Your Troubled Mortgage Options Today

Nearly everyday someone calls me or emails me for mortgage advice on their current loan.   They are either upside down in value or late on their payments and they want to know their options.  

I am sure many of you get these same calls.    I want to be as helpful as possible so I listen to their challenges and offer them the best advice I can.

There has been a tremendous amount of news lately about more Government-led proposals to try and stop some of the 2.25 million foreclosures that are estimated to happen in 2009.

Some of these proposals call for interest rates in the 3-4% range.   Some call for loan modifications to make it so your payment is no more than 31-38% of your gross income.   And there are more.   However, none of these have been approved yet.

Here are examples of some questions I get asked and the answers I give based on what is available today. 

Q: MY HOME IS $70,000 UPSIDE DOWN IN VALUE.   I HAVE A FIXED RATE MORTGAGE AT 6.500%.  I AM CURRENT ON THE PAYMENTS.  CAN I REFINANCE IT?

A:  No.   Currently there are no realistic programs that allow borrowers who are upside down, and have never been late, and are in fixed rate mortgages, to refinance their home.  (I will discuss Hope for Homeownership shortly)

Q: MY HOME IS $120,000 UPSIDE DOWN IN VALUE.   I HAVE AN ADJUSTABLE RATE MORTGAGE AT 5.500%.  I AM CURRENT ON THE PAYMENTS.  IT'S GOING TO ADJUST NEXT MONTH TO 6.500%.  I CANT AFFORD THIS NEW PAYMENT.  CAN I REFINANCE MY HOME?

A:  Maybe.  Call your lender directly.   Many banks today will modify your current mortgage into a fixed rate mortgage if you have an ARM that is going to adjust, raise your payment, and create financial hardship.  

You want to take a close look at your loan however.   Rates have come way down of late.   In many cases today, your adjustable rate mortgage may actually be adjusting downward, making your payment less today.  Call your lender and ask how the pending adjustment will affect you.

Q:  MY HOME IS $60,000 UPSIDE DOWN IN VALUE.  I HAVE AN ADJUSTABLE RATE MORTGAGE THAT RESETS IN EIGHT MONTHS.  I AM CURRENT ON MY PAYMENTS.   EVEN THOUGH ITS EIGHT MONTHS AWAY, I AM AFRAID OF MY ADJUSTABLE RATE MORTGAGE AND WANT A FIXED RATE.    CAN I CHANGE IT?

A:  Maybe.   Call your lender directly.   Some banks today will modify your loan into a fixed rate mortgage, at current rates, from an ARM.   However, if you are current and are not in any risk today, the chance of this happening is not very good.    

Q:  I HAVE AN OPTION ARM.  I WANT OUT OF IT ASAP.  CAN I CHANGE IT?

A: Probably.   Most of the large lenders who specialized in this product realize it wasnt the smartest loan in the world.   Even if you are upside down in value, many will work with you to get out of it.  

Call your lender to see what fixed rate options are available to you.   Keep in mind, when you are paying 1%-2% interest for your loan today, and you ask them for a fixed rate, based on today's rates 5%-6%, this will likely result in your monthly payment going up substantially.

Q:  MY HOME IS $90,000 UPSIDE DOWN IN VALUE.  I OWE $300,000.   IT'S WORTH $210,000.  I AM CURRENT ON MY PAYMENTS OR A FEW PAYMENTS LATE.  I WANT A PROGRAM THAT LETS ME REFINANCE THE HOME FOR ITS CURRENT VALUE OF $210,000 AND FORGIVES THE OTHER $90,000 THAT I OWE.  WHAT CAN I DO?

A:  There are currently more than 12 million homes in the U.S. that are upside down in value or very close to being upside down.  You are not alone.   There is an FHA program called Hope for Homeownership that does allow for this.   However, there are very few cases of anyone being able to successfully negotiate this.  The lender has to agree to forgive the $90,000.   The response to this program has been weak.  Not many are willing to do this.  You can call your lender and try.   I wouldn't plan on it happening however.  You will want to ask them about any other options they are offering.

Q:  I BOUGHT FOUR INVESTMENT PROPERTIES IN THE LAST FEW YEARS.   THEY ARE ALL UPSIDE DOWN.  I NEED HELP.  I CANT AFFORD THE PAYMENTS ANYMORE.  WHAT CAN I DO?

A:  Call your lender ASAP.  Ask for the "loss mitigation" department.   Although many banks won't negotiation with investors, some will.  If you can prove financial hardship, you may be eligible for some form of note modification.  Be honest with them about your financial situation.  You may be surprised by their willingness to help.

Q: MY HOME IS UPSIDE DOWN IN VALUE OR I HAVE A LITTLE EQUITY.  I AM LATE ON MY PAYMENTS.   I DON'T WANT TO LOSE MY HOME.   WHAT SHOULD I DO?

A:  Call your lender ASAP.   Ask for the "loss mitigation" department.   Communication is the key.   As soon as you are late, call them and begin discussing what options they offer.  Be honest about your current financial situation.

There are many note modification programs that are available if you can prove hardship.

Some of these programs include:

• a repayment plan of your late payments at a later date
• a promissory note for the late payments at the end of your Note
• an interest rate adjustment that allows for a more affordable payment
• a longer loan term
• in very rare cases, possibly some forgiveness of principal

Q: WHAT ABOUT THE $700 BILLION BAILOUT PLAN AND THE GOVERNMENT?  HOW DOES THAT HELP ME?

A:  Someday it may.  Right now it doesn't.   The Government wants to stop foreclosures.   So far, the $700 billion has been used to help the banks get more money to loan, not to save your home. 

In order to help you in your troubled mortgage, the Government needs to get control of individual mortgages, like yours, so they can then reduce your principal and refinance you into a program like Hope for Homeownership. 

The challenge is that nearly 75% of all mortgage debt is securitized in Bonds.   The Government is looking into ways to buy these loans from Bond holders.  However, these Bond holders are not going to give them away.   They will want to be paid at a price they can live with.   Until this is resolved, and the Government actually has individual loans, your options are limited to those offered by your lender.

SOME OTHER NOTES...

Many homeowners make the mistake of waiting until it is too late to ask for help. 

If you have any questions about your mortgage and options, don't call your mortgage broker or real estate agent.   Call your lender.   

The Government and the Banks want to curb foreclosures.   It's of dire importance to our economy.   Programs and your options are changing rapidly.   Even if you called a few months ago and they had nothing for you, if your situation has deteriorated, call again.

Although banks don't want to take your home in foreclosure, they will.   It's important that you remain in communication with them regularly if your mortgage is troubled and your goal is to save your home.