Money Talks, Do You Hear What It's Saying?

By Author: Keith S. Donald
Total Articles: 9
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You know the phrase, Money Talks and Britney Spears walks! The thing is, Britney Spears, aka B.S., and her exploits is of greater interest on the internet than solutions to the biggest home mortgage and credit crisis of the modern era!

Even so, everyone in America is aware of the housing, mortgage, and credit crisis. Because of the worldwide impact of the U.S. financial markets the problems need solutions and they need them fast.

Money talks, so the Federal Reserve Bank has alerted the world of its intentions to support the economy by any means necessary. The question remains, "how do we solve these home financing problems"?

This is one solution that may be a perfect fit for you or someone you know.

Problem(s):

Borrowers with Adjustable Rate Mortgages (ARM) that are about to adjust are
having a difficult time refinancing into fixed rate loans. It is more difficult because of the revised underwriting guidelines of the mortgage lenders. Money talks.

To refinance today your credit must be better than when you first financed your property. Informed sources report 64% of new applications ...
... are rejected. Depending on your lender, you can expect a minimum FICO score of 620 to qualify for refinancing.

There is also the problem of inflated property values and something most lenders would rather not discuss. For every foreclosure a lender has, a certain amount of money must be held in reserve to mitigate the bad debt. It is called a loan loss reserve. The amount held in reserve may be anywhere between 1.5 to 8 times the amount of the defaulted mortgage! Money talks big time.

Think about this. If the lenders are losing money with defaulted loans, and the lenders have to hold a certain amount of money that exceeds the face amount of the bad paper in reserve, do you see how the possibility of not having money to lend may be the real problem? When money talks, people listen.

We believe there are 169 different ways to finance a property. That means there are quite a few ways to solve financing related problems. Here is one example.

Solution:

If the rate adjustment on your mortgage will make the payment too high, contact your lender. Be proactive. You must know by now, mortgage brokers were compensated by the lenders to place people in the loans that have since proven to be bad paper. If you look around you may also notice there aren't many mortgage brokers in business right now. Ask the mortgage brokers if money talks....if you can find one.

The point here is, it is just as important for the lender as it is for you to make arrangements that will let you to continue to make your monthly payments. Remember, most of the mortgage commitments are for 30 years. What is happening now is simply a bump in the road.

Ask for a loan modification that is based on your ability to pay your mortgage. If the lender is properly motivated you just might find a solution that will let you keep making payments at the current rate. One other thing you might discover is an adjusted value of the property which is based on the amount of cash flow generated by the property.

Here is an example. Your current mortgage details are:
(N - Number of payments, I/Y - Interest rate or yield, PV - Present Value, PMT - payment of principal and interest)

N = 360, I/Y = 6.5%, PV = $100,000, PMT = $632.07

If your goal is to keep your payment the same as it is right now, your lender can justify your request by simply increasing the interest rate or yield of the loan. It might look like this:

N = 360, I/Y = 9.5%, PV = $75,169.75, PMT = $632.07

In this example the interest rate or yield is increased from 6.5% to 9.5%. The payment remains the same at $632.07, but the present value or mortgage amount is reduced from $100,000 to $75,169.75.

Most people realize that home values are declining because of the buyer's market. What they don't know is how much are they declining. The illustration above shows the relationship between the interest rate and the present value of the property. It is computed with mathematical precision. Keep in mind, the value of the property is most meaningful at the time you try to sell it. At that time you will have it appraised.

The objective in the above illustration is to stabilize your monthly payment and to prevent a rate adjustment.

What are the benefits for you and the lender?

You get:

-To keep your payment at the current level

-The mortgage on the property is adjusted to reflect the current market value

-You avoid a foreclosure

-You avoid a possible bankruptcy

-You continue to live in your home

-To refinance the property later when conditions improve

The lender gets:

-To keep a performing loan on the books

-To avoid adding to the loan loss reserve

-To continue collecting cash flow

-To avoid a costly foreclosure worth at least $35,000 in savings

-A blue print for other troubled borrowers

-An incentive to be more proactive with borrowers in creating win-win solutions

-The potential to refinance the borrower later when conditions improve

Part two of the solution goes into effect when the property is refinanced. Our assumptions are, enough time has passed for the downward trend in home prices to be reversed; your credit has improved to the point your FICO score is well above 620; lenders are in a position to lend money for mortgage loans at interest rates below the current market.

N = 360, I/Y = 5.5%, PV = $111,320.93, PMT = $632.07

Remember this. The higher the interest rate the lower the present value.
Conversely, the lower the interest rate the higher the present value of the
property.

What are the benefits for you and the lender now?

You get:

-An increase in property value from $75,169.75 to $111,320.93, or $36,151.18

-Better terms or cash out depending on your needs

-The same monthly payment (in this illustration)

-A lower interest rate

-A new fixed rate loan

-No monthly payment anguish

-No foreclosure

-No bankruptcy

The lender gets:

-A new higher valued loan

-A continuous cash flow from an existing client

-Bad debt reserve reduction

-Improved client perception for better Goodwill

-A potential testimonial that demonstrates customer commitment

-A plan to contact borrowers to help them solve their mortgage problem

When money talks, you should listen. It will tell you what it wants. Money always goes where it is treated best.

This is just one of many examples of how to approach and solve home financing problems. Every situation is unique. While this may not be a perfect solution, it is an example of how really good ideas can be developed.

The borrower and the lender can work out the details if they are willing to develop a mutually beneficial solution. Remember when money talks you pay attention to what it is saying.

Copyright © 2008 | TDO Properties, LLC | All Rights Reserved

Keith Donald is a professional in private real estate financing. He consults individuals and small businesses in structuring private paper transactions, and turning private paper assets into cash. Mr. Donald is available to assist you with the creation, purchase, and sale of top quality real estate notes. Contact him at:



http://www.Cash-Now-Seller-Financing.com

http://www.Cash-Now-Seller-Financing.com/sellinghomes.html