Casting your line for a recast of your mortgage? Better plan on dining out for dinner.
William Johnson wrote a post explaining the theory/process of re-casting your mortgage and the possibility of contacting your lender to consider a “re-cast” of your mortgage. Technically, much of William’s post is accurate and I will not attempt to further explain the re-cast process in this post (follow the link to William’s well written post).
However, I must respectively disagree with the likelihood of many (any?) consumers being able to accomplish this suggestion. There are a few instances that MAY help a consumer facilitate a re-cast of the mortgate:
1). A re-cast clause is written into the note of the originating mortgage
2). The consumer has an adjustable rate mortgage
3). The consumer is making a substantial principal reduction at the time of the request.
On, the other hand there are cases where a re-cast is very probably completely out of the realm of possibility:
1). Most fixed rate products (30, 20, 15, 10)
2). Loans sold on the secondary market (investor approval highly unlikely)
It may help to understand that virtually ALL negative amortization loans have a “re-cast clause” hard coded into the mortgage note. The parameters of the product allow for a “re-cast” of the principal balance if (when) the outstanding balance reaches 110%, 115% or 125% (this was determined by the lender/investor at the onset and varies across the board).
In other words, if a consumer has a $100,000 mortgage and they continue to make the negative amortization payment (less than interest owed) amount, the mortgage balance will increase monthly until the maximum outstanding balance of $110,000, $115,000 or $125,000 (respectively).
In the case of these loans, the looming threat of a “re-cast” is the proverbial shoe that is still going to drop in the continuance of the mortgage mess. This is simply because the loan will automatically be amortized at the full allowable interest rate (per the note) at the time of “re-cast”. The increase in payment WILL be significant (increasing the likelihood of eminent default).
In fact, I believe a great strategy for any real estate agent marketing short sales would be to monitor negative amortization loans, educate yourself thoroughly on the product and understanding the actual loan documents so you can show and explain to a consumer the looming situation when the mortgage will “re-cast”.
Now, in the case of a adjustable rate or balloon (also 5/25 or 7/23) mortgage, there is a better likelihood of convincing a lender/servicer to “re-cast” and/or reamoratize a mortgage at 1). the date on which the balloon (also 5/25 or 7/23) is due or the adjustment date of an adjustable rate loan AND 2). the concumer is making a substantative principal reduction of the outstanding mortgage balance.
I think the real value of William’s article is in the education provided to the consumer of exactly what “re-casting” is and in providing the homeowner the “how” to make one more “try” with a lender prior to acknowledging the need to shortsale their home. And, unlike the approval of a short sale or attempt at a loan modification, I suspect it will take only one or two phone calls to a lender to determine IF a “re-cast” is possible or not. It really is a “YES or NO” question.
William deserves much appreciation and kudos for helping the struggling homeowner to understand each and every option available to them, I believe William provides a valuable service in this education and an approach that crystalizes he puts the needs of his potential clients above his own interests and motivations.
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