THE WAVE OF ADJUSTABLE RATE MORTGAGES THAT WERE PROLIFERATE DURING THE EUPHORIC UP MARKET HAS LEFT A LOT OF PEOPLE ALL DRESSED UP WITH NO PLACE TO GO. MANY OF THESE LOANS HAVE RESULTED IN NEGATIVE AMORTIZATION, PARTICULARLY THE 'PAY OPTION ARMS' THAT GOT SO MUCH PLAY DUE TO THE LOW 'DEFERRED INTEREST' OPTION.
"I CAN ALWAYS ROLL YOU INTO A FIXED RATE MORTGAGE LATER," WAS A COMMON REFRAIN TO ANY BORROWER WHO QUESTIONED THE POTENTIAL FOR THESE LOANS TO BLOW UP. WELL, NEVER SAY NEVER, AND NEVER SAY ALWAYS, EITHER. NONE OF US COULD HAVE FORESEEN THE DECLINE IN VALUES THAT THE OVERALL HOUSING MARKET HAS EXPERIENCED. SURE, WE ALL KNEW THAT A MARKET CORRECTION WAS COMING, BUT FEW COULD HAVE GUESSED JUST HOW LONG AND HOW BAD IT ACTUALLY WOULD BE. WHAT WE COULD HAVE AND SHOULD HAVE DONE AS LOAN OFFICERS, WITH THE CLIENTS' INTERESTS AT HEART, IS FULLY EXPLAIN THE PROS AND CONS OF THESE PROGRAMS.
THE PEOPLE WHO TOOK THESE LOAN PROGRAMS NOW FACE A DOUBLE WHAMMY. IF THEY'VE BEEN PAYING ONLY THE MINIMUM PAYMENT ALL THIS TIME, THEIR PRINCIPLE BALANCE IS INCREASING, WHILE THEIR HOME VALUE HAS DECREASED. IF THEY PUT 20% DOWN ON THEIR HOME 2 YEARS AGO, THEY'LL ALMOST DEFINITELY BE IN A PMI SITUATION WHEN THEY REFI. IF THEY HAD ONLY PUT 5 OR 10% DOWN THEY MAY VERY WELL OWE MORE THAN THE HOUSE IS WORTH.
WHAT DOES THE BORROWER DO AT THIS POINT? WELL, FIRST YOU MUST BITE THE BULLET AND MAKE AT LEAST THE 'INTEREST ONLY' PAYMENT. STOP DEFERRING INTEREST!!! LIVE WITHOUT THAT DINNER OUT FRIDAY NIGHT FOR A WHILE. DRINK JUG WINE INSTEAD OF THAT CALIFORNIA CAB YOU DISCOVERED. YOU CAN'T GET BETTER UNTIL YOU STOP THE BLEEDING, WHICH THE 'INTEREST ONLY' OPTION DOES. BETTTER YET, IF AT ALL POSSIBLE BEGIN MAKING THE FULLY AMORIZED PAYMENT. THEN CALL YOUR SUPERIOR MORTGAGE LOAN OFFICER. IN SOME INSTANCES FHA WILL ALLOW A RATE AND TERM REFINANCE WITHOUT AN APPRAISAL OF THE PROPERTY. THIS PROGRAM IS CALLED THE FHA SECURE. IT WAS PUT INTO EFFECT SPECIFICALLY TO PREVENT FORECLOSURES. BORROWERS WHO'VE HAD UP TO 3 30 DAY LATES MAY QUALIFY FOR THIS PROGRAM, AND EVEN IF YOU'VE HAD NO LATENESSES, IF YOU EXPLAIN YOUR SITUATION YOU MAY QUALIFY. YOU'LL NEED TO PROVE THAT YOUR LATE PAYMENTS WERE DUE SPECIFICALLY TO FINANCIAL STRAIN CAUSED BY THE LOAN PROGRAM YOU'RE UNDER, AND YOU'LL STILL NEED TO QUALIFY FROM A RISK STANDPOINT.
I WROTE VERY FEW OF THOSE PAY OPTION ARMS, PROBABLY BECAUSE I EXPLAINED THEM FULLY. ONE OF MY CLIENTS WHO OPTED TO TAKE THE POA HAD TWO KIDS IN COLLEGE, ONE GOING INTO HIS THIRD YEAR AND THE YOUNGER JUST BEGINNING HIS FRESHMAN YEAR. HE WANTED THE OPTION OF THE DEFERRED INTEREST PAYMENT UNTIL THE KIDS HAD GRADUATED. ANOTHER SAW A GREAT DEAL ON A LARGER HOME AND WENT IN WITHOUT A CONTINGENCY. HIS WIFE, A TEACHER, WAS SOON TO GO OUT ON MATERNITY LEAVE SO HE'D HAVE LESS INCOME FOR SEVERAL MONTHS. THE PAY OPTION ARM ALLOWED HIM TO CARRY THE TWO MORTGAGES UNTIL HE COULD SELL THE HOUSE AND THE WIFE RETURNED TO WORK.
MY POINT IS, THESE BUYERS WERE FULLY AWARE OF THE RISKS. THE FIRST CLIENT WOUND UP MAKING 'INTEREST ONLY' PAYMENTS WHENEVER POSSIBLE, AND WILL REFINANCE OUT IN LESS THAN A YEAR. THE OTHER REFINANCED INTO A FIXED RATE AFTER SELLING HIS PREVIOUS HOME, AND WAS ABLE TO PUT SOME OF THE PROCEEDS INTO THE REFI TO REDUCE THE NEW BALANCE.
ANYWAY, FIND A WAY TO MAKE AT LEAST THE INTEREST ONLY PAYMENT. THE GOOD NEWS IS THAT THE MARKET IS BEGINNING TO TURN, I'VE NOTICED AN INCREASE IN ACTIVITY THESE LAST SEVERAL WEEKS. A FRIEND OF MINE THOUGHT (UNFORTUNATELY) THAT HE HAD TIME TO GO ON VACATION BEFORE SUBMITTING AN OFFER ON A HOME. THE HOUSE WAS UNDER CONTRACT WHEN HE GOT BACK A WEEK LATER. BAD LUCK FOR HIM BUT AN INDICATOR THAT THINGS MAY BE ON THE UPSWING. SO LETS ALL KEEP CHOPPING WOOD. A YEAR FROM NOW, WE'LL BE LAUGHING ABOUT THIS SLUMP AND MAYBE EVEN SIPPING THAT CALIFORNIA CAB AGAIN.
Comments(0)