Mr Mortgage – ‘Short-Refinances’ Gaining Popularity..

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.

An ML-IMPLODE advertising partner thoroughly checked out by MLI, Get Green Credit, does a great job I have been told, so if you are looking for a source, there you go!

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


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13 Responses to “Mr Mortgage – ‘Short-Refinances’ Gaining Popularity..”

  1. […] Read the rest of this great post here […]

  2. […] SunEGrl wrote an interesting post today onHere’s a quick excerptJust 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! … […]

  3. How does this reflect on the clients credit report if they do a short refinance?

  4. good question…I am aware that many are treating mod’s as a ‘settlement’ while before mod’s were treated as a short sale. need to find this out. Thanks.

  5. It’s almost to a peak Mr. Mortgage. As I correctly predicted people have brought oil to the roof. I don’t know how much more it can go but my oil options are sold.

    Once oil price starts decreasing other prices should come with it and no one will understand why. The stock market at first may go up with oil going down but then it will also go with it along with housing and everything else.

    It’s the start of the second depression for the US and the world. It’s hyperdeflation.

  6. John,
    Explain more, I am totally interested, and baffled by all of this. I am a pretty logical person, and the past 6 months have been so illogical to me. I do believe and have for a while that real pain lies ahaed, I am just hoping you can explain it, that will ease my aching logical brain 🙂


  7. So if I come in off the street for a purchase loan I have to pay 6% but if I’m about to be foreclosed I get 3.45%?

  8. If that is THE John Borchers, ya better listen.

  9. Question…does a short refinance change the reported home price for statistical reporting purposes? Namely selling the loan at a discount to another lender doesn’t really change the purchase price of the property on MLS or the county does it? these deals actual hide the fact that the house took a real hit in value from the short refinance?

    Or if it does change the value, does this go to then reduce property taxes on the property short refinanced?

  10. lightdemand – this is not a sale therefore would have no impact as a comp on other homes. This has nothing to do with the mls. These deals would hide the fact the property took a hit but all properties are taking a hit so I dont think that matters either. On prop taxes you can always have your taxes re-assesed and they have to re-asses if values change sharply anyway.

  11. Hey, this may sound crazy (especially with the amazing “cut loans in half” numbers you’re finding) — But this just makes me think: do the banks (again) secretly know something we don’t know?

    In California (where I’m at), I am guessing that once you have “short-refinanced,” your original purchase loan goes from being Non-recourse to Recourse, just like any other refinance does. So the bank can chase you into collections and bankruptcy on the new short-financed loan, if you ever foreclose when the house tanks even well below the new bargain/discounted value…..

    … you think the banks are finally realizing, behind closed doors, the full potential for massive housing drops well beyond the current worst-case thinking??? If so, short-refinancing and other “keep people in their homes” strategies could just be more bank self-protectionism to rope more would-be walkers into the bonds of recourse loans and bankruptcy parties.

    Hey, to be fair:

    I could just be in another housing-and-credit-crash-induced fit of paranoia at the moment. I haven’t run the numbers to see how the payment on my loan principal cut in half, at 3.45 percent, would stack up against the cost of rent. It’s probably a fantastic deal. But thanks to your blog/commentary as well as others (patrick, irvine housing blog, etc.), I am fully-engaged in skeptically questioning the hell out of the true motives of any seemingly “mortgage-payer-friendly” action that the banks (or government, same thing) initiate nowadays!

    Crazy game of stratego that is being played out right now. 🙂

    Your razor-sharp analysis and unflinching bullhorn of truth are much appreciated, Mr. Mortgage!!!

  12. Did anyone have an answer for my question earlier how will this reflect on the credit report in the future? Will it be a negative? Or will it just not report? I hate to see a clients credit get wrecked by doing this

  13. […] Mr Mortgage – ‘Short-Refinances’ Gaining Popularity..  I have heard of some great deals out there, such as balances being cut in half … Mr Mortgage  […]

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