Buy and bail advice needed

[bs6440]

I find myself in a possibly unique position. Bought a house in 2005 for $530K. I have a first through Suntrust (loan owned by Res. Funding) now at $390K at 6.25% and a second through GMAC (loan owned by Res Funding) for $100K at 7.5%. I saw that the second has a balloon payment in 15 years of $80K. I called GMAC a few months back and was told if I can't make the balloon payment the payments would continue at the amount and interest rate until satisfied. Today they said actually, no, the $80K will be due in total in 2020. I have been making additional payments (1 per year on each loan) and have never been late. Neither loan is FHA, HUD, or government guaranteed so I cannot refinance through the usual programs. Moreover, of course, the house in underwater.

So how can I refinance to lose the balloon or should I just walk away. Neither Suntrust nor GMAC offer any assistance. Right now I feel like to hell with them. I can't believe they will force me to default when I can continue paying but cannot get around that balloon. Why should I continue to pay on a house that I will ultimately lose in 9 years.

Any suggestions or advice?

[jayguy0710]

I find myself in a possibly unique position. Bought a house in 2005 for $530K. I have a first through Suntrust (loan owned by Res. Funding) now at $390K at 6.25% and a second through GMAC (loan owned by Res Funding) for $100K at 7.5%. I saw that the second has a balloon payment in 15 years of $80K. I called GMAC a few months back and was told if I can't make the balloon payment the payments would continue at the amount and interest rate until satisfied. Today they said actually, no, the $80K will be due in total in 2020. I have been making additional payments (1 per year on each loan) and have never been late. Neither loan is FHA, HUD, or government guaranteed so I cannot refinance through the usual programs. Moreover, of course, the house in underwater.

So how can I refinance to lose the balloon or should I just walk away. Neither Suntrust nor GMAC offer any assistance. Right now I feel like to hell with them. I can't believe they will force me to default when I can continue paying but cannot get around that balloon. Why should I continue to pay on a house that I will ultimately lose in 9 years.

Any suggestions or advice?

We would need to know some additional details about your situation before providing any advice, namely: the approximate value of the home, the state you are in, and whether or not you have refinanced either or both of the loans.

[bs6440]

An estimate of the value would be $445K according to zillow (I know, not very accurate). I am in California. I have not refinanced either loan but would like to roll both into a single loan, refi both. Options?

[jayguy0710]

I do not pretend to be a mortgage financing expert, so you may want to wait on more credible advice. I am most definitely not a mortgage loan broker, but here is my take:

You owe $490K on a home worth $445K, meaning that in order to refinance (besides a "short refinance" which I believe is a program available out there - it might be only for FHA loans though) you would need to bring at least $45K to the table, plus closing costs. I don't know if lenders are doing anything over 100% LTV these days, I would have a strong suspicion that answer starts with hell and ends with no. It's tough to get a loan, in certain cases, even with 20% down/equity, which you don't have. In my albeit limited analysis, I would say that you won't be able to refinance both loans unless you bring a lot of cash to the table.

You mentioned the other option of walking away, which is something you could do relatively easily since you're in CA and have not refinanced the loans. You could stop paying now, stay in your home payment free for many, many months, and let the bank foreclosure and the bank would not be able to pursue you for any deficiencies, nor would you owe any taxes upon the eventual FC.

The bigger question that I have and you may be thinking this as well is that does a modification make sense in your situation, if you could even get one. Do you like the home, the neighborhood, etc? Can you afford the payments and you're just really just concerned about the depressed value and eventual balloon payment? I only ask these questions because you're "only" ~10% underwater, which isn't all that much. That said, I don't see real estate values increasing anytime soon, but at only 10% down that might not justify walking. You'll have the crunch the numbers and also evaluate non-quantitative factors like the ones I mentioned above ("where do you want to be in X years, do you like home, etc.).

Another option would be to stop paying on the 2nd loan and continue to pay on the 1st. Eventually, you would aim to settle the 2nd for pennies on the dollar. This strategic/tactic only makes sense if you'd like to keep the home and can afford the 1st payment. The worst case scenario that could happen is that the 2nd doesn't settle, and sits and waits for the value to appreciate (possibly for years and years and years).

Others should know more, let's see what they have to say.

[TomEason]

bs6440

Thanks for your posts and welcome to Loansafe.

As you know, you won't be able to refinance because of your CLTV.

If your indication of value is close, your 2nd is out of the money and won't foreclose. And unless you're in an extraordinary RE market, your home's value will likely drop some more, adding to your cushion of safety.

