CNC Mortgage Blog

A few days ago I had a call from a potential customer who bought a house in Brooklyn Center, MN. three years ago.

He has a mortgage at 6.375%, sufficient income and good credit. He would like to take advantage of todays rates of around 5% on a 30 year fixed mortgage. He would be saving around $200 per month on his interest payments.

He bought the house for $230,000 and made a down payment of $50,000. He took out a loan for $180,000. When I called the appraiser I use he told me that that area of the Twin Cities has been especially hit by the housing values and that the house is probably only worth $180,000. He lost his $50,000, I can't help him to refinance unless he brings about $9,000 to the closing table so that I can get him a loan for 95% of the value and pay the 5% mortgage rate plus mortgage insurance. He doesn't have $9,000 and if he had it, is not sure he wants to put more money into his house.

Is he better off than his theoretical neighbor who bought the same hose for the same value at the same time but got 100% financing? The main difference is that the second homeowner is making higher payments but really hasn't lost any equity because he didn't put any money down.

The first man wants to stay in his house, and wait for home values to come back. The second man can just walk away from his home and leave it to the bank with minimal financial implications aside from a big ding on his credit history.

Could the TARP money be used to help these borrowers?