'Strategic' home default disaster

Q: I went late on my mortgage payments in order to get a loan modification. My lender did reduce my payments, but not my principal balance, so I'm still way upside down. I decided to walk away, but I wanted to buy another place first with my Veterans Affairs (VA) loan certificate. The mortgage broker told me I can't qualify because of the late mortgage payments.

I thought I was being strategic with my actions, and asked around and got advice from all sorts of friends and accountants, but it seems like I've ruined my chances of getting out from under this place, anyway. What did I do wrong?

A: Well, friend, you appear to have fallen victim to several of your own incorrect assumptions and fallacious lines of reasoning along the course of your decision-making process recently.

First off, you incorrectly believed that principal reduction was even a reasonable outcome to expect from your loan modification. The data shows that just over 1 percent of loan modifications actually include principal reduction.

So, if that was the only outcome of your modification process with which you would have been satisfied, the better bet would have been to stay current on your loan and select another course of action before you impaired your ability to qualify for another loan.

Secondly, you did not keep up on the rapid evolution of loan qualification guidelines. Today, it is impossible to qualify for any sort of federally insured loan or loan that will be resold on the wholesale loan market if your credit report reflects any late mortgage payments within the last 12 months.

Third, you've repeatedly and wrongly assumed that you can simply have whatever you want, without accepting that your current situation is the result of commitments and decisions that you made, as in the commitment you made to obtain your mortgage. You seem to be operating under a sense of entitlement to a lower mortgage balance, to walk away and still get a deal for another home on today's market by trying to pull off a "buy and bail."

Fourth, please consider that your process of obtaining advice might have been misguided. I see so many real estate consumers take their real estate advice from other people who are simply groping their own way through mortgage distress, or trying to get free advice from professionals by giving them a tiny piece of the full picture, asking them a quick question at a party or even writing in to advice columnists(!). ...CONTINUED

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