Posted by GWest on 8/28/09 10:59am
Msg #302098

Nice to see lenders working with upside down borrowers

I had a refinance transaction this week, wherein their lender worked with the borrower to keep them in their home. These borrowers tried to get help through their current lender on the first loan and also through different programs available, but to no avail. They decided to contacted the holder of their 2nd as a last resort, not thinking they would help, but they were surprised at the result.

Property appraised for $50,000 less than the existing loans. The holder of the 2nd refinanced the first loan with a fixed interest rate of 5.375% and allowed their current 2nd to be subordinate to the new loan. The amount of the new 1st was more than the appraised value. They also did not require the borrower to have an impound account for taxes, insurance and PMI. Not sure how they worked the PMI as there was no premium collected upfront, but the borrower stated he had purchased it as it was a requirement.

Reply by Linda_H/FL on 8/28/09 11:13am
Msg #302099

"They also did not require the borrower to have an impound account for taxes, insurance and PMI."

I'm glad to see them working together but this, to me, is just dumb decision-making on the lender's part and is disaster looking to happen. From a lender standpoint, escrows are their insurance that the required expenses are going to be paid on time. From your post there's obviously a financial problem here ... "lender worked with the borrower to keep them in their home."....and "Property appraised for $50,000 less than the existing loans....The amount of the new 1st was more than the appraised value " Wonder how they managed to pull this off -and there's a second in place??

Wow...And they're trusting these people to come up with tax and insurance money every year? Isn't this the type of thinking that has created some of the mess we're in?

Maybe I'm missing something here...

Reply by GWest on 8/28/09 11:35am
Msg #302104

I agree, I keep feeling like I was missing something. The PMI part really has me puzzled as he stated that he purchased it independently. There must be more than meets the eye.