Beatrice
“Dear Steve,
My Husband and I bought a Condo in Los Angeles in March 2007. Terms were 80/20 loans each interest only for first 10 years. We did not put any money down. The value of our Condo has dropped more than 100k (per comparables mainly of short sales in the same building(yes, there have been a few).
We have contacted Countrywide for a refinance based on the “Obama” home affordability plan. However, we have not had any luck, reason being that our home value has dropped below the 80% point.
Countrywide has also insinuated that since we have not defaulted, we cannot get any kind of help. Our circumstances have not changed that drastically yet( none of us has lost their job, thank God), but we have a baby coming soon and I will not be able to work for about 3 to 4 months.
What do you suggest we do at this point, to get a fixed rate loan at current rates ( We are at 6.75% for the first and 7.5% for the second). We have good credit scores and have never been late on payment. Is countrywide going to help people like us in any way, from what you hear out there? Is a short sale in our plan if money keeps getting tight?
Beatrice”
Dear Beatrice,
This situation simply highlights one of my pet peeves over the last couple of decades, consumers have no access to debt reduction plans which give them power over their debt, except bankruptcy.
The recent Home Affordable Refinance Program, Home Affordable Modifications Program, and Homeowner Affordability and Stability Plan really offer you very little in terms of help because of your situation and the fact that lender participation is voluntary.
There is nothing that requires your lender to act and if they choose to not help you then you are left with really only one option, hand the condo back, file bankruptcy to discharge the residual debt you will owe, and rent for the next couple of years while you rebuild your credit.
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Lenders are banking on most homeowners are not going to go down that route so they will simply leave you where you are, trapped and paying a higher rate of interest. The reality is that no lender is going to refi you in an upside down mortgage.
What benefit is it to Countrywide to cut you some slack as long as you are making the minimum mortgage payments, none. I’m sorry to say that they’ve got you right where they want you.
Even a short sale can still leave you with residual debt, especially if the second mortgage does not agree to basically wipe their debt clean.
The first step would be to fall behind on your mortgage and see what solutions that opens up for you. Different programs are offered to people in different situations. If Countrywide offers you no help at that point you can take it to the next level, bankruptcy.
I’m certainly not trying to sugar coat or sell you bankruptcy but outside of passing through bankruptcy court to shed the home and debt, you may be stuck.
And don’t feel you are missing out by not getting into these programs. The majority of people are not getting enough help through them to make much of a difference. According to a recent study of loans that were modified by lenders, only 29% of loan modifications made at the end of last year actually reduced borrowers’ payments by more than 10 percent.
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