Pam Marron Home Lending

Massive and Erroneous Mislabeling of Short Sellers

As many of you know, I have championed the cause of short sellers for the past year. While the press continues to report on abuses of strategic defaulters, I am seeing another story entirely. As a working mortgage broker in this business for 27 years, I receive calls and emails daily from underwater homeowners who have struggled with how to sell vastly undervalued homes. Their only option to sell is a short sale. Yes, they want to continue to do the right thing and pay their mortgage but are told by their lender that in order to be approved for a short sale, they must be delinquent on their mortgage payment.

I have intervened on many of these calls, in disbelief of what exactly is being said to homeowners. When a request to make payments is made, the call is commonly escalated to a supervisor. It has clearly been said more than once: “if you pay your mortgage, it may hamper your ability to get approved for a short sale”.

Strategic defaulters are those that can pay their mortgage payment but chose not to. However, other than a handful of programs that allow continuance of payment while getting approved for a short sale, defaulting on a current mortgage payment is the common requirement of getting a short sale approval, advised by the lending institutions that hold the mortgages of these underwater homeowners. The frustration is that this “trigger for default” is not in writing in any manuals, but it is clearly stated by almost all lending institutions.

This is the reason that short sellers en masse are becoming mislabeled as strategic defaulters.

Why is this practice so detrimental to turning this housing market around? Because any mortgage lates prior to a short sale automatically exempts a past short seller from repurchasing a home for 3 years with an FHA mortgage. If the mortgage lates had not occurred, these homeowners could repurchase within the 3 years after the short sale. Additionally, it is common for lenders to have their own overlays regarding past short sellers that extend wait time even further than published underwriting guidelines.

August 9, 2012 by · Leave a Comment

About Pam

Since 1985 as a loan originator, highly experienced with automated loan approvals on DU, LP, and with USDA GUS systems, thorough knowledge and use of FHA loans including 203K rehab, conventional loans including USDA, Homepath and rehab, and VA loans. After 27 years, I STILL love this business!

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