Lost 20% Down Payment, Want to Refinance

House is worth near what I owe now. Is it possible?

[physics]

Not really a webmastery question but I trust the people here more than anywhere else - so asking here in hopes some fellow (US) webmasters might know something about mortgages.

Basically I put 20% down on my current Arizona house which I bought in 2007. That money is gone now because of ... well for obvious reasons. The house is only worth 80% of what I paid so do the math :p

Anyway, when I try to refinance all I get is people saying they can't help me because the house is worth about what I want to refinance for. But when I read about Obama's making home affordable plan and all I'm sure I've seen things about people who ORIGINALLY put 20% down being able to refi without paying mortgage insurance, etc. Or I'm just imagining that because I want it to be true :) I even went through the whole refi process back in November (and paid the hundreds of dollars for a home estimate) only to be turned down for a refi by my current loan servicer, because of the LTV ratio. (Note that the LTV ratio has now gotten a little better - house is probably worth about 2% more than I owe, yippie :p) Problem is that I don't trust them because what's their motivation to help me? I've never missed a payment - is that part of the problem? Do I need to start missing payments to get any help around here?

So, maybe I'm just missing something and there is some way to get a better rate here. Any ideas?

[Jane_Doe]

Problem is that I don't trust them because what's their motivation to help me? I've never missed a payment - is that part of the problem? Do I need to start missing payments to get any help around here?

A friend of mine did exactly that, or at least threatened to stop making her payments, and finally ended up getting a much better interest rate from her current lender. If fact she got a rate much better than anything I've ever seen advertised or have been able to negotiate myself, though I admit I never tried her tactic.

[akmac]

Good thing it's only gone down 20%. The market I'm currently shopping in went down 50% from Jan 2009-Jan 2010 alone. Perhaps your lender is anticipating a further drop?

Anyway, they currently aren't motivated to give you a better deal because there's nothing in it for them. If you can make them see that there IS something in it for them-they will likely change their tune.

I haven't done this, but it's probably worth a try to at least threaten to start missing payments in order to get a better rate. Don't actually DO it unless you already have a dead credit score-which you probably don't.

It's probably worth investigating who the best person to deal with at the bank is, as the first line of phone monkeys is most often neither capable nor motivated to help.

[weeks]

Bought in 2007? Ouch.

Yes, missing a payments could be one approach to bring the bank to the table. The problem is that the house is worth a tad more than what you owe and, depending on what happens during the next year, it could get better. So, you risk losing the house and destroying your credit rating. (Not really likely, ok, I'm making a larger point.)

You're not going to have a lot of leverage if it gets nasty.

It comes down to math. What are you paying in dollars now per month? What might you be paying at the new rate? What would the closing costs be? Exactly how much money are we talking about here? Now, is that worth the hassle? Or, is that a cost of doing business?

This is WW. You gotta skills, I'll bet. Could you invest the time and hassle of refinancing into something else for a better return during the next 12 months (something short term) while you wait see what happens to real estate values? If things tank--leverage. If things improve--equity. If they stay the same (likely)--nuts. (Hey, my magic wand is in the shop.)

One of the best biz lessons I learned from one of my very sharp clients is that you should look carefully at reducing the cost of this and that once a year or so, but then spend your time on to how to MAKE money. Or having fun doing what you enjoy.

Your neighbors talking about this around the grill are likely corporate drones pulling a regular paycheck that not going up or down very much. They are not you. You are different. You know magic. Hire yourself out as a consultant to some small company that needs your help doing something obvious and easy on the web. How to set your rate: charge twice what you are looking to save on a refinance. (You'll have to pay taxes on it, after all.)

[physics]

Jane_Doe, it's probably worth a shot to threaten it like you said - can't hurt my credit score if I don't actually miss any payments.

akmac, yes I do fell "lucky" it's only gone down 20%. I bought in _late_ 2007 and the Phoenix market was already tanking - so I paid much less than they had been asking months before. Only wish I hadn't been so 'responsible' and put the 20% down ;)

weeks, you have a point in that maybe it isn't worth my time. But it's just painful to pay that mortgage every month knowing it could be hundreds less if I got a better rate. Regarding earning extra money, I in spirit agree with you and definitely plan on stepping up online earnings. But like you said sometimes you have to look at expenses and go - gosh dang I am paying too much on that! No sense trying to fill a bucket with too many leaks. It may be a red herring after all though...

