Posted on May 21st, 2008 in Mr Mortgage's Personal Opinions/Research
Mortgage modifications are hot right now. Most lenders are working with borrowers who have a desire to stay in their home and CAN AFFORD to make the payments.
I have heard of some great deals out there, such as balances being cut in half . Just recently I was told by a friend of a big-named national bank lowering the rates on a primary and second home Home Equity Line of Credit for the same borrower to 3.45% fixed. These were $240k and $150k loans respectively! That is a big savings. I can’t tell you the name of the bank but they have $84 billion in 2nds on their balance sheet…you figure it out.
Some lenders are being generous some are not. But, I would not suggest going after a modification on your own because typically you only get one shot at it, so if you do not have your ducks in a row and know what you are talking about, you could get yourself in trouble.
You other option maybe the little-known ‘Short-Refinance’. This works in the same way as a Short Sale but the mortgage holder discounts the note when the borrower refinances. CONTINUED…
Most do not even know this option exists. I have heard little about it until recently when a mortgage broker friend was successful in doing one. GMAC was the mortgage holder. He was going for a modification and GMAC said ‘since your borrower is current and their credit is good, why don’t you refinance this borrower with ANOTHER LENDER. When we get the pay-off demand for our pre-negotiated short-refi amount from the other lender, we will honor it’.
The broker took the new loan application, submitted it to his favorite wholesaler who was very confused because the pay-off was far less than owed, and the application did not show the borrower bringing in $120k to close. The mortgage broker explained the situation and the deal funded.
Bernanke has been very vocal about lenders writing down principal balances, but many have been reluctant to do mortgage modifications. There is really not much difference between a mortgage modification and a ‘short’- refinance when all is said and done. From what I am hearing this process is gaining acceptance and may just turn out to be the way ‘the big national principal balance roll-down’, that I have been predicting, will go down. But unlike many mortgage modifications, ‘short-refis’ are typically reserved for borrowers who can qualify for a new loan other than the fact they owe more than the property is worth, because there has to be a new loan program for them to go into in order for the current mortgage holder to allow the discount.
A big positive with short-refi’s is that mortgage brokers, bankers and banks will increase their new mortgage volume, especially ‘new vintage’ mortgage volume giving the industry a shot at a recovery.
Remember, as with mortgage modifications, short-refinances can take much longer than a traditional purchase or refinance transaction. This process can take two to three months to complete because of the negotiation process with the current mortgage holder in reducing the principal balance.
If the mortgage holder and the new lender are the same, then it may go quicker but then again, they also may rather just do a modification. -Best, Mr Mortgage
OTHER RELATED MR MORTGAGE STORIES