My Way Credit

I get a lot of calls from people who find my name and hope I can help them with a problem. Frankly, it is sad to hear from so many who are in dire straits and for whom solutions are not available. Here are a couple of recent stories.

Tale 1 – a lady, not a previous client, has an Option Arm that she got several years ago when she bought her home in Northern California. She had hoped to flip it in a couple of years, but of course the market has not allowed her to do that. In fact, the property is worth a little less than she paid for it and although she still has some equity, it would largely disappear in sales commissions should she sell it.

She enjoys the home, wants to stay there but her loan has become toxic. She could still afford an Interest Only loan and could afford a fully-amortized loan if the interest rate were reasonable

But her rate has just risen to over 7.5% and she cannot afford it. Neither can I arrange a refinance because she cannot document her income. Bottom line, she loses big if she sells her home and she loses if she stays there with her current toxic loan.

I suggested she call her lender to discuss a way where they could modify the terms of her loan to something that she could afford. Their response? We can’t [read won’t] help you unless you have missed a couple of payments. She has FICO scores in the high 700’s and is unwilling to start missing payments just to bring her lender to the negotiating table.

Tale 2 – Several years ago we arranged financing for a nurse. We fully documented her income and it was a good loan. However, she lives in an area that has suffered more than most with declining real estate values.  Her home is now worth less than the loan balance. It is a 5/1 ARM that will adjust next year to market rates.

Her current rate is 5.625% and she can afford the payment. She would like to refinance at the current market rate for, say, another 5 years. Of course, this would require a loan greater than 100% Loan-to-Value which is not available today. Her lender said that they were unable to help her and to call back in 2009 when it was closer to the reset deadline. 

Bottom line, I keep reading stories about how many homeowners are benefiting from work-out plans with their lenders, but I am having trouble believing them. At one end of the spectrum, hundreds of thousands of people have lost their homes. They certainly didn’t benefit from any renegotiation program. And there are others like the ones above, folks with good credit scores who are willing to stay in their homes and make payments and who seem deserving of some relief. I think they will never be served either.

It makes one think that the Public Relations Departments are making a lot of this up. Indeed, someone sent me a press release from FannieMae that indicated that they would be able to refinance homes up to 120% LTV. But that release has disappeared from the FannieMae website and no lender I talked with had ever heard of it. 

Pretty sad.