When a quality check can ruin a short sale, by Chris Diaz, The Orange County Register


Chris Diaz is the founder of Charis Financial, Inc. He has over 15 years experience in helping homeowners with their mortgages and has closed hundreds of short sales over the last 4 years. His website is http://www.charisfinancialinc.com. Send questions to moneymatters@ocregister.com; reference ³Short Sales² in the subject line. 
I was recently approved for a short sale by (my bank).  The loan was in escrow and ready to close within a few days.  I then got a letter from (the bank) denying my short sale due to “quality review”.  My approval letter wasn’t set to expire for another two weeks and nobody in (the bank) could give me a valid reason as to why I received this denial.  Have you seen this scenario before and do you have any suggestions for me as I really don’t want to lose my home to foreclosure?

Yes, the out of the blue “QA Review” denial.  This one is a difficult one because of the lack of explanation from your bank.  It’s difficult to accept that one can have an approval in hand, with an expiration date that hasn’t yet expired, and still get a denial for a reason that is unexplained.  However, this is a reality and it does happen, albeit somewhat infrequently.

Even though your lender has accepted responsibility for their part in one of the largest instances of mortgage fraud on record with the robo-signing incident, they have a QA team that dedicates a great deal of time and effort in making sure that their company is free from other purveyors of fraud.  As well they should because there are lots of unscrupulous people trying to steal a buck instead of earn one.

One recent incident, in which a bank was victimized, was where short sale negotiators were doctoring up fake approval letters along with a fake bank account to have funds wired to, and stealing money that way.  The FBI said that three California men probably netted $10 million doing that.

Here are two of the main reasons that we’ve been told as to why a QA department would deny your file and what you can do to reverse or overturn the decision:

1. Buyer information is incorrect. Sometimes QA will deny a deal if the buyer’s preapproval has inaccuracies like the wrong NMLS number, broker number, or property address.  This can also happen if the buyer’s “proof of funds” is determined to be fraudulent or doctored in any way.  We have also seen it happen where the buyer is getting a loan but has enough money in the bank to pay for a property in cash.  Even though they could’ve bought the house in cash, because there was no preapproval letter for a loan, QA denied the short sale until we provided that letter.  This has happened even if we weren’t specifically asked for the letter.

2. The Equator account being used to process the short sale has been flagged. Some banks use an automated processing system called Equator to handle their short sales.  Equator centralizes all communication for all files that a real estate licensee is working on with them.  Sometimes, a licensee can involve themselves in schemes like I described above, or can just be guilty of shoddy work and upload documents from files incorrectly.  If the QA team catches either of these two things they may flag that file or all of the files of that particular agent.  Once that happens they would contact the agent for an explanation.  However, if they feel that there are deliberate inaccuracies in the file an agent can be suspended from doing any further deals with that bank.  If that happened your deal could be denied even if there was nothing fraudulent done on yours.

If a QA team has denied your short sale, have your agent address these two situations first as they are the most common.  So long as you’re dealing with someone who is ethical, there is probably just a minor oversight of buyer info that the bank needs to have satisfied.  Have your agent submit the complete buyer info first and then call to have the decision reversed.

Debate on Reverse-Mortgage Risks Heats Up, by Maya Jackson Randall, WSJ.com


A report by Consumers Union and other advocacy groups has ignited a debate about whether reverse mortgages are too risky for house-rich seniors in need of extra cash, just as the nation’s new consumer agency is starting to examine the issue.

The groups are urging the new Consumer Financial Protection Bureau to boost oversight of the complex loans and to move to fight scams and deceptive marketing. Other groups, however, defend reverse mortgages.

The call for increased oversight comes as the market for reverse mortgages is poised for expansion as the baby-boom generation retires. Meanwhile, lenders are aggressively marketing reverse mortgages, tapping celebrities such as actor and former U.S. Sen. Fred Thompson as spokesmen and holding seminars at senior centers to sell the loans.

Most reverse mortgages are made under the Home Equity Conversion Mortgage program, begun in 1988 and administered by the Department of Housing and Urban Development. A borrower must be at least 62 years old and have paid off all or most of the mortgage. Instead of a monthly mortgage payment, the borrower receives payments as a lump sum, monthly cash advances or line of credit. When the homeowner dies, moves or sells the house, the loan must be repaid.

The consumer advocates say seniors should use reverse mortgages—which allow older Americans to tap into the equity in their home—only as a last resort because fees can be high and the loans could affect eligibility for government-assistance programs such as Medicaid. Also, if borrowers deplete home equity, they won’t have much to pass on to heirs and could have a harder time funding long-term care, the groups warn.

Advocates also worry that if more isn’t done to help vulnerable consumers understand the risks, the expanding reverse-mortgage market could melt down just like the subprime-mortgage market did ahead of the financial crisis.

“The public, policy makers and legislators should be aware that this time, yesterday’s subprime lenders are now preying on a growing elderly population who are trying to remain financially independent in their own homes during a depressed economy,” says the report from Consumers Union, the California Advocates for Nursing Home Reform and the Council on Aging Silicon Valley released last week.

Defending reverse mortgages, groups such as RetireSafe and the National Reverse Mortgage Lenders Association say the report fails to acknowledge recent pro-consumer changes.

“I think they’re rattling the cages here without having much concrete to offer or any evidence to back up their allegations that there are widespread problems,” said Peter Bell, president of the NRMLA.

Meanwhile, the Government Accountability Office, Congress’s investigative arm, has found examples of potentially misleading claims in loan-marketing materials. Also, the Federal Bureau of Investigation warned in a March 2009 bulletin that loan officers and real-estate agents have exploited reverse mortgages to defraud senior citizens.

Congress directed the new Consumer Financial Protection Bureau to study reverse mortgages. According to a bureau official who works closely on mortgage-related issues, the bureau is beginning to examine reverse mortgages and plans to build on the Federal Reserve’s and GAO’s efforts to improve disclosures and prevent misleading advertising.

The advocacy groups say reverse mortgages are reasonable for some seniors in foreclosure who don’t plan to move into assisted living and for low-income seniors who lack other retirement assets, don’t qualify for lower-cost alternatives and can’t meet their current mortgage obligation.

But most seniors should consider alternatives, the groups say.

Still, Barbara Stucki, a vice president at the National Council on Aging, expects homes to become more popular sources of income for retirees, given that fewer Americans have defined-benefit pensions and more Americans are living longer after retirement.

“Today’s retirement realities are daunting, and when you combine that with the economic challenges, people are going to be tapping the equity in their homes,” she said. “We want to make sure that options like reverse mortgages are viable and properly regulated.”

The industry itself doesn’t seem opposed to new regulation.

“We understand that the demographics are in our favor. The market will grow, and the need will grow because people need to fund longevity, but it will only grow if consumers feel the products are fair and the people who offer them are trustworthy,” said Mr. Bell of the National Reverse Mortgage Lenders Association. “If the regulatory regime helps get us there, that’s great.”

Write to Maya Jackson Randall at Maya.Jackson-Randall@dowjones.com