Mortgage Loans

[hopeful]

I'm going to suggest something that may shock you and may offend others on this board.

If your goal is peace of mind, you may need to see a bankruptcy attorney.   In my own opinion, it appears that you have too much debt.  If you can't make substantial payments towards paying off your credit cards now, what are you going to do when the inevitable "life happens" happens?  In this economy, there's a very real chance that you or your wife will lose your job (or lose any "bonuses" that you may get from your job).  For example, you could be in a car accident and be out of work for a while and, with the economy being what it is, your employer could decide that it was cheaper for it to just let you go.  And if you do manage to keep your job, the medical bills are going to put a serious dent in your budget.  If you are going to struggle to meet all of your payments and worry every time the phone rings thinking that it is a creditor, only to be in the same position in two or three years, why put up with all of that stress?  Why risk your mental and physical health if there is no way out?

And, I'm telling you, there is no way out for at least 12 months and probably much longer.  I've been saving my money for a while in hopes of buying a home.  I'm not ready to buy yet -- waiting until December or January.  But I went on line yesterday to Countrywide to find out what it would cost to get into a home.  For a $120,000 mortgage (modest, right?), Countrywide wants to see $15,000 in your savings account:  preclosing costs, downpayment, closing costs, and "extra" in reserves.  I imagine that any lender would require the same kind of "cash reserves" before refinancing.  The days of "no down payment or closing costs" are gone for at least another decade.

All of the people who are defaulting on the subprime market were in the same boat you are in.  Some of them were doing ok but had a sudden job loss or medical problem (or divorce) that pushed their budget over the edge.  Many of them were encouraged to get into a home with an ARM (or a low fixed rate that turned into an ARM) and then were told to refinance before the ARM kicked in -- the only problem is that they can't get refinanced because (a) their house isn't appraised for what is owed or (b) they can't find a lender to refinance at their current credit level.  I have a friend in just this situation -- his ARM kicked in and he has to pay 1.5x what he was paying each month and next year his payment goes up to 2x what he was first paying (doubling his mortgage), but he can't get a refinance because housing prices have declined and the appraisal is lower than his mortgage.  He's really stuck between a rock and a hard place.  The lender will refinance, but only if he can come up with the extra $15,000 that stands between the appraisal and the mortgage that he's refinancing.

More than likely, that's kind of where you are...between a rock and a hard place.  You probably don't have any (or very little) emergency funds, so the first time the car breaks down and you don't have the $2,000 to get it fixed (because your credit cards have been cut off), then you can't get to work, then you lose your job, etc., etc., etc.  Life happens.  Life comes at you.  When you least expect it to do so. 

With the amount of credit card debt you are carrying and the overload you are carrying on your mortgage, you are under a lot of stress.  Stress that can harm you mentally and physically and affect every relationship in your life (your marriage, your kids, your co-workers, etc.).  You have to ask yourself if it is really worth it.  And you have to keep trying to get a refinance (but even that can be very stressful -- rejection is not a good thing to experience.)

So, do the normal things:  DO NOT MISS A HOUSE PAYMENT.  PAY AT LEAST THE MINIMUM ON YOUR CREDIT CARDS (if possible; otherwise, pick one or two and make the minimum payment on those and let the others suffer).  TRY TO SET ASIDE SOMETHING FOR AN EMERGENCY FUND. And go to see a bankruptcy attorney to find out if this might be a viable option for you.  You don't have to declare bankruptcy, but it would be financially prudent to at least go talk to one to find out what your options may be (and they do vary from state to state). Go see one today just so you can get a handle on your situation.

Good luck.

PS:  TRUST ME, I WORK IN THE FINANCIAL SERVICES SECTOR:  THE ECONOMY IS MUCH WORSE THAN THE MEDIA IS LETTING ON.  MUCH WORSE.

Message Edited by hopeful on 08-16-2007 10:55 AM

[MidnightVoice]

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hopeful wrote:

PS:  TRUST ME, I WORK IN THE FINANCIAL SERVICES SECTOR:  THE ECONOMY IS MUCH WORSE THAN THE MEDIA IS LETTING ON.  MUCH WORSE.

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Agreed - for most of us normal people I really think that is true

[cgmiller63]

Here-Here,  Hopeful.  Thank you for telling it like it is.

