Help For The Upside-Down Owner?

by Peter G. Miller
July 9th, 2008

Jose writes and says:

“We bought our home three years ago at $450,000 here in California, and it has devalued to $360,000. Our interest-only is up in another year and a half, I feel we are screwed!! We called a lender for FHA loan, and he said, being our house has dropped in value, he cannot help us! We have never been late on a payment.”

It’s interesting that the latest FHASecure interpretation says that “borrowers delinquent on their interest-only and/or payment option ARMs are not eligible for this expansion: borrowers with these types of mortgages must demonstrate that a rate reset caused the delinquency and that they were making the monthly mortgage payments within the month due during the 6 months prior to the rate reset.”

You, however, are NOT delinquent, thus the fact that you have an interest-only mortgage should not be an issue.

You are an upside-down borrower — the loan balance is worth more than the property.

Some potential options include:

___Refinancing to a smaller loan. This will mean bringing cash to closing to pay off your current mortgage.

___Getting a loan modification from your current lender.

___Selling the house.

___Unloading the house with a short sale — this will require lender approval.

___Getting more income or cutting current expenses.

Follow the news and see if FHA reform passes. If yes, it may help in your situation. At least look into it.

Also, speak with California lenders and see if they have any further suggestions.

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This entry was posted on Wednesday, July 9th, 2008 at 4:34 am and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

5 Responses to “Help For The Upside-Down Owner?”

  1. jdj Says:

    What is the problem? Those are paper loses you speak of.

    If you bought the house as a long-term investment, and why else would anyone buy a home, why should you care about the daily ups and downs of the market?

    Over the long term the house will appreciate and by the time you retire it should be back in the black.

    “Screwed” by whom? Were you promised that house prices only go up by a real estate professional? What was your original plan for when the interest-only loan reset, refinance into another IO loan?

  2. Tammy Says:

    I refinanced my home to use the equity 2 years ago. My broker said “Lets do an ARM and you can refinance in 2 years” Two years later my house is worth $140k and I owe $170k so NO ONE will refinance us. Our rate is set to go from 7.99 to 12% in 2 months.. My mortgage company will not modify my mortgage unless I don’t pay it.. I’ve never been late on a bill in my life. It’s either my credit or my home…I feel hopeless too.

  3. plm Says:

    Hey jdj,

    You must have made a million of these loans and spew crud so you can feel better for the crud you helped spew!

    Home Lenders and builders lied and spew a bunch of lies, knowing what was coming, perhaps more than the new home buyer!

    Don’t judge until you have walked in another’s shoes!

    Good luck to Jose and Tammy!

  4. Seb Says:

    You need to get a pro to help modify the loan if the reset will make it unaffordable. With the way LIBOR and PRIME are heading, rates should not increase with Adjustable loans, but if they do, you DO NOT have to miss payments to get the lender to modify your loan…


  5. Kim Says:

    I was able to get a modification on my home loan without a pro. It was consistency and persuasion, when one person said “no” three times I asked for their supervisor until I got in contact with someone who saw me as a person not a loan number. It took 7 months and all I was looking for was an interest lowering.

    As for jdj, I feel like I got screwed because the houses in my area are being sold to families of lower income, not all are bad, but it has changed the dynamic of our neighborhood. The yards are not being kept up, the multiple non-running vehicles and the mouthy children were not here when we bought. I have two options walk or put up with a lower class of people. So, yes, I do feel screwed.

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