If it were me, I'd immediately stop making payments on the GMAC 2nd. You can eventually settle that loan, and you will likely have a long time before needing to settle. In that regard I agree with the last paragraph in jayguy's post.

I recommend you visit the following thread, and read post #1.

www.loansafe.org/forum/debt-settlement/37996-strategy-settling-your-2nd-62.html

Good luck!

[bs6440]

[QUOTE=TomEason;359738]bs6440

Thanks for your posts and welcome to Loansafe.

As you know, you won't be able to refinance because of your CLTV.

If your indication of value is close, your 2nd is out of the money and won't foreclose. And unless you're in an extraordinary RE market, your home's value will likely drop some more, adding to your cushion of safety.

If it were me, I'd immediately stop making payments on the GMAC 2nd. You can eventually settle that loan, and you will likely have a long time before needing to settle. In that regard I agree with the last paragraph in jayguy's post.

The potential problem with this approach is that GMAC ulitmately ownes the first and second note. As such, they will be still collect on the first note should they force foreclosure on the second. As such, they may not be willing to negotiate with regard to the second. Perhaps over the next few years I should save and buy another house then walk away from this one.

[bs6440]

Here is my situation
My wife and I bought our home in in SoCal in 2005 for $530k with a first and second for purchase money. We never refinanced the loans. The house is now underwater $200k. We have never been late, in fact we make extra payments.

I may now get transferred to NH, which is where we are both from and want to move back to.

Our income is $250k, with about 100k in savings. Before we walk here are some questions. Any advise is appreciated.

1. What are the chances we will get another mortgage to buy in NH to enable the buy and bail? How difficult will it be? We are looking in the $400k range.

2. I want to tell the new mortgage broker the plans about our SoCal house and the plan to walk away. Am I crazy? Will they care? We don't want to be landlords in California.

3. I don't believe this is any recourse on bailing on the SoCal house. Is that correct?




One funny note - the second on the SoCal house is with ResCap, who just went bankrupt but is sending all its customers letters stressing the importance of paying the mortgage! Do you know what God has more than a sense of justice - a sense of irony!

[bs6440]

Here is my situation
My wife and I bought our home in in SoCal in 2005 for $530k with a first and second for purchase money. We never refinanced the loans. The house is now underwater $200k. We have never been late, in fact we make extra payments.

I may now get transferred to NH, which is where we are both from and want to move back to.

Our income is $250k, with about 100k in savings. Before we walk here are some questions. Any advise is appreciated.

1. What are the chances we will get another mortgage to buy in NH to enable the buy and bail? How difficult will it be? We are looking in the $400k range.

2. I want to tell the new mortgage broker the plans about our SoCal house and the plan to walk away. Am I crazy? Will they care? We don't want to be landlords in California.

3. I don't believe this is any recourse on bailing on the SoCal house. Is that correct?




One funny note - the second on the SoCal house is with ResCap, who just went bankrupt but is sending all its customers letters stressing the importance of paying the mortgage! Do you know what God has more than a sense of justice - a sense of irony!

[TomEason]

bs6440

Thanks for your post.

Answers:

1) Your chances are excellent. Shouldn't be a problem qualifying if your complete your loan application properly. Needless to say, you'll need to stay current on everything until your new house closes.

2) This can't be determined in advance as it all this depends on the specific mortgage broker. However most won't care; most are concerned with the amount of commission they'll earn from the new loan. Why do you feel the need to volunteer that information? If it were me, I wouldn't volunteer any info that isn't necessary. I recommend you list the current home as pending sale which, by the way, isn't a lie because a FC is technically a sale.

3) Yes, that's correct.

FYI, ResCap, a subsidiary of GMAC (now known as Ally), has already been through BK, and is now owned by we the taxpayers.

[Evan Bedard]

1. What are the chances we will get another mortgage to buy in NH to enable the buy and bail? How difficult will it be? We are looking in the $400k range.

You seem to make plenty of money and as long as you have a good credit rating you should have no problem obtaining a new mortgage in NH.

2. I want to tell the new mortgage broker the plans about our SoCal house and the plan to walk away. Am I crazy? Will they care? We don't want to be landlords in California.

You really do not have to disclose any information with them in regards to what your plans are for your house in CA and it may be worth it to rent the home out while you walk away as the foreclosure can easily take 8-12 months to complete.

3. I don't believe this is any recourse on bailing on the SoCal house. Is that correct?

Since both of your mortgages are purchase money and the property is in CA there is no recourse and the lender cannot pursue you for a deficiency judgement once the foreclosure is final.