The answer is, it depends. Conventional mortgage wisdom tells you that you can’t refinance a delinquent mortgage under existing standards. But there are exceptions and some leeway afforded to delinquent homeowners. The challenge is to find a lender who is willing to work with you under its own rules.
Delinquent Mortgages and Foreclosures
You are delinquent on your mortgage if you fail to make timely payments on the home loan. This happens when your mortgage payment is past 30 days or more and didn’t make it to the 15-day grace period given by the lender.
For every late payment is a corresponding late fee. More importantly, if you fail to turn your mortgage back to being current, you’ll run the risk of foreclosure.
Against this backdrop, the Consumer Financial Protection Bureau has come up with its 2016 Mortgage Servicing Rule to prevent wrongful foreclosures and defined “delinquency” in that regard.
Under the relevant rule, delinquency begins “on the date the periodic payment becomes due and unpaid even if the servicer will not assess a late charge if the borrower makes the periodic payment within a certain time frame after the periodic payment is due.”
Mortgage Programs and Delinquency Provisions
Let’s examine how some of the more popular loan programs of today view delinquency in mortgage refinancing.
FHA loans: Back in 1994 the HUD sent special instructions on refinancing delinquent mortgages to stave off foreclosure. The FHA currently allows you to refinance under its streamline refinance program if you only have one 30-late payment in your 12-month mortgage history, or no more than two months delinquent.
VA loans: Lenders can submit loans with a past 30-day or more payment to VA for prior approval. The request should document why the mortgage became delinquent, what has been done to correct it, and the loan meeting the credit standards under the IRRRL.
Fannie Mae- and Freddie Mac-backed loans: Conventional lenders will require you to have a current mortgage history, especially on HARP®. But you may refinance your conventional loan into an FHA or VA loan.
Finding a Lender When Delinquent
Having a delinquent mortgage puts you in a complicated situation when refinancing. But it can be done if you find time to ask lenders around. There may be options available to you, refinancing included and besides, that only lenders know.
For example, there may be lenders who’d accept your delinquent mortgage but would require a higher credit score, bigger assets, and more.
There may also be lenders who will offer a loan modification which results in an extended loan term, lowered interest rate and/or any adjustments to make your mortgage more manageable to repay.
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.