THAT is an excellent question, ever since the mortgage meltdown occurred and I started getting calls from distressed homeowners. I have always insisted for homeowners to see beyond 2-3 years but go deeper into about 5-8 years from the time of hardship. Why? Because when your property values drops 40-60% it won’t be a quick fix to get back on your feet and start gaining equity again. Also, because if you bought the house on a minimal to zero down payment loan and you have $200K or more in deficiency balance (negative equity) it will take a while for anyone to see a house appreciate for $200K.
Here is the Q&A from homeowners not certain about a short sale or a loan modification:
Caller: I got a loan modification from Naca for a BOA loan; my new mortgage payment rate is at 2 percent for the first 3 years increasing to 5 for the remaining 20 years. I have a balloon payment and I feel very comfortable with the mortgage payments that I have been offered. Please see if it’s worth for me to take this offer.
Ken: I requested for a copy of the actual Modification package and reviewed this borrowers entire scenario. Here is the deal, the lender cut and sliced this loan up so many ways that the homeowners really got confused. BOA offered for the borrower to be paying interest only on 75 percent of the amount owed, the remaining 25 percent of the balance will be due and payable at the end of the term or when the homeowner is able to refinance. That is not it, the term of this loan is amortized for 40 years but the entire loan term is due at the end of 25 years. Because the borrowers only is surviving on one income and that income will leave the family with only less than $1,000 to survive each month. I am strongly suggesting for them not to take this offer. After doing the math, that loan doubles after she pays the 25 years and pays back the balloon payment. It’s sickening for me to see that banks are back to their old ways of deceiving homeowners. Forget about how much they will be paying per month, let me show you the numbers and you tell me if its worth this homeowner to continue?
The Scenario: Current balance owed – $ 600,000.00, the lender is only allowing $500K to be amortized for 40 years, which seems ok but the remaining $100K is due when the term ends of when there is a sale. The terms of the 500K are only for 25 years with a balloon balance. Therefore, in 25 years they would still owe the lender $300K + $100K (the remaining non interest bearing balloon balance). Therefore after paying 25 yrs, they would have paid close to $600K + $400K (remaining balance). They would have paid a total of $ 1,000,000.00 for this house! I am really fuming now, cause this is crazy. Don’t let them tell you that you will be making payments similar to a rent on a house. This is by far not the same. Owing money on a house, which will never get you in the black (positive equity), is not my way of owning a house.
Caller: I have three renters that are helping me pay my mortgage, can you help me modify my loan.
Ken: After reviewing the case, I have gathered that again its not worth for this retired homeowner to be having such a large mortgage balance at this stage in their lives, they are in their 70’s. I tell her she is slaving for her tenants and the bank.
The Scenario: A retired lady and her retired husband, who is making about $2,200 in SSI and is currently renting out three rooms to boarders, totaling about $1,550. The boarders get to eat for free and all utilities are paid. The mortgage balance on the house is about $2,500, not including taxes and insurance. Current loan balance is about $450,000, the value at about $350,000.
The location of the house is ideal and has great potential for growth and appreciation. Here are my thoughts: you have a retired couple making a somewhat decent SSI income and sometimes get help from their children. Now, they have an average of $3,000 PITI pmt and the property is underwater for about $100K.
In today’s standard for where the property is at, it could easily appreciate another 25 percent in about 4-5 years.
My question to her is: Why would she want to continue struggling to pay the mortgage and to deal with boarders? She has to cook, maybe clean up after them and pay for their utilities.
At the end of the day, all the rent she is getting is not enough for the mortgage — the property will always need fixing and maintenance due to the number of people living there and she is stuck with it everyday of the year.
At 70 years old, if she would only be paying rent of about $800-1,000, both will have enough money once or twice a year to vacation in different places. The lenders might not modify because the rental income is not documented. They can’t leave the tenants in the house, so they are stuck to the tenants and are obligated to the lender. Is that a way to retire in America? I don’t think so.
This is the last year homeowners can Short Sale, where lenders will be willing to offer $3-5K for relocation and lenders will waive any rights to a deficiency judgment due to losses incurred at closing.
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Please call Ken Go of 1st Innovative Finance at (562)508-7048 to get clarity on your current situation or to get good advice. Call Ken or write to [email protected].