While President Barack Obama did fundraising across the West Coast last week, he did add one policy talk while on the road, in this case a renewed call for help for underwater home owners while meeting with a couple in Nevada. His proposals continue to focus on helping those who owe more on their homes than the home is worth but are still current on their payments, by offering ability to refinance their loans and save hundreds of dollars a month in payments.
I always watch the homeowner discussion avidly, because I’m one of the struggling homeowners each proposal is supposed to assist. Every time a program is proposed, or regulations are loosened, or I hear that this version would allow even more homeowners to participate I get excited, thinking maybe, finally, it will be my turn.
It never is.
I was a homeowner who bought my first home in 2005 with a second mortgage acting as a down payment, and a ridiculously overpriced home that was comparable to every other ridiculously overpriced home in the neighborhood. Within a matter of three years, our house value tumbled, until despite having paid over $25,000 in principle off, our home is only worth slightly more than half of what we still owe. Our interest is high, our debt to value ratio abysmal, and we had no hope of a refinance despite near perfect credit records, reliable income, and no other outside debt.
With the last version of HARP, it stopped mattering how underwater our home was — as long as we were current, we should be able to refinance, we were told. The owner of our first mortgage, one of the largest mortgage holders in the country, contacted us to tell us we were pre-approved. An hour long phone call filling out the paperwork with a representative confirmed it, and we were told to take the next steps: pay the non0refundable fees, complete the next batch of paperwork, and provide the documents we would need to to prove our identities and income.
A few weeks later we were told everything was good to go. Our appraisal had just barely made it in at an amount high enough to allow us to refinance without additional points, since they were only refinancing our initial mortgage, not the full amount we still owed due to the second mortgage on the house. All we needed to do was send a cashier’s check to the title company they had picked, and they would contact our second mortgage company for a subordination letter. We would soon have a new loan that was nearly $300 a month less than what we were currently paying.
Weeks passed. At first, I would get an update every Friday telling me that they were still waiting to hear back from our second mortgage owner. Then I received an email stating that the deadline for the subordination was the following week day and that they would follow up with them then.
After two more Fridays passed, I contacted them to see if they had heard anything. Within 20 minutes I received an email from the title company saying I had been turned down because the second mortgage holder refused to subordinate their loan. They decided the debt to value ratio on our house was too high and they didn’t want to take the risk.
Two months, 20 odd hours of paper work and phone calls, and nearly $800 in fees, and my loan was suddenly turned down because there is no federal rule or guideline to make the second mortgage owner agree to a refinance.
As the market continues to deal with shadow inventory and more Americans shy away from purchasing homes, eventually even those who are current on their payments will begin to struggle, especially if value sink much lower. Without a way to address mortgages that all owners can participate in, and not just those who have a certain amount of value, or have their loans held by the right owners, or don’t have a second mortgage attached to their home, solutions aren’t going to be effective enough to keep us in our homes.
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