CNC Mortgage Blog

We are finding more and more customers whose ARM mortgage (adjustable rate mortgage) was a 2/28 arm, fixed for two years, adjustable for 28 with an initial adjustment of 5 or 6 % over the initial rate.

Their incomes are basically the same, their mortgage payment just went up and when we have the property appraised, it has probably gone down in value.

These customers want to keep their houses, however they don’t have enough equity in the property to pay for the closing costs on a refinance transaction. They probably bought the house with 100% financing and the seller paid closing costs of 3% or up to 6%. And with the disappearance of 100% financing, affordability options are even more remote.

These borrowers are in a bind, they want to stay in their house, they want to stay in the neighborhood, and in the school district. They do not want to give up their house and go back to renting. They just can’t afford the newly adjusted ARM payment. Luckily for them, the cities, counties, neighborhoods and banks are in the same predicament.

WHAT IF?

The loan on these properties could be refinanced to 90% of the present appraised value of these houses. If the borrowers qualified for a conventional rate loan on a 30 or 40 year mortgage they would get a new first mortgage. The difference between the new first mortgage and the total outstanding debt would be rolled into a silent second mortgage that would not have payments. The second mortgage would come due if the borrowers sold the house or refinanced the first mortgage. However a window must be left open for the borrowers to be able to get a mortgage for home improvements.

Who would benefit from this?

Banks would avoid costly foreclosure procedures.

Neighborhoods would not deteriorate.

Cities would maintain their property tax base.

School districts would keep children.

And finally, consumers could still be on a path to homeownership.

I am just practical person, so I have no idea where the money for this would come from. Maybe HUD, FHA, Fannie Mae or Freddie Mac have some way to work this out.