According to an article in the LA Times, homeowners who find themselves struggling with mortgage payments whether the situation is a short sale, foreclosure, or walking away from their homes, should look at how any of these actions could impact their credit scores.
Vantage Solutions, a scoring company created by the three national credit bureaus, suggested loan modifications may increase a borrowers’ scores, while refinancing mortgages that are upside-down may not have any or very little impact. Short sales on the other hand can trigger large declines in credit scores. Homeowners with an excellent score might see a 120 to 130 point decline after a short sale. Homeowners who walk away and stop making payments can expect their credit scores to dip 140 to 150 points. Those who file bankruptcy can have an average hit of 355-365 point drop.
Consumers who contact their lender early on may have less of an impact to their credit scores. In any of the above cases, if consumers are really having troubles due to the declining market, lenders will probably take this era into consideration when granting mortgage loans.
We might see more of a surge of home sales and loans if the lenders would loosen up their guidelines a little more. Now I’m not saying that they should go back to the lax underwriting guidelines that contributed to the housing crisis. But given the economy and the inability for the average American to place a decent down payment on their home, lenders can make getting loans a little more flexible.
Risk based: Lenders might want to take a queue from FHA, or the temporarily defunct CALHFA. Yes, they take a little more risk by lending on higher loan-to-values, but they have back it up with reasonable debt ratio guidelines and sound Fixed and Arm products. They don’t make negative amortization loans. And even with those borrowers who have lower fico scores, they compensate the risk with the appropriate rate.
A little flexibility and common sense: If a borrower is refinancing and happens to have very stable employment,excellent credit, low debts, and very low loan-to-value (30%), then let them have a interest-only loan or a 5 year ARM. But if another borrower had a BK discharge on their credit, but the debt ratio was 28%, and the loan-to-value is 90%,then that is someone who maybe could only qualify for a 30 year fully-amortized loan. If the borrowers aren’t qualifying due to the debt ratios, then maybe a 35 or 40 year loan would be the product that would fit.
Get things moving: The lenders are dealing with losses, but they can help on their end by making sound products that help borrowers with purchasing or refinancing. This could save jobs as the lenders are able to make more loans and increase volume. Taking some risks and making sure the products are sound might help to get the financial institutions moving again. 
