Many homeowners became ensnared in high-rate mortgages in the years prior to the burst of the housing bubble.
Banks and mortgage servicers had no problem lending to borrowers who couldn't afford it, and they often slapped these consumers with high interest rates to boot. Los Angeles Foreclosure Lawyer Vincent Howard of HOWARD LAW understands that when the bottom dropped out of the housing market, the values of those homes began to plummet. What remained a constant, however, was the mortgage rate. In fact, the rate went up on many adjustable rate and ARM mortgages.
Underwater homeowners often struggle with whether they should try to make it work, or simply walk away.
Here are a few bullet points of what you need to understand:
- There are an increasing number of programs available to compel banks and mortgage servicers to grant loan modification (if you know where to look);
- Foreclosure can look bad on your credit; Bankruptcy might too, but it's often the better option;
- Having an attorney who can advise you of your rights and how to navigate the process can save you time, money and a great number of headaches.
The issue of high-rate mortgages has been discussed quite a bit in the media in recent months. Some California cases, as recently detailed by CNNMoney, include:
1. A Los Angeles man who purchased a $600,000 home in Silver Lake back in 2007. He put little money down on an interest-only mortgage, with a rate of nearly 6.40 percent. He could save roughly $1,000 a month if he refinanced, but Bank of America denied his request to refinance the home because the home is underwater (through no fault of the homeowner). The good news is, he may qualify for some assistance under the $25 billion mortgage settlement that was signed earlier this year to address foreclosure abuses. Part of that agreement requires the banks to set aside $3 billion to refinance mortgages for some 750,000 homeowners - as long as they are up-to-date on their payments.
2. An Orange County woman purchased a home several years ago - and now owes a whopping $180,000 more than it is worth. Her adjustable-rate mortgage, which now stands at about 6.75 percent, is going to reset in January. That means she has no idea what's she's going to pay next year. She tried to get a loan modification through Bank of America, but the deal they offered her would have only been extended if she had agreed to purchase private mortgage insurance. That would have cost her so much that it would have effectively destroyed her savings. She smartly walked away from that offer. She intends to wait it out, but she too, may be eligible for some type of relief due to the national mortgage settlement.
Homeowners whose mortgages are backed by Fannie Mae and Freddie Mac may be able to apply for high-rate mortgage relief through the Home Affordable Refinance Program (or HARP). In fact, it's specifically designed to help with refinancing if your home has depreciated in value. In order to qualify for HARP assistance, you must:
- Have a mortgage that is either guaranteed or owned by Fannie Mae or Freddie Mac;
- Have a mortgage that was sold to either of these entities on or before May 31, 2009;
- Not have previously refinanced under HARP, unless it was a Fannie Mae loan that was refinanced sometimes between March and May of 2009;
- Have a current loan-to-value ratio that is higher than 80 percent;
- Be in good standing with the mortgage company (as in, be current on your payments for the last year).
HARP isn't for everyone, and neither will the mortgage settlement agreement be able to extend to everyone who suffered problems due to the banks' failures. But we can help you explore your options with the goal of ultimately avoiding foreclosure.
'I'm trapped in a high-rate mortgage', By Les Christie, CNNMoney