Mortgage Broker Battles Lender Folly
Pam Marron, a mortgage broker for 27 years in Tampa, Fla., is trying to put an end to one of the dumbest things any financial-services company can do.
She says banks, credit unions and other lenders are routinely telling homeowners to default on their mortgages. She has posted a petition on the White House's website to get them to stop.
It can happen when a homeowner asks a lender to approve a short sale.
"They say, 'We can't help you until you're 30, 60 or 90 days delinquent on your mortgage,'" Marron said in a telephone interview. "I have heard it with my own ears."
Scientists say that one day the whole state of Florida will be underwater, but for now it's just mortgages.
Marron, a broker with Open Mortgage Home Lending, said her part of the world was so swamped by the housing crisis that about half its homeowners with mortgages owe more on their homes than they are worth.
The problem, of course, goes way beyond Florida's swampland. Of the nation's 48.7 million mortgaged homes, nearly 23% are underwater, according to latest negative-equity report by CoreLogic. This is the highest it's been since 2009, and it's another indication that the nation's housing market isn't really recovering. So what happens if you owe more on your house than it's worth and you've got cancer, a divorce, a job loss or any of the other garden-variety tragedies of human life? Well, you'll have to sell. And if you can't cover the difference between what you owe and the price a buyer will pay, you will have to ask your lender for approval on a short sale.
The short sale will ding your credit, for sure. You are asking the bank to eat your loss. But if you stop making payments before the short sale, you will have the added injury of defaulting on a mortgage in addition to the short sale.
Marron says this can make a huge difference in your chances of buying a more affordable home in the future. Creditors can abide short sales, particularly when they represent the only negative on an otherwise good credit report. But default? Isn't that practically another word for foreclosure?
"The banks don't understand what they are doing to people," Marron said. "This is why we are becoming a nation of renters."
In many cases it may not be the policy of the bank, itself, which is often acting as a loan-services company, but the actual investors holding the notes.
"Absent mortgage investor guidance to the contrary, Bank of America does not have a policy requiring that a loan be in delinquency to start a short sale," said Bank of America spokesman Rick Simon in an email. "Imminent default may apply."
One of Marron's customers, Vito Aviolla, told me he called Bank of America when he was going through a divorce in 2008. Aviolla, a fully employed accountant, said he wanted to do everything he could to keep the bank whole and keep his credit score as high as possible.
"The bank would not address me until I started to miss payments," he said.
Then, after he finally got out of his house, the bank misreported to credit agencies that he had a foreclosure instead of a short sale, making it harder to buy another home, he said.
Joe Gendelman told me he sees this situation every day. He is the Florida regional director of a lawyer-driven credit resolution service, National Credit Federation. People with good credit histories, but the bad fortune of purchasing a home at the top of the market, are getting creamed, he said, even when they are doing their best to work things out with their lenders.
Gendelman said anyone told to skip mortgage payments if they want approval for a short sale has to wonder, why not just default altogether? "Why not just say, 'I'll live in this house until the sheriff comes in a year. And I'll save that $1,000 a month before I move on.' What does it matter?"
(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. Contact Al at al.lewis@dowjones.com or tellittoal.com)