Yet another mortgage thread

[student4ever]

Okay, here's the situation, and I realize that compared to what many of you are going through/have gone through, this will seem like something that isn't that big of a deal, but I would like any advice that people can offer.

By many on here, my wife and I would be considered irresponsible in regards to our mortgage. We bought right before the peak with basically no down payment. We have two mortgages. The first is ~40% underwater and the second is now up to ~30% of what the house is worth. The first resets in 2012. We have no problem paying our bills and our monthly mortgage bill is only ~20% of our gross monthly income. Both of our credit scores are over 790. The cash we have on hand is ~half of the second mortgage. We would like to take advantage of the current rate environment, but have yet to find a way to do so, as we don't have enough cash to pay off enough to get down to where we can simply refinance. The bill only being ~20% of our gross monthly income means that we don't qualify for any loan modification programs.

Our first and most obvious goal is to pay off the second entirely prior to 2012 and hope there has been enough of a rebound in housing prices and/or relaxation in lending practices that we will be able to refinance the first, but I'm not sure if we can get the second paid off entirely by 2012 and it is unlikely the rest would happen either.

Any advice on what we should look into or even where to look in order to take advantage of the current rate environment would be helpful.

Thanks in advance.

[BustNChops]

If your decision to stay put has been made - then here are my initial thoughts.

Develop a solid game plan to get that refi and then persistently push the banks. Send in a letter about why you are looking for the refi (supposed to be hardship, but that doesn't work here), your proposed refi details, your pay stubs, bank statements, and anything else relevant. Don't take no for an answer. Just push. Log your communications (Date - time - bank contact - notes) and call each bank 2 x's per week. There are 2 keys: 1) it really depends on what bank(s) your loans are through and 2) getting in contact with someone willing to help and authority to get it done. Getting this contact is very difficult.

Give yourself 3-months +/-. If you aren't getting anywhere, then simply don't pay your mortgage. Before doing that though, check out your paper work to see if there are any ramifications to your existing interest rate. If none, then you will need to stop paying for 1 - 3 months to force them to the table to talk. Just put all that money in the safe to pay a lump sum later + fees. You can also add an addendum to your original package and add in a note about why it would make sense for you to strategically default. Add in a few articles and tell them why you could do this, but instead all you want is a simple refi.

Your chances are much greater at getting something done after not paying for a few months. Your credit is going to be hit a bit, but at 790, you'll get back there soon enough.

The actions the banks are taking require you to either play the game or to think outside the box.

Post this thread to: www.loansafe.org in the proper forum. See what other ideas you get.

[BustNChops]

Also... I'm not saying that is the best way. It was my initial thoughts and something to consider. I do think you need to get something done to to protect yourself. Inflation has to start picking up. If hyper inflation occurs, the rates in 2012 can be significantly higher.

You called yourself irresponsible for the loan/timing, but I have to think that was the nature of the beast back then. Give yourself tremendous credit for it only being 20% of your income now.

[student4ever]

Thanks for the advice Chops. I'll give that website a look. We just want to keep from getting screwed in 2012. Even if I get a job somewhere else and we move prior to that, our plan has been for quite some time to hold onto the house and rent it out. The strategic default option is a possibility we are still considering, but isn't clear that is our best option.

[BustNChops]

You are on the right track. Having gone through this mess, I follow the news pretty closely. I agree with the thinking that the housing market will get worse before it gets better. The current uptick with current existing home sales is a result of short sales - matched with the governments tax credit to buyers. That expires in March (house must be under contract to get it).

Your concern is well founded. Projections are for another 2 waves of foreclosures in 2011 and 2012 as a result of resets and option ARMS. Articles that I have read say that the resets are the bigger issues. An article I read this morning said that over 1 million borrowers took out options ARMs in '04/'05 alone. Many have adjusted up and the majority will in 2011/2012.

One last note - our hands were forced with a loss of 50% of our income. If it wasn't, I still think we would have considered the strategic default. Our only debt was the house. Like you, credit scores at 790. As I researched our options, I just came to the conclusion that credit tomorrow (2012+/- and beyond) won't mean the same thing it is today. Our short sale is a bump in the road, but come 2012, it will be explained away and our credit back back up to 750+/-. It takes some work.