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Old 02-02-2009, 06:35 PM
 
Location: San Diego
41 posts, read 110,692 times
Reputation: 49

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Here's my idea - what do you think:

Here's the scenario: You have a home & mortgage, the mortgage is higher than the value of the house. The mortgage is secured by the house - i.e., if you stop paying, the bank takes the house. Normal stuff.

However now, having the house as collateral isn't so hot because the house is worth less than the loan. Let's say for ease of calculations ( I KNOW it's not realistic) that you have a house that's currently worth 100k and the loan is 200k. The bank has 100k out there floating, more or less unsecured because even if they take the house, they only have something worth 100k.

Why not convert the 200k mortgage into a 100k mortgage (ignore the 80% 'rule') and a 100k unsecured personal note. The 100k is basically unsecured ANYWAY, and the borrower (and bank) can refi the first 100k. If the first 100k is cheaper (lower rate), the borrower has better odds of making the payments and the bank is safer....

AND...

put a clause in the personal note that provides for a refi when the home value goes up, so that the bank has as much of the note secured by a house as possible, and they don't end up with unsecured notes when the home values rise.

What do you think? Can this work?
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Old 02-02-2009, 06:45 PM
 
90 posts, read 426,777 times
Reputation: 81
Here again is my answer to your same post in the LA forum:
Actually I've seen loan companies do this, extend the personal note on a refi that was underwater (before the economic crash), but there'll be no (need for) clauses that that provide for a refi when the home value goes up. You can refi if YOU AND THE PROPERTY qualify -- that is the value is there in the property, and the income and credit are there for the person.

The big challenge as to why you don't see much of this: personal loans have higher interest rates than real estate loans, and the person would have to qualify with the new personal loan payment included, which will be higher than the net portion of the old real estate loan.
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Old 02-04-2009, 11:31 AM
 
11,438 posts, read 19,463,654 times
Reputation: 18141
Quote:
Originally Posted by tiresidedown View Post
Here's my idea - what do you think:

Here's the scenario: You have a home & mortgage, the mortgage is higher than the value of the house. The mortgage is secured by the house - i.e., if you stop paying, the bank takes the house. Normal stuff.

However now, having the house as collateral isn't so hot because the house is worth less than the loan. Let's say for ease of calculations ( I KNOW it's not realistic) that you have a house that's currently worth 100k and the loan is 200k. The bank has 100k out there floating, more or less unsecured because even if they take the house, they only have something worth 100k.

Why not convert the 200k mortgage into a 100k mortgage (ignore the 80% 'rule') and a 100k unsecured personal note. The 100k is basically unsecured ANYWAY, and the borrower (and bank) can refi the first 100k. If the first 100k is cheaper (lower rate), the borrower has better odds of making the payments and the bank is safer....

AND...

put a clause in the personal note that provides for a refi when the home value goes up, so that the bank has as much of the note secured by a house as possible, and they don't end up with unsecured notes when the home values rise.

What do you think? Can this work?
Nope. Because at this point the credit of the homeowner is approaching the toilet. The unsecured part of the loan will be a high interest rate, so the two payments together will be just as high as the crummy loan to begin with.

MOST sane people, when they bought the house, bought a house they could afford -- not aspire to afford. And barring the mishaps of losing ones job health related concerns the people in the home should STILL be able to afford the home they bought.

Just because the house is "under water" isn't enough reason to do this. If you could afford a 2K payment then, you should be able to afford a 2K payment now -- that's what you contracted for and that's what you should pay.
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Old 02-04-2009, 06:45 PM
 
Location: Durham, NC
426 posts, read 1,296,694 times
Reputation: 176
Quote:
If you could afford a 2K payment then, you should be able to afford a 2K payment now -- that's what you contracted for and that's what you should pay.
Unless you're one of the millions who've lost their jobs. Not everyone who is in trouble was stupid.
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Old 02-05-2009, 12:30 AM
 
