Peteusa

That pretty well sums it up. Luckily we didnt refinance when the house was worth twice as much, at the peak of that crazy period, but we were tempted. Never-the-less, its now valued at about $20,000 less than when we had it built in 2004.

Do you think me getting a job at this point (which I'm desperately trying to do), would greatly improve things, since I wouldnt have been employed for a very long period assuming I do get employment?

Also do you think it would be a bad idea not to refinance at all, and just keep trying to pay? What would worse case scenario be on that do you think?

scrubbedexpat099

$20,000 less than it was in 2004?

Our prices have not dropped that much, but they did not go up so crazily either.

It all depends, how do you intend paying it off? Do you have an inheritance or investment coming up?

Peteusa

In 2004, the cost of the property was $140,000 approx. Now the Zillow valuation is a little under $120,000, although two years ago, the valulation was as high as $220,000!! Luckily we didnt refinance then like so many people did!

We had intended paying it off by refinancing at this time, and continuing on. Unfortunately its obvious that me being out of work, albeit temporarily, has thrown a spanner in the works. And no, we dont have any inheritances, or investments to apply that I can think of.

Michael

As I stated earlier refinancing won't work because the mortgage changes owners and the new owners will not refinance near or above 100% of the market value.

Therefore loan modification (the same owners still own the mortgage) seems to be the best bet. The owners of the mortgage do not want a default and then a foreclosure so may be willing to reduce your interest rate since a 3%-4% APR for 5 years is better to the owners of the mortgage than a foreclosure. With most banks paying less than 1% for their money, they can still make money or at least break even at 3%-4% APR. After the 5 years, the banks may also reset your loan to 5%-6% APR for the remainder of the loan.

With you loosing your job, the banks will be concerned that they may have to foreclose at your current interest rate. Therefore they may be willing to perform a loan modification in their own best interest if they believe that your wife can meet the new payments and won't be able to meet the old payments.

You getting a job will hurt getting a loan modification and will not help getting a refinance since you are underwater. Therefore now is the time (when you don't have a job) to try for a loan modification. A loan modification does not hurt your credit score unless you start to default on your payments.

You have to remember that the mortgage may not be owned by the bank but the bank only services the loan. The loan could be owned by Fannie Mae, Freddie Mac, Wall Street, or Hedge Funds. That is why a refinance is not likely but a loan modification will have the bank trying to convince the owners of the mortgage that a loan modification is in their best interest.

Peteusa

Many thanks for taking the time with that Michael. Lots of good useable info there. Greatly appreciated.

Pete

Michael

One more thing, loan modification makes sense to the owners of the mortgage and probably you as well. If the bank has to foreclose on your home, the lenders will have to eat the $20,000 shortfall plus real estate fees plus possibly default payments costing them at least $30,000 total. If they can keep you from defaulting and believe that the new mortgage payments will be made, the hope is that within 5 years you will get a job allowing you to make the higher payments and hopefully the value will increase by at least $20,000 making both you as well as the lender safe from default. One of the main purposes of the Fed policy of 0% interest rates is to allow lenders to perform loan modifications (they couldn't do it if they were paying 4% for their money).

fatbrit

You last 2 posts are conventional wisdom. However, my experience of the folks around me is that the banks are not pursuing this wisdom but rather paying mere lip service to it.

Michael

I agree with you a bit. If you don't have a triggering event (job loss, etc.), most banks won't consider a loan modification. If you don't like that your home is underwater and don't like making payments on a house that isn't worth as much as you expected but can still afford to make the payments, again most banks will not consider a loan modification.

If your loan is serviced through a bank such as INDYMAC, you won't get anywhere with a loan modification since they do not do them even though the government subsidizes Fannie Mae and Freddy Mac loans and will pay a servicing fee for other loans. Some banks do not have the staff to perform the loan modifications.

However, other banks such as JP Morgan Chase, Citi Bank. as well as several small banks have put in a large effort to perform loan modifications.

Now you will have to be forceful to get the best deal. I have visited other sites that claim they are getting them but are a little unhappy since the banks will not normally reduce the principle.

jackattack

So positive thought for you, think yourself lucky that you don't live in California.

We made the decision to purchase a house in California in 2004 (not a smart move with some hindsight) and although we'd like to move now to be closer to work, we can't since our house has dropped about $180,000 in value. Yes, DROPPED $180,000 in value. Argghhhhh. I won't even log into Zillow any more, far too depressing.

Not that helpful to your post but jeez, maybe I should move to Arizona!

scrubbedexpat099

Still begs the question, how will you ever pay it off?

Michael

If that problem was there 5 years ago, nothing will change that now. That could possibly be one of the issues that the bank would have with a loan modification if they don't believe that they will carry the loan to term or possibly sell the home with equity in the future. This is why banks are hesitant to perform loan modifications on homes that are 50% underwater. In those cases, the borrower may still walk away in 5 years because the home may still be very underwater. But at 15%-20% underwater, the risk is not as large to either the lender or the homeowner.

However, a loan modification may give them some breathing room. At 3%-4% interest rate for 5 years, it may be cheaper staying in their home instead of renting and then hopefully selling the home in the future when they have equity if they can't afford to keep it.

Also if he can find a job shortly after the loan modification as well as start collecting social security benefits, they may be able to save enough money over the next 5 years to make a partial lump sum pay down of the mortgage.

It would probably be adviseable if they got some financial advice once they get a loan modification to determine the best path to financial security.

The following is the government web site and program "Making Homes Affordable" for loan modification. He should check to see if he qualifies including the checklist that he should look at. I believe this program can reduce interest rates to as low as 2% (but possibly higher) for 5 years and a maximum of 5% after that.

http://makinghomeaffordable.gov/modi...igibility.html

Steerpike

I don't have any more advice to add to this thread, and Michael has pretty much spelled out the options.

I would say, being $20k under is not that much compared to many - some people are 50% under water.

Also - why do you say you are glad you didn't refinance when it was worth $220k? Had you done that, and got a good rate (and NOT spent the money, but rather set it aside), you would now have a 'war chest' to see you through the bad times.

scrubbedexpat099

Perhaps there is something here I am not getting.

In the UK lenders want to see how you are going to pay the loan and how you will pay it off.

Someone at or near retirement age has not that many earning years ahead of them, and getting a long term loan without any capital and little future source of income would be close to impossible.

What is different here?

Peteusa

Well Bioler, close to impossible it may seem, but your overview is exactly the way it was back in 2004 in Arizona. Quite HOW they expected us to pay it off, I've no idea since I'd have to live to be over 90 to do that, but it didnt seem to matter. I guess they thought that if we got in to difficulty, they quite simply got the property back. We'd just spent 9 years paying to live in rented accomodation, and thought we might as well buy a place of our own, since the mortgage payments were less than the rent we were paying, and we didnt have to pay much up front, So thats what we did, and thats it until know. Thats the story so far.

And boiler, I know you mean well, but please, no more questions like "whats different here". I can only tell you how it was/is in our case.

.

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Giantaxe

Firstly, they can't discriminate on the basis of age. Secondly, only a tiny proportion of mortgages are paid off before a house is sold. And thirdly, "real estate always goes up", so what's the problem .... right?