Editor’s note: This is Part 1 of a two-part series. Read Part 2.
DEAR BERNICE: I had an interest-only jumbo loan fixed at 6.125 percent for five years. It was scheduled to readjust in 2011. I lost my job about five years ago when the company I worked for went bankrupt.
Due to my age and the nature of my job, it’s highly improbable that I will be reemployed, so I started my own business. My business is growing but not yet profitable. I’ve been using our savings and my 401(k) to offset living and business expenses.
I would like to stay in my home but can no longer make the payments, so I applied for a loan modification directly with my lender. The lender stalled for six months and finally, after calling them repeatedly, I was told that my application was denied. The reason, I was told, is that I have too much equity in my home.
In 20 years of homeownership I’ve never been late on a mortgage payment. You would think that I would be a good candidate, with little risk. I simply would like to capitalize on the lower interest rates and refinance my mortgage to a fixed-rate loan. Unfortunately, I can’t find a lender that will refinance my loan since I am self-employed and currently don’t have the income to support the debt service on my current loan.
Given that I am unable to qualify for a loan modification or refinance, I am being forced out of my home. There is no mention in your article or in the Making Home Affordable criteria of equity requirements. (It seems) lenders don’t really want to modify loans. –Mike S.
DEAR MIKE: Sadly, your situation is not an isolated case. The federal government estimates that about 3 million borrowers are eligible for its Home Affordable Modification Program, a part of the Making Home Affordable plan. And an estimated one in five of these borrowers have been offered trial loan modifications, according to a recent monthly report.
Before you give up on your home, here are some additional steps to consider:
1. You mentioned your age. If you and/or your spouse are 62 or older and you have equity in your home, you can apply for a reverse mortgage. A reverse mortgage lets you stay in the home until you die or decide to sell it.
The holder of the reverse mortgage pays you a portion of the equity every month, much in the same way that you would make a mortgage payment. The holder could also make a lump-sum payment, or a lump sum with monthly payments.
When you die, the title passes to the entity that gave you the reverse mortgage. This has been a very popular way for universities to expand their endowments. Reverse mortgages are also available from other lenders, but be wary: Reverse mortgages are complex instruments and they may not be the best option for many homeowners.
For more information on reverse mortgages, you can visit this Federal Trade Commission Web site: www.ftc.gov/bcp/edu/pubs/consumer/homes/rea13.shtm.
Reverse mortgages require points and fees that typically run about 5 percent of the property value. On a $400,000 property, that’s $20,000. The homeowner must occupy the property as his or her primary residence.
If the homeowner becomes ill and is away from the home for more than 365 days, the reverse mortgage becomes due and/or the property must be sold.
When the homeowner dies, the property goes to the lender upon the death of the borrower. In some cases, the property may be sold, provided that both the interest and principal paid by the lender can be reimbursed. If this is the case then the balance could go to the deceased’s estate.
2. Depending on your circumstances, you may want to consider a short sale, a lease option, or a straight lease. Any one of these options may be able to generate the additional income you need to keep going until your business becomes more profitable.
3. Check with other lenders. There are several online sites that allow you to search for lenders that could offer a refinance loan.
4. Before you give up on your beloved home, speak with a HUD housing counselor about your options, and check with the National Association of Consumer Advocates to see if there is other help available. This is a group of consumer attorneys who can often find problems with the original loan documents.
If the lender made a mistake or doesn’t have the original note, there is a chance the lender may not be able to foreclose. This approach can often bring the lender back to the table.
5. Contact your lender and ask about forbearance. In this situation, the lender agrees to delay payments for a period of time. The lender tacks on the additional interest and instructs you to resume payments at a later date.
6. If you haven’t done so already, contact a local Realtor who specializes in selling distressed properties to see if he or she can provide you the name of a legitimate loss mitigation company. Many loss mitigation companies assist homeowners at no charge to the homeowner.
You do have options. In many places in the country, sales have been picking up. If you can salvage even part of your equity by selling, it would be worthwhile to give it try.
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of "Real Estate Dough: Your Recipe for Real Estate Success" and other books. You can reach her at Bernice@RealEstateCoach.com and find her on Twitter: @bross.
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