Genius? Bad Idea?

[pennylane]

The house is under 2 loans (80/20), payment for the first one will go up by June 1st and the second one is a HELOC. Given the current very steep decline in the value of houses in our area, refinancing is not an option and we are predicting that it may take 5-8 years (who knows) before we can refinance. We live in CA and our city is 7th on the nationwide list of foreclosures. Now, here's the deal: our first loan is actually in the name of my mother since we couldn't qualify then, and the HELOC is under mine. We used her credit then to qualify but it is really my husband and I who pay all the bills. As it is we are just getting by with the monthly payments but we are never late. Come June 1st, it will be a different story.

We have decided for now to just LET GO of this house and buy a more affordable one. There are now so many bank-owned houses in our city selling for way less. My husband will buy it this time since he has been pre-qualified and honestly we are looking forward to a big decrease in monthly mortgage and property tax and STRESS.

By letting go, we mean to just go through the motions of short sale and foreclosure. I have called GMAC and asked for assistance and it took me a while to get a hold of someone from loss mitigation only to be told repeatedly that nothing can be done right now and to call back in May which is a month before the adjustment! I still do want to call back and insist on a loan modification and see if they can freeze our current interest rate but my husband says that if they do agree it still does not make sense owing more than the value of the house and waiting 5-8 years for the market to catch up with what we owe. If you're wondering why we're not worried about the effects on credit scores, my mother really doesn't have any plans on buying a house(she lives with us).

So, what are your thoughts?

[Moe Bedard]

Hello!

My thoughts are DO NOT BY ANOTHER HOME YET! The market has way more to go down. So, that home you buy will most likely fall and you'll be in the same situation. I am not understanding the logic buying right now and I strongly advise against it. But I am sure the Realtor and mortgage broker say it a great deal? Don't buy a home to pay their bills for a few months.

This is America and you are free to choose what you want to do and suffer the consequences of those decisions. Whether good or bad or both as in this case. There is now way getting around the bad to get to the good. Your backing out of a contract and your mother and you will suffer credit wise. Just build it back up. Some say your credit judges what type of person you are. I say BS, your actions do that.

It seems like you have all decided this is the best route (leaving the home), so do it and move on. I wouldn't deal with a loan modification, just go straight to the short sell process and see if it sells. Most likely it will not and you may be able to negotiate a deed in lieu and if not a foreclosure.

[pennylane]

Thank you, Moe. I really appreciate your honest opinion. Would you do the same thing given the same situation?

For my part and over all ties to the industry, No. I have some real problems with the concept as a industry professional. I will leave it at that.

[pennylane]

Poppy,

I have read that this is illegal and fraudulent in the eyes of the bank because you have had to disclose the you are intentionally foreclosing the other house before buying another one. Is this what you meant?

I do not use the "f" word, we are not allowed to any longer in the industry, the implication of this sort of transaction has to be carefully considered and it has to be recognized that the underwriting function is addressing these situations in today's market. There is careful scrutiny of all transactions and the components of those transactions on the underwriting side of the world today, we are under the gun to make decisions that support the requested transaction.