Mike’s Real Estate Show

You hear me quoting Lou Barnes on my radio show every week. His genius is an ability to cut though the fluff and political shouting to the heart of the matter of a subject. Here he goes after the new “assistance” package. Part of the bill is the ability to ”refinance” your home to get out from under the big payment and loan amounts. Here are his thoughts which use numbers for a “national” audience. The thought process works for our area:

“The new housing assistance bill, dismissed here briefly last week, deserves a more thorough hatchet-job.
     It’s centerpiece is a $300-billion FHA loan guarantee (not money) to refinance under-water home “owners.” Consider a Bubble-Zone victim who bought a $200,000 home five years ago, made a 5% down payment and got a 5-year interest-only ARM for $190,000. The home has fallen 25% in value to $150,000. She has made interest-only payments since, and her $190,000 loan is entering amortization reset.
     Her rate is not bad, 5.50% even after adjustment. However, her payment will jump from $871 to a killing $1,167. To her rescue, the bill’s “Hope for Homeowners.” In the land of unfortunate acronyms, gotta call it HoHo.
     HoHo provides for a write-down of the mortgage to 90% of current market value, to $135,000, plus a 3% refinance fee to the FHA, $139,000 total. HoHo further provides a 1.5% annual surcharge; added to 6.50% current market equals 8%, amortized for 30 years is $1,020 per month. Better by a little, possibly affordable, equity negligible, pride failing. Then there’s HoHo’s anti-equity kicker: when the place appreciates in value (how many years ahead?), and she either refinances off the 8% or sells, HoHo will take half of any appreciation. I bet HoHo won’t split costs.
     While she considers HoHo humiliation, a new renter moves into the house next door, identical, rent $700. Millions of people just like her are now condemned as “Walkaways.”

  Remember, this is all contingent upon your lender (s) agreeing to the “short-sale”. If you have a “second” or “equity line” after your “First mortgage” the transaction will depend upon those folks agreeing to the “short-sale” nature of this deal also. If they decide to dig in and say no you are OUT OF LUCK! You may wish to ask them to take a smaller sum and have it “unsecured” as a promissory note. This is the esscense of your credit cards. A simple “promise to pay”. There was also talk of these “junior liens” also participating in the “Equity” at a later date.

  But remember, a recent study found 80% of those who lost their homes to foreclosure NEVER called their lender!! It is YOUR reponsibility to start calling your Lender(s) and see if you can get them to reduce the amounts of the mortgage to fit the new rules as outlined in Lou’s comments above. Good luck!! If you wish to keep your home you have to be persistent and tenacious. Remember, the “squeaky wheel gets the grease!”