[lawman]

Any way you can make extra principal payments while waiting to refinance?

[LifeinAsia]

Went through the same issue last last year and early this year. We originally got an 80/10/10 loan (80% first mortgage, 10% home equity, and 10% deposit) when we bought in '06. We aggressively paid off the equity line in 3 years and then focused on the 1st to pay it down enough to refi with a conventional loan (the 1st was more than $417K). We actually bought a fixer upper at about 20% less than market value for the other units around us, and put a lot of money into fixing it up, so the local decline in market value brought things to only a little below our original purchase price.

It took 3 applications with 3 different companies, 3 appraisals, and about 6 months, but we were finally able to refi for almost 3% lower than what we were paying. We also had to pay down the 1st even more so we could squeak under 80% of the appraised value. (That's another horror story in itself- part of the issue was dealing with a low-ball appraisal that was $75K less than the final appraisal. We actually filed a complaint with the state licensing board about that bozo!). We got saddled with an impound account, so our monthly minimum payment is actually a little higher than what we were paying before. (But that's also a factor of going from an interest-only payment to interest + principle).

[Jane_Doe]

Jane_Doe, it's probably worth a shot to threaten it like you said - can't hurt my credit score if I don't actually miss any payments.

I'm not necessarily recommending that tactic, just passing along what my friend said worked for her. Because of the low rate my husband thinks she got one of those loan modification programs and didn't really just do a straight refinance. Her house would be one that would be very difficult to sell in this market, so the bank probably figured earning a lower rate would be better than adding one more foreclosed home to their inventory.

[topr8]

Jane_Doe, it's probably worth a shot to threaten it like you said - can't hurt my credit score if I don't actually miss any payments.

ok, i'm in the UK but common sense tells me, this tactic could easily lower your credit rating/score, do you really think a note and a black mark isn't put against your name if you threaten not to make payments at all? these guys keep all the data they can gather about you.

[LifeinAsia]

this tactic could easily lower your credit rating/score

AFAIK, creditors can only report late payments or non-payments to the credit bureaus. If there is a threat of non-payment, but payments are actually made, they have nothing to report.

Given the number of news articles about people who have walked out on their mortgages (even when they can afford to pay them), the threat of non-payment may actually carry some weight these days.

[bluntforce]

Refinance with 2% equity isn't probable in this market, but you already know that. Missing payments to potentially qualify for a loan modification wouldn't be my first recommendation, but if you decided to go that route you'd probably have to miss three payments which is the common point where a lender records a notice of default(first step of foreclosure). That'll tank your credit score.

Lender is also going to pull your credit report during the non-payment period to see if you are missing other payments. If nothing else is being missed, it'll look like a strategic default.

Principal, interest, taxes and insurance payments would have to be above something like 45% of gross income to be considered a hardship, if you qualified for a modification the total payment could be reduced to 31% of gross income.

[physics]

We actually filed a complaint with the state licensing board about that bozo!).

Yeah this appraisal was pretty ridiculous also. It says our view is 'average' or something like that - our neighborhood actually has the word 'Vistas' in it because of the vistas that one can see from our back yard. And I saw an appraisal of a not-too-far-away house that probably actually has a worse view where the view was considered 'exceptional'. Anyway, what are you gonna do if they're gonna play games like that?

I guess I'm partly just frustrated that I can't negotiate a better rate - seems only fair seeing as I'm the one who's taken the risk and lost the capital on this house. Isn't the argument for charging a higher rate that the people are more risky. Haven't I proven I'm not a risk by putting down that 20% in the first place and sticking with this thing though the 'great recession'. C'est la vie though.

[physics]

weeks, I'll probably take your advice and wait until the house value (hopefully!) goes up to where a refi makes sense. Luckily I think I have a pretty good bead on what the home estimate will be. This last time after all the hastle, etc. the number was exactly the Zillow Zestimate. Exactly. Glad I had to pay three hundred bucks to find that out...

