Over the past several years, I have focused on refinancing individuals out of Chapter 13 bankruptcies. There were two basic options: those clients with a perfect mortgage and trustee payment history, and those that weren't perfect. For those that performed while in the Chapter 13, FHA was the answer. You could put them straight into a 30 year fixed with a low rate without any difficulty. For those without a good history, there were several sub-prime packages that made it a two step process. Refinance out of the Chapter 13 using a sub-prime product, wait 12 months, and with a good mortgage history, refinance them again into an FHA mortgage.
Well, as everyone knows, there is no sub-prime market anymore. The new sub-prime is FHA and reverse mortgages. As the FHA guidelines get tighter every day, they are squeezing out buyers and potential refinances. So what are we to do? Focus on reverse mortgages.
The reverse mortgage does not care about credit scores, mortgage payment histories, income or debt ratios. All they care about is equity. If the client is 62 years or older and has sufficient equity, you are good to go! I just refinanced a client out of Chapter 13 using a reverse mortgage. It saved them the 60 month process of the Chapter 13 and gave them access to additional equity to use as a cushion if they ran into problems in the future.
While the market is changing daily, the reverse mortgage is a good option for those with less than stellar credit. There are three basic options with a reverse mortgage: annuity, line of credit or lump sum payment. You can really turn around a difficult situation using a reverse mortgage. Say you have client on a fixed income and a mortgage payment that is taking up too much of that income. With a reverse mortgage, you can pay off the mortgage, and if enough equity is available, pay them an annuity. So now they don't have a mortgage payment ($$$ saving each month), and they now have additional income. The situation just went from grave to great!