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Problem Two

Lender Requirement of Delinquency

Problem

The lender has commonly required an underwater (negative equity) homeowner to be delinquent on mortgage payments first before a short sale approval can be given. This lender practice has resulted in short sellers being labeled as “strategic defaulters” (those who are able to make a payment but choose not to) for many who did not wish to go delinquent, but had to in order to get the short sale approved. Many have voiced alarm about this delinquency requirement as they struggle but continue to keep payments on time as they prepare to exit their home, often borrowering from retirement funds and relatives to keep up. The known lender policy of requiring this delinquency has baffled many who wonder why they had to have stellar credit to obtain the mortgage but must be delinquent in order to exit the home if it is underwater... a requirement told to them by their own lender.

Solution

1) Require that lenders follow FHFA New Short Sale guidelines and Making Home Affordable (MHA) Home Affordable Foreclosure Alternatives  (HAFA) matrix guidelines and allow underwater homeowner the ability to make mortgage payments during the short sale process with an acceptable hardship. Lenders also need to acknowledge all hardships available. Lenders that continue to resist allowing homeowners to proceed with a short sale while being current should be reported to the U.S. Treasury if they are in the Making Home Affordable program, and the CFPB.

2) When #1 is in place, provide a clear path, or best practices protocol for homeowners that want to proceed with a short sale while being current, to do so.
Lender HAFA Matrixes

In June 2013, 59 participating lenders were asked by the U.S. Treasury to provide a Home Affordable Foreclosure alternatives (HAFA) Matrix that outlines short sale detail.

In researching all HAFA Matrices content:

59: total Participating Lenders
13: no HAFA Matrix or criteria available
46: lender data being used

41, or 89% of lenders allow Imminent Default
15, or 32.6% of lenders state borrower can be current
30, or 65.21% of lenders state payments required

3) Enforce solution #1 to ensure that the risk model for a specific short sale code is a true risk model that can determine the real consumer habit of past short sellers for future use.

Continue to Problem 3