Advice on potential foreclosure.

[EmeraldCityGrl]

A good friend bought a house a couple years ago.
The mortgage amount was $250,000 structured into two different loans, one for two-hundred thousand,
the other for fifty thousand @ ten percent interest with a balloon in twenty years. Both loans were through Countrywide.
At the time they were assured they would be able to refinance the $50,000 within a year. Both loan agreements were
obtained on the same day.

They are now upside down on their house and trying to refinance under the criteria offered under Obama's plan.
The problem they're running into is the Bank telling them their debt to income ratio is not high enough to justify a new loan at this time.
With a great deal of sacrifice they have managed to stay in their home, keep up with the payments, and not incur more debt.

If we're to understand this, only when they get deeper into debt, which will eventually happen, will the bank consider refinancing.

It seems to me this is a good example of how the original intention to help homeowners stay in their homes is being minipulated by the banks
to not only insure the banks continue to screw people with outrageous interest rates, but deliberately force them deeper into debt.

If anyone has any suggestions we'd appreciate hearing them. Thanks in advance.

[flvegan]

1. I'd modify the loan rather than try to refinance.

The second would be easier, especially if it's been assigned/sold to another "lender" as they'd simply be wiped out in a foreclosure proceeding. It depends which one is the wallet breaker. There was no interest rate given on the first in the OP. Also, if they're upside down (meaning the home is worth less than the combined loan balances) the numbers aren't going to work for any lender to want to refinance.

Have them contact the default resolution department at the lender and convince them to lower the interest rate on the loan a couple/few points. Suggest that the current payments cannot continue to be made and default is imminent. Most lenders are starting to realize that having a performing loan making less money is better than foreclosing on a property and losing $100k in the process.

[teenagebambam]

2. Just went through this

and I'm afraid the sad truth is that the banks simply won't talk to you if you're current on your payments. It may be possible to do some kind of temporary forebearance (where you pay only a portion of your loan for, say, three months) THEN they may be willing to have a conversation.

[monmouth]

3. My friend is going through this. She has retained an attorney and is

very glad she did. Take all savings out of the bank and/or credit union. Do not talk to the banks or other creditors, just give them the attorney's phone/fax number. She's upside down also and homes in her area are being bought up by the banks for a pittance. Attorney says she can probably stay in her house for another 12-14 months. Do not pay homeowner's either. (If you can't pay your mortgage how can you pay homeowners)...Also, she was laid off and is presently praying for a job but this was his advice to her.

[metapunditedgy]

4. I've heard that refi can really hurt you.

From what I read, in many states if you default on your original home loan, they can screw up your credit rating, but that's about it. However, refinance loans typically allow the lender to garnish wages and take much of your other property if you can't pay them. So if you refinance and still can't pay your bills (as could easily happen in this market), now you lose everything you have rather than just your house.

Something about "non-recourse" vs. "recourse" loans, I think.

Anyway, I don't know if this is true or not, but it sounds like a good time to get advice from an expert.

[EmeraldCityGrl]

5. Thank you all so much.

I've forwarded this link to my friend. The entire situation is so frustrating and the result of unbelievable greed on the part of the banking industry.

[notesdev]

6. Maybe this will help

http://globaleconomicanalysis.blogspot.com/2009/07/preemptive-defaults.html

your friend is not even close to alone in this.

[grasswire]

7. beware of entities that want to negotiate with the bank for you

the NYT had an expose last week about the scam of hiring negotiators who will deal with the bank for recalculation of the loan(s). They take huge sums of money and do nothing, and then tell the owner that the bank is unresponsive. It can be a lying, cheating fraudulent scam.