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The ARM of Sorrow

Over the last few years, many families (including mine) financed their houses with an adjustable rate mortgage or as I like to call it, the ARM of Sorrow (okay… I just made that up.) If you fall into this category, people may ask you why you would take on a mortgage you might not be able to afford after the interest rate increased. There are a few reasons you might have done this. The main reason is that you were probably under the impression (influenced by your lender) that you could refinance at a lower rate before your ARM adjusted. At the time you purchased the house, you might not have qualified for a conventional, low interest mortgage for several reasons (one being less than perfect credit, which may improve over time.) Then the time comes to refinance your mortgage – and you can’t! Why? There are many reasons:

1. Your house is no longer worth what you owe on it. You bought the house for $150,000 in 2005, and now it is only worth $125,000. There is no longer enough equity to get a loan for $150,000 – but of course, you still owe that much.
2. Your house is no longer worth what you owe on it because you pulled out some equity that was once there, but isn’t anymore. For whatever reason (pay off other debts, buy a car at a low interest rate, make home improvements) you might have taken out an equity loan or line of credit on the house. If you bought the house for $150,000 and took out a $20,000 equity loan, this brings the total amount owed up to $170,000. If the house is worth less than $170,000 (which is likely due to the rampant decline in property values) no bank will refinance it..
3. You no longer make as much as you used to. Unemployment rates across Michigan (and many other states) are astronomical, and there’s a chance that it’s affecting your line of work. You may have had your hours reduced, taken a pay cut, or have lost your job altogether. Because of this, there’s a good chance that the banks do not like the amount of debt you have in relation to how much money you make (called “debt to income ratio”), and will not refinance your mortgage.
4. Life happened. Maybe you had an illness or death in your family. Maybe your car was involved in an accident, and you had to get a new one in order to get to work. Maybe there was an urgent and major repair that needed to be done to the house. Sometimes, no amount of scrimping and saving can get you back on track.
5. You didn’t know the facts. Maybe you, like many of our sellers, weren’t completely informed about what was going to happen. Many of our sellers didn’t know just how high their interest rates were going to skyrocket once their ARMs adjusted. Increasing a $150,000 mortgage from 6% to 11% adds an additional $530 a month to a house payment!

If you are one of the many people who are facing a Michigan foreclosure because of an “ARM of Sorrow” and have realized that you can no longer keep the house, give Emily a call at 269-685-5921. We can help you out. We take a very complicated task – getting your bank to accept less money than you owe – and we make it very simple for you. Of course, it’s still hard on us, but that’s our job… and we’re good at it!

Holly

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Making Home Affordable – Do You Qualify?

You’ve probably been hearing a lot of talk about President Obama’s Making Home Affordable Plan, but aren’t sure if you qualify or not. Unfortunately, chances are high that you don’t – rigid restrictions set in place and the newness of it all (coupled with bad communication and poor customer service – just my opinion) are making it hard to people to get the help they need. I’ve been mulling around the Making Home Affordable website for a few days, and here’s what I’ve found.

If you are current on your loan, you could qualify for a Home Affordable Refinance. By current, they don’t mean that you are caught up with your payments. If you have been over 30 days late in the last year, you are not considered current (crazy, I know). So let’s say you are current by their standards. In order to refinance, your loan must be backed by Fannie Mae or Freddie Mac. This very quickly makes about half of all families ineligible. Another stipulation is that your first mortgage cannot be more than 125% of the value of your house. For example, if your mortgage is $150,000 your house cannot be worth less than $120,000. This is a huge problem for most families in Michigan due to the rapid decline in house values. Sill eligible? Let’s keep going. While refinancing from an adjustable rate or balloon payment to a fixed rate is definitely an improvement in the long run, the problem lies in the fact that your mortgage payment may not go down with a Home Affordable Refinance. This means that if after the refinance, you still do not have the ability to make your payments, a refinance is not for you.