[LifeinAsia]

According to our bozo appraiser, our "average" exterior has new dual-pane and energy efficient windows, new clear glass skylights (all other units in complex have white plastic ones that you can't see through), and a new craftsman front door (all other units have 30-year old original doors). He also listed our 3-bedroom house as only having 2 (and only used 2-bedroom units as comps). He listed one of the nearby comps as having a spa (and gave it a $5K value increase)- there's no room to even put a spa in that yard (easily verified by just driving by). And those were only some of the issues!
</rant>

[bluntforce]

Square footage, room count and location are the largest factors in determining appraised value, view isn't as significant.

Interest rates for loan modifications aren't based on "normal" underwriting risk, they're based on reducing the payment to an affordable level which will allow lenders to keep more property off their books. A very significant number of loan modifications are likely to eventually relapse into default/foreclosure, it's more an attempt to keep the system semi-functional rather than a permanent solution.

It appears we are much closer to the low point in values right now than we are to the high point in values, riding out the decline is not a bad strategy if you purchased for long term housing. I'm guessing there will come a point where values will rise enough to allow a refi but before interest rates rise enough to make a refi pointless. It won't happen soon, but I think it will eventually happen.

I'm in a similar situation with the only sales in my area being distressed or bank owned. They aren't really comparable sales, but if that's all there is for an appraiser to use, that's what we're stuck with. This too shall pass.

[bluntforce]

physics,
one final note if you haven't tried it.
I believe FHA goes to 97.5% loan to value on a non cash-out refinance. They do charge an upfront premium of 1.5%(?) and interest rates are somewhat higher than conventional.
A mortgage broker could do an analysis for you to determine viability, although you might have to put some cash in to make it work.

[henry0]

topr8 is right on the money, this is no time to fool around with credit rating!

My State is among the two most expensive States to live in, I am fortunate that my home value did not go down.
I just refinanced three months ago, in order to do it I had to put down 11K toward full prior mortgage total value, which lowered down the amount to be refinanced.
As such I got a good deal, owe 11K less and am pretty happy.
So if possible check how it will look if you could ahead of time pay a little chunk of that mortgage.
good luck.

[jecasc]

You could sell the house while it's still worth 80% and then move into a smaller one.

[ken_b]

Aren't new FHA loans going for 5.5% down?

If you can come up with that, even if you have to pay mortgage insurance, couldn't you save enough with the current interest rates to make it work?

[added] I missed the post by bluntforce above that makes a similar point.[/added]

[weeks]

This is one of the most compelling charts I've seen:
[bloomberg.com...]

[physics]

weeks, you know what's really funny about that chart? What if instead of the 700 billion dollar bailout to the banks they had 'bailed out' people's mortgages to the same amount of money? I.e. just paid money to the banks _on behalf_ of all (primary residence) homeowners, thereby reducing the principal. The bank would've gotten their money but it also would've helped homeowners.
Instead the banks got bailed out and they're just trying to pick up the pieces of foreclosures. As usual in America, the middle class got robbed and handed the bill on top of it.

[henry0]

Aren't you diverting from your own topic?
As far as I am concerned I thought that we were not supposed to debate politics!
See what's happening even if I might think that you could be right I have to take notice of the thread new direction.

[bluntforce]

henryO, no disrespect but how do you interpret a discussion about economic factors affecting millions worldwide to be a political debate?

The health of economies throughout the world will alter the spending habits of those living in those economies, which will directly impact those who are marketing to individuals in an impacted economy.

When individuals feel, or perceive their personal financial well-being controlled/altered/manipulated by outside factors, it's natural to seek explanations.

If you actually run the numbers of a 700 billion expenditure against the number of U.S. homeowners facing default/foreclosure in the foreseeable future, it's fairly obvious there were other motives in providing those funds to the banks rather than the homeowners. That's not conspiracy talk, just stating there are other factors at play other than simple math.

Still not politics, it's economics.

[weeks]

weeks, you know what's really funny about that chart? What if instead of the 700 billion dollar bailout to the banks they had 'bailed out' people's mortgages to the same amount of money? I.e. just paid money to the banks _on behalf_ of all (primary residence) homeowners, thereby reducing the principal. The bank would've gotten their money but it also would've helped homeowners.
Instead the banks got bailed out and they're just trying to pick up the pieces of foreclosures. As usual in America, the middle class got robbed and handed the bill on top of it.