[rhinocl]

I don't think this is a situation that requires bankruptcy and if you talk to a bankruptcy attorney understand that he is interested in making a fee so his advice is biased. Your main problem is that you can't re-finance because of lack of equity. You could possibly buy a bigger house at 70% of appraisal maybe buying subject to, refinance money out of that one, and use the money you pull out to bring to closing when you sell the first house. Or you could find an investor to sell part of your house to, use the money to pay off your second and part of the first. Then re-finance. (The investor might have to sign on the new mortgage. Typically with these deals there will be an agreement to sell in 3- 5 years and split the proceeds. You haven't given us enough facts to really come up with solutions though. If you have enough time you might be able to play a balance transfer game with your cards to free up cash for paydown. Also look at your other assets. I have seen people with two brand new trucks in foreclosure because they were making the truck payments instead of selling them and buying used ones. This is a tough problem. I recommend going to a RE investment club meeting and making an appointment with the person who runs the meeting. People will likely not help without taking a pound of flesh but better that than losing everything.

[boheme]

I do not know of any lender that will lend money to a 115% at this time, unless you have FICO in the 700 +.  Investing in another property is probably not an option with your current debt. Selling part of your house is a "loan". What person would lend on a property as a lien in 3rd position knowing that they will be the last to recoup their money in the house if it goes into default?

[rhinocl]

Selling part of the house is not a loan. There is a major difference between equity positions and loans particularly in how usury statutes apply. Please note that I suggested he use the proceeds to pay off the second, so that person's equity would only have one loan in front of it. (still true after a re-finance). As for why any investor would get involved-remember that there has never been a 3 year period when the average R.E. price in the country has gone down, the long term trend is always up. If an investor can get an equity position in a property without all the normal costs of obtaining their own mortgage they can eventually get a good cash on cash return. We don't have the numbers to know if this will work here. The bad thing is not that you can't find investors to do this, but that you have to eventually sell the house and give them a lot of the equity, but it beats foreclosure or bankruptcy. In the other scenario note that I suggested buying a house subject to. The problem here is not so much finding someone more desperate and buying subject to, but being able to re-finance dollars out of it. A third option:find out if the ARM lender will renew that loan. If they will use the time you gain to do some budgeting and 0% balance transfers and start paying down debt.

[Joe77]

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chartley3 wrote:

First piece of advice is never do a 2 or 3 yr ARM unless your able to refi within 12 months. I recommend pulling all 3 of your scores and your DW's to see what your mid score is. If you are in the 620-640 range you should be able to goto a real bank and get a fixed rate with little to no out of pocket expenses except for a new appraisal. Break down your CC debt by each card and focus on paying off all but $20 on one card month and mothball it starting with the one with the lowest balance first.

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If the house is still indeed worth less than they owe, few banks will touch it right now.

[Joe77]

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Jayray7352 wrote:

I tried to look into a refi with a fixed rate, but the loan officer actually quit returning my calls.  She called me once and told me that my score was around 605 (it has since jumped back to 620....) and that she would do some checking on why it was so low....but hasn't called me back...and won't return any of my messages.  Meanwhile, I got a "loan letter" ( I apologize, I cannot remember the term) in the mail with an estimate of what she initially thought she could give me, and she was charging 10% origination!!  Seems a bit counterproductive...is this the norm for "high risk" folks like me?

Thanks

Jayray

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10% origination?  Are you sure that's right?  That's the max legal limit and well over "high-cost" guidelines.  The only time I'd ever see that is on a tough commercial or "hard-money" or foreclosure bailout situation, and even then I personally wouldn't charge that much.

[Joe77]

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MidnightVoice wrote:

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hopeful wrote:

PS:  TRUST ME, I WORK IN THE FINANCIAL SERVICES SECTOR:  THE ECONOMY IS MUCH WORSE THAN THE MEDIA IS LETTING ON.  MUCH WORSE.

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Agreed - for most of us normal people I really think that is true

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Some sectors have been doing quite well.  Others have suffered.  However, the way the market is (over)reacting to the subprime mortgage mess is creating issues and instability.  That's what I worry about.

[Jayray7352]

I agree that the situation does not merit bankruptcy.  To be honest, although I have been told on multiple occasions by folks in the finance sector to consider the Big B....I just can't do it.  I don't agree at all with the ethics and morals behind it.  I made the mess, I will clean it up....if that means getting a second job down the line, then that is certainly what I will do....the only reason that I haven't done it so far, is because I have a beautiful wife, and two beautiful kids that I don't want to miss....so that is that...but I do appreciate everyones advice.

I think that my plan for now is to hang tight until my next raise (February) which should be about $500/month (net) and then go with the consolidation loan from prosper.com that I asked about in another thread.  This should boost my score some by eliminating the cc debt, and allow me to refinance if needed, or ASAP.  My ARM isn't up until 2009, so I have some time...I will just have to hope that rates don't skyrocket before then.....

Does this sound like a decent approach?

thanks

Jayray