N.C. Law to Slow Military Foreclosures Could Wind Up Hurting Military Borrowers

Foreclosing on active-duty military members might become more difficult for lenders in North Carolina if a bill that passed the state Senate this week eventually becomes law.


At quick glance, that would seem to be cause for celebration. But this appears to be a case where the cure could be worse than the disease.

The proposed legislation would basically slow down the foreclosure process against active-duty service members and require lenders to seek relief from a judge, who would have the discretion to disregard a foreclosure sale depending on the individual circumstances.

The problem is that lenders might have to begin evaluating — and charging — military borrowers differently knowing that it’s significantly more difficult to foreclose. Lenders worried about losing money are likely to take steps to insulate themselves, such as requiring bigger down payments or higher credit scores.

And that has the potential to make it increasingly difficult for some military families to secure home loans.

The proposed legislation could impact borrowers seeking all manner of financing, but VA loans could be particularly hard-hit. VA loans require no down payment and typically have more flexible underwriting standards. The average credit score for a VA borrower last year was slightly more than 700, about 50 points below the average score for all borrowers.

North Carolina has a huge population of military homebuyers, including nearly 21,000 who received a VA guarantee in 2009.

Finding ways to keep military families in their homes is an important task. But this may not be the best path. In fact, it might keep deserving military members and their families from becoming homeowners.

Contact me if you have any questions http://www.themortgagemark.com/  mwilkins@capitalfmc.com