Refinancing......What Happened?

If a lot of you are like me, you did a refinance on your property a few years ago with the understanding that you would refinance after 2 or 3 years. This was the typical sales pitch used by mortgage brokers to get people into 2, 3 and 5 year ARM's. If you started your cycle in 2000, then you probably would have refinanced in 2003, and again in 2006 as property values were still good, and the banks were handing out money like it was going out of style. The requirements were so loose as far as loan to value ratios (LTV), and such that it was hard not to. Aside from the fact that if you didn't, your rate was going to sky rocket along with your payments. Of course each time you refinance, you have closing costs. Mine averaged around $5K each time, in addition to whatever equity I was pulling out of the house. Like many, I put the money I pulled out of the house right back into the house via remodeling and repairs. Hindsight, maybe I should have just stacked that money in the bank and end up letting the house go back..... However, because I put it back into the house under the pretense that anything I did to the house would increase it's value. So if I owed $100K on the property, it was valued at $180K, and I took an 80/20 I would end up cashing out about $39K after paying closing costs. So now you're into your property $144K, you put all $39K into remodel and repairs. Now, the carpet is yanked out from under us, the property is now valued at $150K AFTER the additions, the most the bank will loan at an 80/20 is $120K. Without $24K to put down, I'm then stuck in this high interest ARM and no way to get out of it. At this point a loan modification is about my only possible option.

My in-laws are in a completely different situation. They have a property that's valued at 800K, they only owe about $500K on it. During the mortgage boom lenders often do what's called “stated income”. So if your credit score was high enough, they would allow you to put down whatever you wanted as far as income. In their case, they own both a restaurant and a construction business. Both businesses have seen about a 30-40% decrease. Of course you base your obligations of what you are making at that time, and when what you're making changes, it's going to put you in a bind. Stated Income is definitely a thing of the past, it's just unheard of anymore. So now they have the equity, they still have an income so they can make some type of payments, just not as big of ones as they were making previously. Refinancing is then out of the question. A loan modification is the only alternative that doesn't entail them losing their home.

I have a best friend that's a carpenter. My age, 3 year old son and 2 dogs. He's probably one of the better framers that I have come across, and his boss has been pretty good given the circumstances at finding them work. However, he had about a two month period where he had no income, and the $200 a week in unemployment was peanuts compared to what their bills were. So they couldn't make the mortgage payments for about two months. It's summer time now, his work is picking up, his wife is now working part time as well to help ends meet. Like most folks, they live paycheck to paycheck. So now they are close to making what they were making before, and they can make the payments again. So PTI is in line, DTI is in line, LTV are in line, but they now have a blemish on their credit report. Regardless of the circumstances, if a bank sees that you had trouble trying to pay another bank, they're not going to be enthusiastic about being the next bank that you DON'T pay. If refinancing is still credit score driven, then they are up a creek without a paddle. Even if they come up with the past due payments, it will still show on their report that they were late. Their score will most likely be affected for at least the next 6 mos to a year. What are their options? Do they rob Peter to pay Paul and try to come up with the past due payments? Do they just wait it out and hope that the lender comes through with a good deal? Or do they take control over their own destiny, and get the assistance they need?