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Lenders: Change Mortgage Delinquency Policy for Short Sales and Modifications

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6.9 million underwater homeowners still exist in the U.S. (Underwater homeowners are those who have a mortgage where the amount of the loan(s) exceeds the value of the home.) There is no refinance option for underwater homeowners who have a conventional non-Fannie Mae or non-Freddie Mac 1st mortgage, or a 2nd mortgage or HELOC. 

Many of them are trying to “stay put” but have no refinance option available. Their only options are either a loan modification or a short sale…. and both of these options require mortgage delinquency first, destroying their credit in the process.

Yes, it is true: The only option available to these is a modification which requires that affected underwater homeowners trying to “stay put” in underwater homes must go delinquent on their mortgage and prove a hardship first.

U.S. Lenders need to make a change to their current policy to allow current or partial mortgage payment instead of mortgage delinquency before a Short Sale or Modification can be approved.

Lender policy that requires mortgage delinquency to obtain a modification or short sale approval still exists - even for homeowners who request continuing their mortgage payments throughout the process. A policy of allowing payments to continue is allowed for imminent default reasons proven by hardship through most lenders, but is almost never applied.

Many underwater homeowners are trying to stay put, but cannot any longer. Whether these homeowners apply for a modification to stay put or a short sale to move, lenders still require mortgage delinquency which results in:

1.      Delayed timeframe before a new mortgage can be obtained

2.      Denial of best mortgage products

3.      Credit score reduction, resulting in harm to consumer in acquiring additional credit

4.      Slowdown of real estate and mortgage industry when delay for new mortgage occurs.

Recommended: Allow current or partial mortgage payments even when hardship exists for a modification or short sale instead of currently required mortgage delinquency. The homeowner benefit should be better credit. The lender benefit is a higher net proceed.

The recommendation has been allowed in the past, and for non-veteran short sellers. This is not a law. This can be changed.

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