When loan modifications fail and you are trying to refinance upside down mortgage, your options are limited other than HARP 2.0.
Q: I am currently paying on a mortgage that is becoming an overwhelming expense and causing me to go further in debt in other places.
I have a 30-year fixed mortgage with private mortgage insurance (PMI) with a balance of about $290,000. I have 26 years remaining on the loan with an interest rate of 6.625 percent.
We are current on the loan but we’re borrowing on our on credit cards to pay our bills. I have tried the loan modification process that went from July 2010 through March 2011, only to be denied. I also tried to see about refinancing but I am so upside down with this loan that I would have to come up with about $60,000, which I don’t have.
I love my house and would like to stay here but I don’t see the economy or housing market getting any better any time soon. I haven’t looked deep into anything specifically after the denial of the loan modification but I’ve got to do something or everything is going to go down the tubes.
Do you have any suggestions?
A: It seems to us that a refinancing of your home mortgage at this point may not help enough to get you out of your hole.
Let’s say you can reduce your mortgage interest rate by two or three percentage points and that will reduce your monthly mortgage payments by about $750. Is that enough to make the difference?
While that $750 per month is significant, you’d still need to find the money to pay down your credit card debt and pay all of your other expenses.
You really need to sit down and go over all of your debts, review your monthly expenses and understand how much money is coming into and going out of your household before you make any decisions. If $750 is a game-changer, and you are current on your mortgage, then you might want to pursue refinancing through the new Home Affordable Refinance Program (known as HARP 2.0). You can find out more through MakingHomeAffordable.gov or by calling a HUD-certified housing counselor, at 888-995-HOPE.
Recently the banks have been encouraged to re-evaluate their borrowers’ loans and allow them to refinance those loans under certain conditions even if the equity in their homes is below what they owe their lenders. The US Department of the Treasury and Housing and Urban Development agency have sponsored plans to enable borrowers to stay in their homes.
However, in the past these plans have helped some but not the majority of borrowers. As the new rules get written (and those homeowners who are severely underwater should find their lenders more receptive to the idea starting in the first quarter of 2012), you may want to contact your bank again and see if you meet the criteria and if you can refinance your loan.
You may love your house, but you shouldn’t risk your current financial state and your financial future on that emotion. It may simply be unaffordable, given your loss in income.
If you don’ qualify for a refinance plan or if the refinance plan can’t meet your financial goals, you may need to consider selling your home – even if you sell the home for less than you owe the lender through a short sale.
If you are able to short sell your home and get the lender to agree to the sale, you will at least get out from under the debt you owe on the home, especially if the lender waives the right to collect on the deficiency owed upon the sale of the home (the difference between the proceed from the sale of the home and the amount owed the lender).
Once you are out from under this property, you can find a living arrangement that substantially reduces your monthly housing expenses, pay off your credit card debt, save for your kids’ education and even save for your retirement.