I think you make an excellent point here.

Of course, there are serious, thoughtful questions about the need for the bank bailout, the size of it (most people do not know that the size of it was unprecedented--the man on the street still thinks it was "just another government thing.")

So, I think the bailout of the banks was a mistake? Maybe not. It is very difficult to say. It was and is a mess.

But a homeowner bailout as you outlined would have been more fair--and a complete disaster politically. One thing to bailout that huge corporation, another thing to bailout those goof neighbors you know and see every day. People believe in justice, despite the world proving over and over again that it's rare.

And, BTW, you probably would not have qualified for assistance under any kind of bailout plan. You are not in bad shape, you just want to be in better shape.

And it's unclear what would have happened to property values. They might have gone down as much or more under a homeowner bailout, depending on how it was structured and where the lines were drawn.

Economic reality can be ignored only for so long. In the long term it will all work out. In the long term, we'll all be dead.

[LifeinAsia]

What if instead of the 700 billion dollar bailout to the banks they had 'bailed out' people's mortgages to the same amount of money?

How would that have helped/changed anything?

If they don't have to pay it back, then the government is completely out that $700 billion. At least some of the bank bailout money is being paid back.

If the people have to pay back the money to the government, they're still underwater on their mortgages and nothing has changed. Well, the change is that they would then have 2 mortgage bills to pay each month instead of 1. And most of the payments for the first mortgage are still going to be based on the original loan amount (at least until the next rate change for the ARMs). So most of those receiving bailout money would end up paying MORE each month.

[physics]

the government is completely out that $700 billion

As far as I understand it 'the government's money is paid by taxpayers, like me (and yes unlike many people I've continued to pay my taxes through the 'great recession'). So instead of just directly bailing out the banks with almost no oversight my tax money (or, ok, borrowed tax money) could have been used to help narrow the gap between home prices and what people owe and at the same time helped to stabilize the banks. If it were done for all homeowners that owe more than their homes are worth, and not just for the "goof neighbors" as someone said then it would have been a lot more fair. (Instead we got a bailout for banks and then a bunch of programs to try to help people with no jobs keep their homes.)
Personally I think Paulson et al bailed out the banks because it would have been slightly more difficult to implement a real solution.
I mean, is it any surprise that the recovery is taking so long when people are still so far under water in their homes?
Regarding politics - I dunno maybe I did cross the line into politics but I didn't really mean to. Was just trying to express my frustration as a member of the American "middle class."

[physics]

People believe in justice, despite the world proving over and over again that it's rare.

weeks, you have a point. This really bothers me a lot though. People believe that mega-corporations (who, in the free enterprise system, are supposed to take risks in order to make profit - well guess what banks, you took risks) deserve help from the government but not their fellow citizens.
Somehow that's fair but it isn't fair to use taxpayer money to help taxpayers. Do we really disrespect our fellow citizens so much and believe that they are the more guilty party here? Why do we identify so much with non-human entities like banks which are, by law, totally profit driven whereas the people who bought houses were driven by the 'American dream', the desire to own and live in their own home?

[lawman]

As a taxpayer, I'm not much into contributing to bailing anybody out. Insofar as orderly reorganization/liquidation, there's federal bankruptcy law; chapter 11 for corporate reorganization, chapter 7 for liquidation, chapter 12 for farmers and chapter 13 for persons who don't want to liquidate.

[LifeinAsia]

If it's a choice between
A) little oversight and some chance of recovering the money, or
B) any amount of oversight and 0% chance of recovering the money,
I'll go with A. Something is always better than nothing. And the government has gotten some of the money back. (I'm not saying I agree with the lack of oversight part- I was VERY against it. It the choice had been mine, I doubt I would have gone with either A or B.)

Yes, the government's money is really taxpayer's money. And I have a serious problem with giving that money to a person just because they only put a 3% down payment and their house value lost 10%. What about the person whose home value lost 20%, but they are okay because they put down 25%?

[ken_b]

Nice thread drift. Good thing we have mods around here to watch out for that kind of thing.

physics

So did ya figure out how to refinance your house?

Or did that get lost in the drift to an economics discussion?