11,438 posts, read 19,463,654 times
Reputation: 18141
Quote:
Originally Posted by sbanawan View Post
Unless you're one of the millions who've lost their jobs. Not everyone who is in trouble was stupid.
I didn't say anyone was stupid, and if you had READ my post I mentioned people losing their jobs might not be able to meet their obligations.
Quote:
And barring the mishaps of losing ones job or health related concerns the people in the home should STILL be able to afford the home they bought.
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Old 02-05-2009, 12:51 AM
 
Location: Your Mom's House
1,251 posts, read 3,061,113 times
Reputation: 766
Quote:
Originally Posted by Tallysmom View Post
I didn't say anyone was stupid, and if you had READ my post I mentioned people losing their jobs might not be able to meet their obligations.
Yeah, but lets get real though. How many people actually have the kind of money lying around to continue paying their mortgage if they lose their jobs for several months?? No one would ever be able to buy a house if that were the case.
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Old 02-05-2009, 08:15 AM
 
930 posts, read 2,122,479 times
Reputation: 1000
Quote:
Originally Posted by sbanawan View Post
Unless you're one of the millions who've lost their jobs. Not everyone who is in trouble was stupid.
No, but her point still stands. The vast majority really were stupid. You are talking about millions of house flippers, get rich quick dreamers, and realtors, mortgage brokers, and home builders who partied like it was 1999 and maxed out the HELOC.
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Old 10-25-2011, 10:30 AM
 
1 posts, read 3,238 times
Reputation: 11
Not everyone is a deadbeat. My husband and I bought a house in 1994. We refinaced it to make improvements a few years later. At that time we still owed less than the house was worth. Then the market declined and my husband passed away 6 years ago. I still did ok until I lost my lower left leg to an amputation due to osteomylitis following surgery for rheumatoid arthritis. My job let me go because I was on medical leave for 7 months. I have put in multiple applications to try and find another job. I have to assume that because of my age and the prosthesis no one wants to hire me. I had worked at my recent job for almost 19 years. Now I am struggling to pay my mortgage and other bills. In a couple of months when my small savings is gone, so is my ability to pay them at all. So don't judge other people until you have walked a mile in their shoes. My mortgage is only 75,000.00 and I still won't be able to make it.
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Old 10-25-2011, 03:15 PM
 
Location: Albuquerque
5,549 posts, read 13,856,118 times
Reputation: 2669
The original topic was why don't underwater loans get split into two
so that a portion that is secured by the house would qualify for a refi?

The answer, early on, was that the non-secured portion would carry
an interest rate so high as to make the secured portion's lower rate
irrelevant. It would result in lots higher interest costs.

This thread isn't about whether people should or should not default.
It is what could happen if a loan was split into parts. It's irrelevant that it
might not work for many people. It is only relevant if it can work for some.

Splitting the loan would be a great idea for someone who is trying to move or
downsize. It would suck if a person had to pay on an old note for nothing, but
if by bailing on the secured portion they could simplify their life and reduce their
total expenses and maintain their good credit, againk it could be a great idea.

The reason why they don't do this sort of thing is that the banks don't
really own the loan and thus have no concern whether you default or not.

I personally might consider such a thing in order to not have my credit ruined
by a SS or DiL. For many, as long as the bank isn't going to work with them,
they might as well just walk away. The difference to your credit isn't very much.

Perhaps in the future, as more people walk, there might be some workouts
that involve a splitting of the loan as the OP proposed. A person, even paying
on a personal note, could have much lower monthly costs if the house was
then sold and they moved into much less expensive digs.

Perhaps in the future, banks, .... er .... loan servicers will work with people to minimize damage.

No sign of that sort of thing for now.
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Old 10-25-2011, 08:26 PM
 
Location: in my mind
4,616 posts, read 6,127,695 times
Reputation: 9155
what I don't understand is why more people don't seem to think that homes can actually lose value. I read so many stories about people wanting to bail out because their mortgage is now currently more than the house is worth. Why is it OK to get out when the value drops, but its expected that you will stay when the value exceeds the mortgage? Isn't it a given that something such as real estate can fluctuate in value? It seems there has been a prevalent attitude that real estate should only go up in value and if it doesn't, the person who chose to purchase that property should be allowed to walk away.

Where did this idea that it will only go up come from, anyway?
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