How Banks and Mortgage Insurance Can Stop Military Short Sales

Despite the fact that I am opposed to war, I hold the utmost respect for our military. All military -- active or retired or no longer among us. Many of my clients serve in the military, so while I have no children and none of my relatives speak to me, I feel a special connection to my clients who serve, especially those deployed overseas.

OK, I have to admit a weakness when they call me ma'am. Especially the men. Everybody is so efficient, which I greatly admire, being the sort of efficient person that I am. If you know me, you know that I did not grow up around the military, and I don't know much about it, either, so I try not to mess up the military terms and make it sound like I do because the last thing I would want is to insult a member of our military.

Yet, the short sale system and our U. S. banks seem to have no problem insulting the military. There is an awful thing going on that I wish would be investigated. It's akin to the credit derivative swaps, which I still don't fully understand. It's when banks take out their own mortgage insurance policy on underwater homes. They're doing this left and right. They do it without permission from the homeowner, because they don't need permission, and they pay their own premium.

This is happening especially on those 80 / 20 combos. The old loans that financed 100% of the purchase price. When borrowers took out these loans, they were promised there would be no mortgage insurance. They relied on that assurance when they chose this product. Yet, today, they might have mortgage insurance. The mortgage insurer might deny or mess up their short sale. If I were those borrowers, I would be madder than hell. I'd believe I was sold a false bill of goods. I'd raise the roof and start screaming at reporters and lawyers.

But it's also happening on first mortgages that have already been approved once for a short sale. It's really bad when it happens to a member of our U.S. military who needs security clearance. Why? Because many of the mortgage insurance companies will not approve a short sale unless the seller is in default. If a seller stops making a mortgage payment, that could be enough to lose a security clearance.

I am presently working on an odd situation. We had approval for a short sale from U. S. Bank a few months ago. We could not close escrow because the buyer bailed. The buyer said he canceled because he wanted to use a garage in the condominium development to store commercial products, and the HOA did not allow it. Now that we have a new buyer, U. S. Bank is telling us it has taken out mortgage insurance for its underwater loan. That mortgage insurer requires default to approve the short sale, and our short sale seller has been making the payments. Dilemma.

You've got to ask yourself, how is there a market for mortgage insurance like this? Those policies are insuring thin air because there never was equity to start with. How is the mortgage insurance company making a profit? Is the mortgage insurance company in bed with U. S. Bank? In other words, after the policy is enforce, does U. S. Bank make the company subject to reinsurance? There's a big lawsuit going on over reinsurance and mortgage insurance.

Fortunately, there is a program like HAP, the Homeowners Assistance Program. HAP was revised by Congress in 2009 to help our service members who were transferred and forced to sell an underwater home. It involves transferring ownership of the home prior to closing to the government, which then sells the home to the buyer.  I am hoping this program will save my military seller. Because our banking system sure as hell won't.

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