If your mortgage is not backed by Freddie Mac or Fannie Mae, there is another option out there – the Home Affordable Modification. With this option, if you are behind on your payments may qualify for the program. The main problem with the modification is that only the first mortgage can be modified. In order to qualify, your first mortgage payment has to be more than 31% of your gross monthly income. That is, if your family is making $35,000 a year, your first mortgage payment must exceed $904 a month. That seems extremely high to me. Push that income up to $50,000 and your payment has to exceed $1,290! Many times it is not the first mortgage that is causing problems for individuals – it’s the pesky equity loan or second mortgage. Remember, that 31% rule isn’t taking these into consideration. Add another $250 onto that, and your $1,290 payment goes up to a whopping $1,540. Another reason many people have fallen behind on their mortgages is because they have income properties that didn’t quite work out, or were affected by the housing crisis. If you don’t live in the house, you are not eligible for a Home Affordable Modification.

So, you meet the stringent requirements for either a the Refinance or Modification programs? Now comes the fun part! You get to call your mortgage company and ask for one of these options. The Making Home Affordable website tells you to “be patient” because these programs are newly implemented, and it might be a while before all applications can be processed. According to CNN.com, only 6% of eligible families have actually been helped so far. I’ll give you another reason to be patient: Most Banks Are Slow. I know – I’ve been working for them and with them for the last two and a half years. They lose your paperwork, they don’t contact you (except to collect money), and there is poor communication within. You’ll get customer service representatives giving you the wrong information or passing you off to someone else. Be prepared for some serious aggravation and time loss.

If you are one of the majority of people who don’t qualify for these programs or simply don’t have the patients required, and want to avoid a Michigan foreclosure, give us a call. We will never ask you for any money, or to do any repairs to the house. We promise that we will never put you in a worse situation, and that we will work harder than anyone else to give you a permanent foreclosure solution. We also promise to keep everything confidential. Give Emily a call at 269-385-5921 – we look forward to hearing from you!

Holly

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Loan Modifications

In my last blog, I talked a little about options for families like yours who find themselves in default (behind on payments) on their mortgages and facing a Michigan foreclosure. I commented specifically on workout plans; now I’d like to talk a little more about loan modifications.

Many different lenders offer many different options for you when you are facing a financial hardship.…too many, in fact, to cover in just a blog. Basically a loan modification is just that – it is a plan to modify or change the terms of your original mortgage to allow you to stay in your house.

Some modification options may include reducing the interest rate (or maybe simply converting a variable rate to a fixed rate), extending the life of the loan (maybe from 20 to 30 years), or reducing the principal balance (although these are very rare).

Like workout plans, these options may be helpful to you if you’ve experienced a temporary hardship. It’s always a good idea to speak with your lender to determine whether a loan modification will be a good fit for you. Remember, 80% of families who complete a modification are back in default 6 months later. So be sure that any modification you agree to is a permanent solution.

If, however, neither a workout plan or a loan modification seem to be a possible solution for your situation, selling your house via short sale may be your best option. For more information on short sales, call Emily “Mom” Danger today.

Melissa

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Mortgage Meltdown – The Next Wave

If you thought the current foreclosure wave (caused mostly by the poor economy and sub-prime loans) has been bad, watch this 60 Minutes video on the next wave of the Mortgage Meltdown.

If you have one of these “ALT-A” (no documentation) or “Option ARM” loans, chances are very high that you could part of this next wave of Michigan Foreclosures.  Don’t let that happen to you – we can help, but you need to call.

Joel

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How Your Payments Can More Than Double

Yesterday I talked to a Parchment Michigan (just north of Kalamazoo) homeowner who’s payment almost doubled within a few months. Here’s how that can happen (and it may happen to you).

1) Lender losses insurance information and thinks there’s no insurance on the house.
2) Insurance agent sends proof of insurnace, but never follows-up to be sure lender got it.
3) Lender puts a $1000/yr policy on the house, and charges the home owner (double what they usually pay).
4) Lender then forces the creation of an escrow account, and expects the owners to fund it (with about $2500); plus they want the $1,000 for the policy they just bought.
5) $210 Escrow is added to payment (to pay future taxes and insurance)
6) $290 Escrow shortage “make-up” is added to payment (to pay the $3500 from 3 & 4 above).
7) The mortgage is variable rate, so it goes up $200.

