Can’t afford your mortgage? Call your lender and ask them to modify the loan to a payment you can afford. The lender representative will ask you for a stack of paperwork and try to get you to keep paying “something…as a sign of good faith”. After three or four months, you may receive an offer to reduce your rate to 2-3%, for a five year period, to “get you over the hump”.
You still owe the money you borrowed, though.
The house is worth less than what you borrowed? Ask for a principal reduction. I tried helping distressed borrowers with the Hope For Homeowners Program; my efforts failed miserably. Andrew Adams told me it would flop and it did. We did SOME good (without the H4H program)…for about half the borrowers but the program was a flop. Now, President Obama is trying to “entice” lenders to refinance your loan to 105% of its current value and empower bankruptcy judges to “cram a reduced loan amount” down the lenders’ throats.
I’m not so certain that will work, either.
The social ramifications of what Greg Swann calls middle class welfare are far reaching. An angry cauldron, fueled by the resentment of the folks who are current on their mortgage, is bubbling over today. Let me give you an example:
Two houses, on the same street in Santee, CA, were bought for $500,000, in the summer of 2006. Eileen was a move-up buyer who plunked $150,000 down on her home. Lou bought the home with zero-down financing. Eileen refinanced her home loan to 4.75% last month, bringing about $35,000 to the closing. Lou hasn’t made a payment in three months, has had his foreclosure stalled, and is hoping that March 4 will bestow a bailout upon him.
Eileen is pissed off and she ain’t alone. What worries me isn’t whether or not the Obama mortgage plan is fair, it’s that the implementation of it could result in civil unrest. Don’t get me wrong, the bailouts of the stupid banks who financed you are perhaps the greatest evil foisted upon our economy but now we’re pitting neighbor against neighbor.
Let me recap the “bailout” for you; not the banks but YOU. The government tried to mitigate with a program that offered hope; FLOP. Now, you can get your mortgage refinanced….maybe…IF, you can demonstrate that you can’t make your payment and miss a few of them. If the lenders won’t play ball with this plan, you can voluntarily file bankruptcy and hold your breath that you get a compassionate judge to force the banks to give give you another shot.
There is another option. Let me show you an example of what I see in the same street:
Lou is paying $3,500/month for those mortgages (which he can’t afford). Tanya is renting the house next door for $1,500/month.
Here’s the solution, Lou; walk from the mortgage. Mail your keys to the bank and rent the house down the street. If the “teaser” payment was $2,500 (and you could afford that), save the $1,000 each month, for the next three years, and buy back your old house in 2012. The FHA 203-b loan program allows borrowers, who have a foreclosure that is older than 36 months and have re-established credit , to obtain an approval.
Walk today and buy that same house back in 2012. Do you really think it’s going to cost a whole lot more than it’s worth today?
Consider a comeback if you will. It’s a great American tradition.
Last 5 posts in Loan Modification
- Bank Accidentally Sells House as Foreclosure - November 11th, 2009
- Loan modifications are lowering monthly payments - October 4th, 2009
- More Homeowners are Late on Their Mortgages - September 21st, 2009
- Successful Short Sales…I mean plural…more than one! - September 14th, 2009
- FHA Mortgages Now Qualify For Government Help - September 3rd, 2009
- Stumble it!
- Categories: Loan Modification
Comments
6 Comments so far
Justin McHood
Brian,
Great post!
I am going to add this to my list of “options” I discuss with people.
Justin
Kristal Kraft
Brian ~ on the surface the Obama plan sounded so wonderful. The reality is closer to your description of the two people in your story. I don’t think most Americans are going to want to continue paying on a home while others “skate on their mortgages.”
It just won’t work.
Paul Francis - Las Vegas Real Estate
Ahhh.. nothing like trying to do a short sale after 4 months of missed payments and the home owner waiting for the lender to modify their loan… only after being denied.
These “Programs” are only a diversion from the real problem.
BloodhoundBlog.com | Battle Back With Your Posse | National real estate marketing and technology blog | Realtors and real estate, mortgage and investment news
[...] bullshit. Keepin’ it real. Advising folks who will never be able to afford the property to rethink their priorities and filling those houses with willing and able homeowners…THAT’S how we’re gonna [...]
MyPhoenixMLS.com
I came across this old New York Times article, from last December:
A Holdout Against Developers Leaves a Legacy (http://www.nytimes.com/2008/12/28/us/28edith.html?pagewanted=1&_r=1)
The article tells the story of this little old lady, Edith Macefield, who was 86 when she died last June. When developers wanted to buy her home and property to develop it into an LA Fitness and Trader Joe’s, she said “No.” They offered her $1 million for the tiny, 108-year-old house. She still said “No.”
Some people suggest that she was making a statement — the last bastion against steel-and-concrete development in the old fishing village of Ballard, near Seattle. Others say she just wanted to live in her house. Either way, what a contrast she is to those who bought high in 2005 and are now paying mortgages on homes worth 20, 30, 40 or 50% less than what they paid and say, “Walking away sure sounds enticing.”
Financially, maybe walking away makes sense. I don’t really know; that’s not my area of expertise. I do know it’ll take a huge bite out of your credit score — making it very hard if not impossible to get credit at a good rate for at least seven years.
Certainly there are families who have been hit by a job loss or a medical emergency, who simply can’t afford to pay once-affordable mortgages. There are families who simply messed up — who went willingly into mortgages they couldn’t really afford. There are families who were duped by unscrupulous lenders into teaser mortgages they can no longer afford. Sometimes, in other words, you simply can’t afford your home anymore. In that case, I guess, you have to let it go.
But what about circumstances where a family really can afford the mortgage but hates paying for an asset that has lost so much of its value? A family who bought at the peak with no money down in an area where price declines have been really steep might be paying double what they would pay to rent the same house. Does it make sense to walk away then?
Maybe we should ask, “What would Edith Macefield do?”
Bob Stahl
MyPhoenixMLSBlog.com
Brian Brady
“I do know it’ll take a huge bite out of your credit score — making it very hard if not impossible to get credit at a good rate for at least seven years.”
I think it’s more like 3 years, Bob. I parsed this from the article:
“The FHA 203-b loan program allows borrowers, who have a foreclosure that is older than 36 months and have re-established credit , to obtain an approval.”