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The "Short Refinance" - A Real Live Example

By
Mortgage and Lending with Signature Property Consultants

Picture this scenario - client purchased a home nearly two years ago with 100% financing and a 2/28 adjustable rate mortgage, expecting to refinance into a fixed rate before the first adjustment period.  Fast forward a year and some change, and the market TANKS, so now he's upside down by $70K and the refinance he had planned to do is completely out of the question.  Yet, he is living on a bit of a tight rope, and when his rate adjusts, there is no way he's going to be able to afford the additional $300/month that will be required.

This is my client's situation.

Solution -- which, by the way, seems almost too good to be true -- the short refinance or "short refi". The short refi basically contains two components, the first of which is the negotiation of a "short payoff" with the original lender.  Basically, in a process similar to that of a short sale, the lender and consumer avoid the burden and expense of foreclosure, because the lender forgives a portion of the existing debt and agrees to accept a "short" payoff of what remains.  The second part of the short refi, then, is the borrower's ability to qualify for a new loan (based on a percentage of the home's CURRENT appraised value), to pay off the original bank.  The killer part, in this situation (as opposed to in a short sale), is that the consumer gets to remain in the home and move forward with a positive equity position and a more affordable monthly payment.

I'll be submitting this particular client's short refi application this week.  I am confident that, if all goes as planned, the client will be utterly thrilled and pinching himself to be sure he's not dreaming.  And, for me, being able to make a difference like this in someone's life . . . well, that just makes it all worth the while. 

Comments (8)

Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Kimberly - that's one reason why some people are just walking away from their homes. They are upside down with no hope of a refi. That is good news for your buyers and could stop a lot of foreclosures if it is implmented nationwide.

Nov 30, 2008 01:29 PM
Teresa Cox King
RE/MAX of Orange Beach - Orange Beach, AL
Orange Beach and Gulf Shores, Alabama

Great news for your client, and thanks for sharing this with us. Others may benefit from this information and the possibilities it may bring! 

Nov 30, 2008 01:33 PM
Kimberly Malone
Signature Property Consultants - Baldwin, NY

I agree, and I suspect that with all of the pressure that the government is putting on banks to stem the wave of foreclosures, we will begin to see a lot more of this.  We have operations in Florida, and work with several major lenders, if you have a client who could benefit from this.  Please feel free to give me a call, if you'd like to discuss a scenario.

Nov 30, 2008 01:37 PM
Anonymous
Paul Scheper

Kimberly - I thought I was the only genius who thought about this.  Not true -- you are a genius, and a caring lender.  I am doing this in California right now.  The secret is out.  It's not rocket science.  The key is telling the current lender the truth and explaining the hardship and the risk and the "dollars and sense."  Let's keep people in their homes.  Housing is the underpinning of the economy.  Let's help people preserve homeownership.  www.PaulScheper.com

 

Dec 01, 2008 12:26 AM
#4
Casey Moseman
All Western Mortgage - Las Vegas, NV

Kimberly - Fantastic Article.  We have been working hard here in Las Vegas to get Countrywide to start accepting these Short Refinances.  Amongst all the lenders we've been working with, Countrywide has been the most difficult.  Not sure what experience you've had with them and if you would lend some advice if you have.  We've been on the phone with them all day today for 7 clients with Countrywide 1st and 2nds.  Today was their drop dead date, as you may know, with regards to their compliance in the multi-state lawsuit they lost ($8.4 Billion).  Take Care and keep helping all those out there.  www.lasvegascustomloans.com/short-refinance-short-payoff.html

 

Dec 01, 2008 07:34 AM
Kimberly Malone
Signature Property Consultants - Baldwin, NY

Thanks for your feedback . . . we are waiting to hear from Countrywide any day now (expected to hear from them on Dec. 1st).

Dec 03, 2008 05:09 AM
Anonymous
Loan Host Inc

What is not stated here is that the client, will also have to share with the new lender, the future equity in the property. BE SURE you DISCLOSE this or it will come back and haunt you. The deal works like this, should the client decide to sell or refi in the first year they, (THE CLIENT) will give up 100% of the equity in the property. Not to mention the exit fees charged from the new lender. How about origination charges, credit report, appraisal and of course the broker/lender fee's and yes Escrow fees/closing costs related to this. Now back to the short refi, that 100% goes down 10% for every year the client resides in the property for a maximum reduction of 50%. So your client will always owe 50% of any and all future equity. Hey its still not a bad deal, but maybe your client may want to look into a LOAN MODIFICATION, suck it up for now and get to keep 100% of ALL EQUITY when the market turns around......... Food for thought

Dec 22, 2008 01:55 PM
#7
Anonymous
Anonymous

Your response is 100% correct, should you do the short refi through the government's Hope For Homeowner's program, which I had intended to be the topic of my next blog post (thanks for the segue!).  However, the Hope for Homeowners isn't the only way to do a short refi.  As a matter of fact, several weeks ago an article was posted on either MSNBC.com or one of the other major news sites (I'll confirm the source in a future post) that stated that since its inception on October 1, 2008, only 111 applications for the H4H had been submitted thus far, despite it's potential to help thousands upon thousands, theoreticaly.  This is largely because many of the investors are simply not cooperating with the H4H.  It seems the investors are reticent to comply without a clear picture of how they will recoup the funds (or a portion thereof) that they would be writing off.  Nevertheless, if one can qualify for the H4H, it can still be a great deal for homeowners who are upside down and really want to stay in their homes.  After all, in a market such as NY, one could theoretically easily write down over $100,000 in debt.  It would take a very long time for properties to regain that amount of equity in the future.  So, if a client whose debt has been written down by $100K regains $80K in equity in the next year (near impossible) and has to give 100% back, they are still ahead by $20K, they may get a lower interest rate and will almost surely get a lower payment (because of the reduced loan amount).  Most importantly, they'll get to stay in their home.

P.S.  One benefit of the H4H over the loan mod (which, you're right, is a good option if it can be done) is that the H4H can be done even if the client isn't already late on the mortgage (for example for a client who is not late now, but upside down and about to adjust) -- a requirement for most loan mods.

Dec 28, 2008 07:18 AM
#8