Is Your Home Mortgage Upside Down? Need To Do Upside Down Mortgage Modification?

By Dan North

So your mortgage is upside down and you are under financial stress. If you could only hold on until property values come back up. Possibly it is under control for the moment but there is an adjustment in the near future or a balloon payment coming due or a time is coming in the future when you don’t know what is going to happen. What if you miss an installment and set off an adjustment to your ARM? What will you do then? What can you do? Perhaps you had these thoughts while you watched your mortgage turn upside down as your property value plummetted.

Now is the time to do something before your credit takes a hit, but if you are already behind on your mortgage, take action before your lender does. You have choices now that you won’t when it is too late. Get the Home Mortgae Help you need.

Why can’t I refinance a mortgage for a negative equity home?

As you go upside down on a mortgage, refinancing turns riskier for a lender. From the lenders perspective, they give you a loan and then sell your mortgage on the secondary market. The investor who bought your mortgage now has the risk, the lender has thier money back and gets paid for servicing the loan. You deal with the lender but an investor now holds your contract.

The lender makes money from creating a mortgage, servicing the contract and repeating the process over and over again with the same money. Once the loan goes underwater the investor is at risk of losing money. He wants you to get refinanced by a new contract. He gets his investment back, makes a profit and gets out of an unsecured investment.

The problem is why would another investor buy a mortgage for an underwater property. The investor would be exposed to unsecured risk for a low return. With a higher return he might be willing to take that risk, but then why would you want to refinance to a higher interest rate and larger monthly payment.

Suppose a lender does refinance even though you are underwater on your mortgage. He gives you a lower interest rate and monthly payment. The lender turns to the secondary market to sell your underwater contract. Who is going to buy it? I wouldn’t. Would you? If your mortgage is negative by $100k, that is like paying $450k for a $350k house. A professional investor will pass.

The lender is in the business of writing mortgages, selling them, servicing them and making income on the same money repeatedly. If the lender can not sell your contract, they will turn you down. That is the brutal reality of an upside down mortgage.

What About Government Home Loan Help?

The government has not provided incentive for an investor to take that much unsecured risk for so little return. Unless the government creates enough incentive or removes the risk, investors will not buy these loans.

There is an option to refinancing thatworks, home mortgage loan modification or forbearance (even when you are not late on payments). Technically there is a difference.

Mortgage modification is a permanent change of the mortgage. Usually from adjustable interest rate to fixed interest rate or possibly to a lower interest rate or the term of the loan may be extended to lower payments. A permanent change to a lower interest rate and monthly payment does happen but takes more work to negotiate.

Again look at it from the lender and investor view point. Financially the lender is not much affected as they already sold the loan and will continue to service it. The investor takes a bigger loss on future profits but not as much as he would for a principle reduction, short sale or foreclosure. The investor does not make as much money but does not lose all his investment.

Forbearance is a temporary mortgage reduction, lowering mortgage interest rate, lowering mortgage payments or restructuring to interest only payment for a period of time. At the end of that period the loan reverts to the original terms of the mortgage contract. This is the most commonly approved of the modifications.

Looking at forbearance from the investors prospective, he takes less money for a number of years. The investment is not being paid back but he is getting some money. After the reduction period the investment continues at the original terms he purchased. Much better than losing his investment and the original investment stays intact. For the investor this is the best of the mortgage assistance programs.

The TARP Mortgage Assistance Program – Oct 2008, the US Secretary of the Treasury stated that 70% of US home owners qualified for the TARP Mortgage Reduction Program. Not just those in financial also those current on their mortgage payments. If 70% of US home owners had a lower monthly mortgage installment, more cash would be injected back into the economy creating economic growth. The Stimulus Plan.

We compiled a data base of modifications we settled since Oct 2008 under the TARP Mortgage Assistance Programs. We know what modifications lenders approve and the criteria that must be present to approve those modifications.

The Author, Dan North, is making this database available to find out for yourself what you qualify for on a loan modification. This is a free service available to all US home owners.

Find out if you are one of the 70% who qualify under the Government TARP Mortgage Assistance Program.

Call Dan at 406-546-2517 or email Dan@Mortgage-Upside-Down.com and ask if you qualify.

(c) Copyright — Dan North. All Rights Reserved Worldwide

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