Phase #2 – Negative Equity Situations

Last month I wrote an article title “It’s Not Working”  where I introduced a new Series called the “Mortgage Matters System”. In this new series, we will be discovering the The 5 Phases of the “Mortgage Matters System” (MMS) and why it is important to our financial success.

The second phase of the MMS is the Negative Equity Situation that some people are facing all over the country. This is where the mortgage is more than the value of someone’s home.  There are two options that are available for clients who are upside down or underwater with their mortgage.

The first option is a process called the Cash in Mortgage. This option is a very unconventional process to where the customer is required to have enough funds in order for this to work but it does have a great return. Here is how it works:

  • Cash In Mortgage:Cash in
    • Client has a mortgage with a payoff of $180,000 with a monthly payment of $1,131.
    • “invest” $60,000 of their own funds into their mortgage to bring the payoff to $120,000
    • This puts their new monthly payment to $543 with a monthly savings of $588 a month.
    • This will give them a 11.76% Cash on Cash ROR
      • Formula: (1) $588 monthly savings x 12 = $7056 annual savings
      • (2) $7056 annual savings / $60,000 investment = 11.76% Cash on Cash ROI

The Second option is a program called the Home Affordable Refinance Program or HARP for short. This program has it’s limitations but if a can client qualify they will have a great return with very little to no cash out of pocket.

Here are the guidelines on how this program works.

  • Downsides:
    • For loans sold to Fannie Mae or Freddie Mac prior to June 1st, 2009
    • Can not be a loan with outstanding repurchase request; reverse mortgage, second mortgage or government mortgage. Also not available for Texas cash outs.
  • Here are the upsides:
    • For loans up to a 125% Loan to Value
    • Eliminates the need for a Full Property Appraisal
    • Allows a Mortgage Insurance Transfer

Now you are probably wondering what is a Mortgage Insurance Transfer? What most people don’t realize that even if you have lost very little value in your home you can still qualify for HARP. This is mostly for clients that put 20% down when they purchase the home with a LTV of 80% but now they have lost value with a new LTV of 85%. Most people are not willing to refinance their home because they do not want to have to pay MI. This transfer request will allow people to take advantage of the low rates and not have to pay MI.

One more thing… If a person went from a 80% LTV to a 90% LTV they still have the option of waiving their escrows. Impact Mortgage Group is one of the few Mortgage Brokers that have this option.

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