No Mortgage Company Will Refinance Our Mortgage
Posted June 7, 2013
WRAL Reader Question
Laid off from full-time job as a Software Engineer, husband's income decreased by 40% when company went out of business and got another job.
I have been working part-time hoping to find a full-time position soon. We are not behind on the main mortgage that is at 7.75%, we are currently behind on our second that is at over 11%.
So with the slow payment history of the second and such our credit scores are not great. I have an FHA loan and do not qualify for Obama help. Here is my question.
I have around $65,000.00 in equity even with the two mortgages together, why can anyone refinance these loans to get a lower payment and interest rate and hopefully actual pay off that second in my life time?
I realize the payment history is iffy and the credit score is low, but if you go back before my job went out of the country the history is awesome.
We are not looking to get any equity out of the refinance, only combine the two loans so we can stop living check to check and I can get out from under the stress that is going to kill me.
It seems to me this refinance is low risk since there is so much equity in the house and we both hold stready jobs. Why will no one touch us to refinance, they usually get me off the phone pretty fast.
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Thank you for writing to me and asking for advice and feedback.
So the issue appears to be not one of logic but of lender underwriting and qualification. They all have their own standards and no lender is required to make any loan if they don't want to take on the risk.
The government programs that are available, you called them the Obama programs, do offer meaningful help for those who meet the guidelines and who have lenders that participate.
People often don't understand no lender is required to modify any mortgage if they don't want to. Mortgage modification is not a right.
Under the HAMP program your mortgage payment (or mortgage debt-to-income) should be no more than 31% of your gross (pre-tax) monthly income.
Considering the income change and your current situation of limping from month-to-month that target might be out of your reach.
There is a lot of free help available for mortgage issues. If you click here and scroll down to the mortgage help section. You'll find a lot of links to explore and places you can contact for free mortgage information and feedback on your particular loans.
The primary reason a lender might not be willing to touch your loans might just be the demonstrated late payments and probably an out of balance debt to income ratio.
One logical consideration might be that since your income situation has changed dramatically you just might not be able to afford the current house. Maybe you should consider selling it and taking your equity while you can.
When people are in a similar situation I just watch so many who drain their retirement funds or spend down their savings to try and make payments when in the long run that's not going to solve anything. That just leaves you in a worse position. Much worse when it comes to lost retirement.
Ultimately this is not a debt problem, but an income problem. Your mortgage was most likely obtained and you qualified for it based on a different household income coming in. Life is fluid, mortgage agreements are not life adjustable. They are definitive agreements to repay X amount per month no matter what happens in your life.
The most logical way to handle the situation would be to draw a line in the sand and say if your household income has not returned to previous levels or at least a level that allows you to make the regular mortgage payments plus get caught up, you need to sell before you lose the house to foreclosure and watch your equity vanish.
While many are critical of me frequently mentioning bankruptcy this is one situation, based on what you shared, where bankruptcy would not make sense. You've not said there is other debt holding you back from making the mortgage payments. And even in a chapter 13 bankruptcy where you would keep your house you would still need to make at least your full mortgage payments plus some to get caught up and you've demonstrated that's just not possible.
If you want to try to determine changes you can make to your outflow, read my 8 Easy Steps to Eliminate Your Debt Checklist. Let's let the math talk to us and clearly tell you what must be done.
WRAL Get Out of Debt Guy
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