Rolling Late Payments – A Mortgage Conundrum

Perhaps the single most bizarre underwriting guideline ever conceived and implemented in the wonderful world of mortgage lending is the concept of “rolling” mortgage late payments.  This author will soon explain why “rolling” mortgage lates are such a curious oddity; nevertheless, the existence of this guideline has provided significant benefit to many a loan applicant, and for that, kudos are in order.  On the surface, the concept of “rolling” is quite simple.  If a borrower’s mortgage company is reporting his mortgage payment as thirty days late for consecutive months, then the late payments are considered to be “rolling” and counted as only one late payment.  For example, a borrower is thirty days delinquent in January, February and March of 2006.  This borrower’s credit report displays a mortgage payment that was thirty days late three times in a row, but under the “rolling” standard the borrower was only late one time, and this because the three months are contiguous.

The allowance of “rolling” mortgage lates can clearly be a benefit for borrowers seeking loan approval for a new mortgage loan in the circumstances listed above – being past due on a mortgage loan one time is certainly viewed more favorably by an underwriter than being past due three times.  Many lenders will consider six consecutive mortgage late payments to be one times “rolling” and some lenders will even allow an entire year of thirty day mortgage late payments to be considered as only one thirty day late payment under these “rolling” rules.  This again can be of great benefit.

A paradox, however, seems to exist within the concept of “rolling” mortgage lates when one considers that if the borrower in the above scenario had paid the February mortgage payment on-time, then the thirty day lates would no longer be contiguous – the borrower would be two times thirty days late and “rolling” mortgage lates would not apply.  In effect, the “rolling” concept penalizes the borrower for making the February payment on time.  To put it another way, an underwriter evaluating a borrower (in the sequence supposed above) with “rolling” criterion considers him to be more credit worthy if he does not make his February mortgage payment.  This connotation, my friends, is a mortgage conundrum.