~500 (12/01/2008)
Current Score: EQ 681 (04/05/13); TU 98 728 (01/06/12), TU 08? 760 (provided by Barclay 1/2/14), TU 04 728 (lender pull 01/12/12); EX 742 (lender pull 01/12/12)
Goal Score: 720


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Message 11 of 15
Community Leader
Super Contributor

Re: Effect of multiple 120+ lates

What it is, is a technicality.  

 

Anytime a "rating" is reported to the credit bureaus, it is assigned a Manner of Payment (MOP for short).  When a mortgage late payment goes 120 days late, it is assigned a MOP of 5.  Foreclosures also start off as a 5, and then from what I've seen most can turn into an 8 or 9 (9 is more common) when the foreclosure process concludes.   http://www.transunion.com/docs/business/HowToReadCreditReport.pdf - page 3 are the MOP codes


When FHA TOTAL (the system that all lenders have to use for FHA loans) sees a MOP of 5 or greater, it assumes it was a foreclosure.  See http://www.hud.gov/offices/hsg/sfh/total/total_faqs.pdf - Q12 highlights when a "refer" is given and a manual review has to be done.

 

http://www.hud.gov/offices/hsg/sfh/total/total_userguide.pdf - page 20 indicates the procedure when a foreclosure/deed-in-lieu has been done ... which yours wasn't a foreclosure, but FHA Homeownership Centers have told me they view 120 day mortgage late payments the same as a foreclosure when foreclosure proceedings were initiated (including notice of default) - when the 120 day late payment didn't coincide with foreclosure proceedings being initiated it is up to underwriters discretion.  That user guide references the 4155.1, which is available online and you can view the section about foreclosure at: http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.4.C.2.f

 

It is possible that months prior to the 3-year anniversary of your latest 120 day mortgage an underwriter would feel comfortable approving an FHA loan if your lender didn't initiate foreclosure proceedings, but if they were and they are approving it to fund before then, it could raise issues with the lender ... but it would not affect you, since once the lender makes an FHA loan it's up to the lender to prove to FHA it meets FHA's insurability guidelines, if it doesn't, and you default, the lender doesn't get FHA's insurance to cover a portion of their loss.  So as long as an underwriter (not just a loan officer) is going to review your file top to bottom, and they pre-approve you with the 120 day mortgage lates within 12 months, then you should be in a good position to make an offer on a home with FHA... but make sure that underwriter is the one approving it with an official conditional loan approval.

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Message 12 of 15
Senior Contributor

Re: Effect of multiple 120+ lates


@ShanetheMortgageMan wrote:

What it is, is a technicality.  

 

Anytime a "rating" is reported to the credit bureaus, it is assigned a Manner of Payment (MOP for short).  When a mortgage late payment goes 120 days late, it is assigned a MOP of 5.  Foreclosures also start off as a 5, and then from what I've seen most can turn into an 8 or 9 (9 is more common) when the foreclosure process concludes.   http://www.transunion.com/docs/business/HowToReadCreditReport.pdf - page 3 are the MOP codes


When FHA TOTAL (the system that all lenders have to use for FHA loans) sees a MOP of 5 or greater, it assumes it was a foreclosure.  See http://www.hud.gov/offices/hsg/sfh/total/total_faqs.pdf - Q12 highlights when a "refer" is given and a manual review has to be done.

 

http://www.hud.gov/offices/hsg/sfh/total/total_userguide.pdf - page 20 indicates the procedure when a foreclosure/deed-in-lieu has been done ... which yours wasn't a foreclosure, but FHA Homeownership Centers have told me they view 120 day mortgage late payments the same as a foreclosure when foreclosure proceedings were initiated (including notice of default) - when the 120 day late payment didn't coincide with foreclosure proceedings being initiated it is up to underwriters discretion.  That user guide references the 4155.1, which is available online and you can view the section about foreclosure at: http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.4.C.2.f

 

It is possible that months prior to the 3-year anniversary of your latest 120 day mortgage an underwriter would feel comfortable approving an FHA loan if your lender didn't initiate foreclosure proceedings, but if they were and they are approving it to fund before then, it could raise issues with the lender ... but it would not affect you, since once the lender makes an FHA loan it's up to the lender to prove to FHA it meets FHA's insurability guidelines, if it doesn't, and you default, the lender doesn't get FHA's insurance to cover a portion of their loss.  So as long as an underwriter (not just a loan officer) is going to review your file top to bottom, and they pre-approve you with the 120 day mortgage lates within 12 months, then you should be in a good position to make an offer on a home with FHA... but make sure that underwriter is the one approving it with an official conditional loan approval.


Shane,

 

Thank you again for your most helpful response.  I very much appreciate it. 


Starting Score: ~500 (12/01/2008)
Current Score: EQ 681 (04/05/13); TU 98 728 (01/06/12), TU 08? 760 (provided by Barclay 1/2/14), TU 04 728 (lender pull 01/12/12); EX 742 (lender pull 01/12/12)
Goal Score: 720


Take the FICO Fitness Challenge
Message 13 of 15
Established Member

Re: Effect of multiple 120+ lates

Everybody here says 3 years, but I am living this right now! I have no negatives on my credit at all. I was paying as agreed on a loan modification when they robo-foreclosed on me. They sent a letter stating they unintentionally forclosed so it shows as a short sale! with late payments. But from the "sound" your post, you don't have any late housing.

 

 

Ultimately you won't know until you make some phone calls. I did the mortgage app with this website and spoke with some very nice folks who gave some sound advice. I have had some very rude face to face situations! If you do the app on this site, it took about 2 or 3 days to get a phone call. (I wasn't spamed! I highly recommend it).

Message 14 of 15
New Member

Re: Effect of multiple 120+ lates

What is an early deletion? I have most of my debt to fall off in 2013. How old does debt need to be and how do you go about getting it deleted?

 

Thanks!

 

Ash

Message 15 of 15
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