While we have been seeing the news media throw around credit and financing terms at us, it still is confusing to know what our options are. Many people know people at work or around their sphere of influence who are upside down or worried about job loss. They, like me, have been asked what should they do with their current upside down situation (owning more house than they can afford or owing more loan than their house is worth)...
It would be helpful to obtain the advice of a realtor, a loan officer who can originate a refinance loan, a loan modification specialist, an attorney, and a CPA and ask them what should I do.
Fortunately, the Obama Housing Plan has encouraging news that their plan is enticing lenders to modify loans or solve home owner situations who may be in a foreclosure situation (i.e., by way of a short sale). We might even see some fortunate home owners see loan interest rates as low as 2%. (Of course equity and debt ratios are issues.)
One of the solutions a home owner can do on their own (by themselves) is to contact their lender directly and ask to "modify their loan". If you do your own loan modification, there should be no charge from the lender. (This may take as long as six months according to one borrower.) Or ask someone who is proficient at submitting information and negotiating with a lender (a mortgage or loan modification specialist. I've experienced a processing that took less than one day followed up by mail in ten business days.) This solution for a homeowner will often result in a lower housing payment and less "closing costs" that a "refi" may involve. The loan modification can include a principal reduction, lower interest rate, a longer mortgage term (say instead of 30 years, extended to 40 years). Sometimes, your loan modification payment may be slightly larger because the lender has amortized your payments and your past due balance over a new term so you don't have to come up with the past due amounts that are accruing and or necessary to cure your default (foreclosure sale).
Every day is a new day for lenders. In fact, since the general details of the housing plan was announced on March 4, lenders themselves have pegged mid-March (March 17) as a date to release their specific plans available for borrowers. Every lender is different in terms of how they negotiate or calculate loan modifications for individuals; every borrower is different from others in terms of their unique situation.
I have helped friends with their loan modifications since last January 2008, and have seen the changes in underwriting, staffing and service with solutions for our credit-challenged or equity-strapped property owners. While most loan modification solutions are aimed for "the home owner" vs. the investor, I have seen a 2nd lowered temporarily from 13.5 to 4% for an investor. Every situation is definitely unique. Every lender is different.
Before you call though, I would gather all your necessary documents, such as two months pay stubs, bank statements, two years tax returns, your hardship letter, your financial snapshot for the month, and any other assets or liabilities (mortgages, auto loans, credit cards, and other debts owing) so you can communicate intelligently with your lender.
If you have any questions or comments or would like to add your findings as you work with different lenders, please let me know or email me!
Ronda Ching Day
Realty Executives Oahu
1920 Ala Moana Blvd #102
Honolulu, HI 96815