There you have it – $600 to $1,300 almost overnight, through no fault of this family.

Obviously, if you’re used to a $600 payment and it goes to $1,300, you’re not going to be able to keep up – neither could they. That’s why they’ve asked my team to come in to try to stop the foreclosure so they can sell their house. We’ll have to discount the debt first since they owe more than it’s worth, but hey, that’s what we do (call us the “Bank Bullies” if you have to). The end result will be to allow this family to start over and start rebuilding their credit, while getting them out from this ridiculous house payment. That’s what a short sale is all about.

Don’t think this is rare – I see it often.

Joel

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What’s Your Plan B?

I just got off the phone with someone who has an adjustable rate mortgage (aka “Nasty ARM”). They are currently trying to refinance their mortgage to a fixed rate loan.

So why did they call me? Because they want to have a Plan B in case their refinance doesn’t work out (most don’t because houses aren’t appraising high enough since Michigan prices continue to go down). By calling me when they were only a few weeks behind on their mortgage payment, together we were able to lay out a plan for the future. If for some reason they’re unable to get refinanced, they don’t have to panic as they now know what their next steps should be.

Emily

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“Lenders promise streamlined workouts”

Sorry, it’s just not enough, and when you read the details of this article, you’ll see it’s really a lame effort on the part of these major lenders to do anything at all to make a dent in the foreclosure statistics.

Here are some of the “promises” they are making:

  • “Inform homeowners within 45 days whether their application for a workout has been accepted or denied.” 45 days?!? By the time most people learn about a pending Michigan foreclosure sale, it’s only 3-4 weeks away!
  • “Attempt to contact homeowners with subprime adjustable-rate mortgages (ARM) and other homeowners with ARMs that have a probable risk of default 120 days in advance of reset.” Attempt?!? They can’t even keep up the homeowners that are calling them on their own – how will they have time to initiate the contact and then do something about it?

Here’s the reality of how bad things are about to get (as discussed in that article): 2.2 million borrowers with subprime loans will face foreclosure proceedings between Oct. 1, 2008 and Sept. 30, 2011.

I hate to be all doom and gloom, but the simple facts show the HOPENOW guidelines fall well short of making an impact to help families keep their houses. It’s best to stay focused on the future and figuring out how to make steps to a brighter future vs. “hoping” your lender will give you a viable workout plan.

What does this all mean? Well, if you’re facing foreclosure on your Michigan house, you’re certainly not alone. Thankfully, at least we’ve got an excellent record with all of these lenders (and more) with getting them to short-cut this whole process and go directly to a short sale solution (let you sell it for less than what you owe).

Joel

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USATODAY.com Article – One in Five ARM Loans In Default

If you only read one blog entry on this entire blog, this the must readespecially if you have an ajustable rate mortgage (ARM). This is over a year old, but is just as true today.

http://www.usatoday.com/money/perfi/housing/2006-04-03-arms-cover-usat_x.htm

Here are some significant quotes:

“Of the 7.7 million households who took out ARMs over the past two years to buy or refinance, up to 1 million could lose their homes through foreclosure over the next five years because they won’t be able to afford their mortgage payments, and their homes will be worth less than they owe”

“Already, in West Virginia, Alabama, Michigan, Missouri and Tennessee, about one in five homeowners with a high-interest (subprime) ARM was at least 30 days late at the end of last year, according to the Mortgage Bankers Association. After 90 days, the foreclosure clock starts ticking.”

The article includes some amazing stories – if you’re facing a simular situation, you’ll see that you’re not alone. Many of these people will lose their house to foreclosure. The article also lists some places to go for help and advice.

Quite simply, for many people, life “events” happen and their houses simply become non-affordable. When that happens, we can help.

Joel

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