Underwater Clause

[torwyn44]

Has any of the Banks or Investors had the idea of maybe allowing the borrower to true up their loan by paying nothing but principal until the LTV reaches 80%? (20% on a HELOC.)

Such an idea would protect the investors from their concern that home prices bounce back quickly, and being left without an opportunity to cash in. It would give the homeowner a chance to refinance with whoever they want to to do business with.

Thanks

[LHarveyMadman]

Essentially you are asking if any lenders are offering 0% interest loans. I have not heard of anything of the sort. Some people have gotten temporary drops in interest rate to around 1%, but it only stays at this level for a couple years at most.

[torwyn44]

I have also heard some lendors doing a stepping rate, 1% the first year, 2% the second. But most people who are experiencing hardship would just pay the mininum. And it seems that the banks are not concerned about people being able to pay down the principal, even when the loan is underwater. A plan like this one would force the homeowner to get the loan back in line with the way it was when the purchase was made.

Thanks

Joe

[Lisa in MN]

Torwyn,
We are one of the sucess stories that recieved a step rate mod like you described. Our rates are as follows:
Year 1- 1%
Year2- 2.3%
Year3-3.6%
Year 4- 5%- which is fixed for the life of the loan
For us this is reasonable and generous on the part of our investors. The first 2 years in particular give us a chance to pay down alot of principal, so the rate makes it affordable for us, even at 5%. We are underwater but not in a part of the country that has it as bad as some. The bottom line for us is we have lived here for almost 18 years and really dont want to leave but we were fully prepared to do so if we did not get a reasonable modification.
Someone on here said the successful loan mods are most likely based on someones long term ability to pay- not just a couple years.

Banks are concerned with $- bottom line. Thats how we all have had to approach the situation also.
Lisa

[HopingtoFind]

Originally Posted by torwyn44

Has any of the Banks or Investors had the idea of maybe allowing the borrower to true up their loan by paying nothing but principal until the LTV reaches 80%? (20% on a HELOC.)

Such an idea would protect the investors from their concern that home prices bounce back quickly, and being left without an opportunity to cash in. It would give the homeowner a chance to refinance with whoever they want to to do business with.

Thanks

I haven't heard of principal only payments to true up the value of the property, other then step up starting with 1% for few years. But I strongly believe that something similar to your suggestion is going to be happening in the coming year...

[Catherine]

Lisa, I am so thrilled to read your success. If you don't mind my asking how did make it happen? Thank you so much, Catherine