There has been much speculation about the loose terms used in the guidelines for HUD’s new “Back to Work” program after foreclosure. For starters, what, exactly, constitutes an “economic event?”
According to HUD, an economic event is any occurrence beyond the borrower’s control that results in loss of employment, loss of income, or a combination of both, which causes a reduction in the borrower’s household income of 20% or more for a period of at least 6 months and leads to foreclosure, short sale or Bankruptcy. (or a combination)
“Borrower’s household income” is considered the gross income of the borrower and all household members. A “household member” is an individual residing at the borrower’s primary residence at the time of the economic event and who was a co-borrower on the borrower’s previous mortgage. This includes going through divorce depending on the financial outcome of the court.
In addition to proving their hardship, borrower must also demonstrate that they have fully recovered from the event after foreclosure (or short sale). This is proven through the establishment of “satisfactory credit.” Satisfactory credit is when any open mortgage is current and shows 12 months of satisfactory payment history.
In order to prove that your now satisfactory credit was previously unsatisfactory because of an economic event, you must have exhibited satisfactory prior to the economic event, the derogatory credit occurred after the onset of the economic event and that, once again, you have re-established satisfactory credit for at least 12 months after foreclosure or short sale.
For the purpose of proving this, the “onset” of an economic event is considered the month of loss of employment or income. “Recovery” from an economic event is considered the re-establishment of “satisfactory credit” for a minimum 12 months after foreclosure.
Confused? Don’t worry. It’s probably because these things are confusing. We spoke with HUD this morning (and periodically throughout the day) for clarification on some guidelines and they’re still working out the kinks on their end too. Feel free to call us with any questions or to discuss your eligibility!
Homeownership is within reach!