Mortgage Process Experience After Chapter 13 Bankruptcy

This Article Is About Mortgage Process Experience After Chapter 13 Bankruptcy The mortgage process experience does not have to be stressful. I had the pleasure and honor to meet Mary B. as a borrower. Now we have become lifelong friends. Mary B., like many, fell victim to the 2008 Real Estate And Credit Meltdown. Due to the Great Recession of 2008 consulted with a Bankruptcy Attorney. Since she had a great reduction in income. Had outstanding debts where she needed time and help in restructuring her debts. She was advised to file Chapter 13 Bankruptcy from her Bankruptcy Attorney. Back in 2010, Mary B. filed Chapter 13 Bankruptcy. Was assigned a Chapter 13 Bankruptcy Trustee.

All of her debts were restructured and entered into a Chapter 13 Bankruptcy Repayment Plan. Mary and Al worked very hard and satisfied her Chapter 13 Bankruptcy Repayment agreement. Had her Chapter 13 Bankruptcy discharged in November 2015.

In this article, we will discuss and cover Mortgage Process Experience After Chapter 13 Bankruptcy.

Late Payments During Bankruptcy

What Late Payments Mean During Bankruptcy

She has made all of her payments as agreed under her Chapter 13 Bankruptcy Repayment plan:

  • However, there were two issues that created havoc in her qualifying for an FHA Loan After Chapter 13 Bankruptcy Discharge
  • One was a late car payment during her Chapter 13 Bankruptcy repayment period
  • The second major issue she had was that she had a mortgage loan on her home that she had outside of the Chapter 13 Bankruptcy Repayment plan
  • The home sold and closed in December 2015
  • Unfortunately, there was a delay in closing her mortgage loan on her home
  • The mortgage lender, Bank of America, has reported her with a 30-day mortgage late, which not only plummeted her credit scores but a mortgage late on the credit report in the past 12 months

Any late payments after a Bankruptcy and/or Foreclosure is a deal killer in getting a mortgage loan approval.

Mortgage Process Experience And How Do Mortgage Lenders View Late Payments

Late payments are extremely frowned upon by all lenders. Not just mortgage lenders but any other lenders as well as creditors. A consumer’s payment history is what determines the financial responsibility a borrower has. Most lenders look at the borrower’s payment history in deciding and predicting the likelihood of how timely borrowers will be in paying their future monthly debts. The majority of lenders will automatically disqualify any mortgage applicants who have had any late payments after a bankruptcy, foreclosure, deed in lieu of foreclosure, short sale, or loan modification. However, there is light at the end of the tunnel.

Gustan Cho Associates Mortgage Group specializes in mortgage loan programs with no lender overlays. We often can help borrowers who had late payments after a bankruptcy, foreclosure, deed in lieu of foreclosure, short sale, and loan modification. Just because a mortgage loan applicant has high credit scores does not mean that they automatically qualify for a home loan. Credit payment history is equally as important, especially timely payment history for the past 12 to 24 months.

Successful Mortgage Process Experience

Mary B. researched the internet and was looking for a mortgage lender with no overlays and contacted me after reading one of my many blogs on Qualifying For A FHA Loan After Chapter 13 Bankruptcy. Due to her recent late payment on her mortgage, her credit scores plummeted to under 600 FICO. I was not too concerned about her credit scores being under 600 FICO. This was because the minimum credit score required to qualify for an FHA Loan in California is 580 FICO. She met all of the minimum credit and income requirements. The recent late payment on her mortgage after a Chapter 13 Bankruptcy discharge was a concern for me. Plus a late payment for an auto loan that was over 30 days late into her Chapter 13 Bankruptcy Repayment Plan.

