How A Short Refinance Mortgage Can Help
The high rate of foreclosure in the United States is staggering with nationwide rates exceeding a 50 year high. Unfortunately, the markets were reporting this dismal news for several years prior to the current upheaval. Not until millions of middle class families were being hit did the nation seem to wake up to this astounding problem. California and Florida are among the states which have the highest rates. Knowledge is power and it is believed that many of these foreclosures could be prevented if lenders would allow a short refinance mortgage to take place.
Getting a short refinance mortgage is rare, but not impossible. A streamlined system across the board for all lenders to use can possibly increase the number of people who are able to take advantage of this type of transaction.
Put into simple terms, a short refinance mortgage (known in the industry as a short refi) works this way: Let’s say you own $200,000 on a home that you purchased when the real estate market was good. During this current economic crisis, the values of houses in your neighborhood have dropped 20%, in turn lowering the value of your home to $160,000. If you have a subprime adjustable rate, it has gone up and now you cannot afford your monthly payments. Rather than foreclosing and adding another toxic mortgage to their books, the lender agrees to forgive $40,000, the difference of the lost value in the home. Now, your mortgage is $160,000 and affordable.
The depreciating value of homes seems to be the lost variable when talking about the current mortgage crisis. Everyone knows that homes have lost value, but there seems to be a delay to including this factor in trying to get a viable solution for all concerned parties. The lenders are inevitable going to take a hit if the home goes into foreclosure. The homeowner wants a chance to remain in the home with affordable payments. A decrease in foreclosures keeps other neighborhood home values from deflating. Still, a short refinance mortgage is a rare occurrence because mortgage servicers do not fully see the benefit. They agree that there is a loss, but less with a foreclosure than by forgiving debt.
In some cases, homeowners have been able to have their debt forgiven – after filing a lawsuit. The current market situation should not allow things to get to that point. In fact, many people cannot afford the cost of a lawsuit and banks cannot continue to have excess foreclosures and survive the current market conditions.
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