HUD Manual Underwriting Guidelines

What are the guidelines for manual HUD risk assessment

All Chapter 13 Bankruptcy mortgage loan applications are manual underwriting if the Chapter 13 Bankruptcy discharge has not been discharged for at least 2 years:

  • So the Automated Underwriting System will not tell me whether or not the late payment of her auto loan or the late payment right after her Chapter 13 Bankruptcy discharged date will become an issue
  • We contacted my FHA Underwriting Manager and our Director of Underwriting and ran over this case scenario with them

After thoroughly reviewing Mary B.’s file, both the Underwriting bosses gave me the green light and told me that they can overlook the auto loan late payment as well as the recent mortgage late payment after the Chapter 13 Bankruptcy discharged date.

Importance Of Compensating Factors On Manual Underwriting

This was because Mary had a lot of compensating factors which included the following:

  • The second job as a university professor where she was there for 18 months
  • That income was not used to qualify
  • She had more than enough reserves as well as her primary employment as director of accounting
  • She has been there for over 14 years

I then issued a solid pre-approval letter to Mary where she went home shopping.

Mortgage Process Experience: Buying A Home From A Home Builder

Mary and I became really great friends while she was shopping for a home. Mary and Al always called me if they had any questions and we talked daily, not always about mortgages, and became the best of friends. Mary then found a home she really loved but the home was a new construction home. This is when her nightmares began. The builder she went to told her that she needed to use the builder’s preferred lender in order for her to get closing cost credits and the builder’s incentives.

If she were to use me, the home builder would not give her any closing cost credits nor builder’s upgrades. This practice is totally illegal and it is called Anti-Steering where Home Builders Are Steering Home Buyers To Their Preferred Lenders. The home builder was pretty blatant about it. The preferred lender was WJ Bradley Mortgage Corporation. Mary and Al, who were extremely loyal to me, told me about this. I told them if WJ Bradley Mortgage Corporation can do their mortgage loan, just to go with them. This was because the home builder is offering incentives only if they used their preferred lender although it was totally illegal.

Choosing A Lender With No Overlays

How to choose a lender without overlays

WJ Bradley Mortgage Corporation guaranteed Mary that they would have absolutely no issues with getting their FHA Loan After Chapter 13 Bankruptcy discharge with the mortgage late payment approved and closed. Long story short, the loan officers of WJ Bradley Mortgage Corporation contacted Mary and told her that her mortgage loan got denied due to her late payment after the Chapter 13 Bankruptcy discharged date. To top it off, WJ Bradley Mortgage Corporation has completely shut their doors and are no longer in business.

Mortgage Process Experience With Lender Overlays

I thought I was in luck and I was going to originate and fund Mary and Al’s FHA Loan:

  • However, at the last minute, my company lost our main investor who had no lender overlays on FHA Loans After the Chapter 13 Bankruptcy discharge date
  • The two investors we had required a one year waiting period after a discharge of a Chapter 13 Bankruptcy discharged date
  • I frantically searched for another lender where they did not have any waiting period requirements after a Chapter 13 Bankruptcy discharged date
  • Found one where I helped Mary’s family and the new lender coordinate the file transfer
  • Long story short, Mary’s family have closed on their home yesterday, April 6, 2016
  • They now have the keys to their new home and called me yesterday to thank me
  • The mortgage process experience can be extremely stressful
  • However, if there is a will, there is always a way

Congratulations to Mary and the whole family on their new home closing in California.

Letter By Mary And Al

Like to thank Mary and Al for the kind note they have sent me and my staff:

Hello, All:

We are Mary And Al. Pardon the interruption, but we wanted to say hello and publicly acknowledge (or embarrass) Gustan Cho of Gustan Cho Associates. Gustan Cho is an amazing friend, professional, and trainer – if you are receiving his informational emails, consider yourself fortunate.  We do.  Even after we went with a builder’s preferred lender, Gustan Cho stayed the course and continues to advise us along the way. Our goal is to help others and be a consistent, reliable, and innovative part of Gus’ team. We look forward to partnering with all of you as well.


Mary And Al B.

(a.k.a. fans of Gus)

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