September 19, 2007

FHASecure to the Rescue

I’m currently facing foreclosure!

I refinanced about 18 months ago. While originally I was just trying to get out of my expired ARM, my broker convinced me to take money out to pay down some debt, and do some home improvements.

Surprisingly the lenders appraiser came back with a value that was some 50% percent higher than my previous appraisal from 2 years ago.

So I took 85% LTV loan at a high interest rate because of my poor credit. I knew my monthly note would be a struggle, but me and my broker figured after paying down some debt, and make some much needed renovations to the house, that after a year I would be able to refi  into a lower interest rate and my homes value would increase as well. 

So I followed through paid off some debt did some major improvements to the house, and managed to pay my note on time by the skin of my teeth for a year. Running to a new broker to refi, (since my last broker’s office was out of business) I got qualified for a low interest 30 year FHA loan.

Everything was fine until my appraisal came back some 55% lower than my previous appraisal.

I was shocked and talked with one of the guys in underwriting as well as the appraiser; I even went as far as to send them a copy of my previous appraisal. The end result was they showed me where my current lenders appraiser used bad comps, and also used the wrong school district to get an inflated appraisal.

What are my options?

G-DUB

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Hello G-DUB,

If you qualified for an FHA loan before and your present loan is an ARM, then it’s quite possible you still qualify for a low interest rate FHA loan.  The program that I’m describing is called FHASecure.  A stumbling block may or may not be the appraised value. 

On the FHASecure refinance, the new FHA loan amount is limited to 97% (or 97.75%) of the appraised value.  While this may only be sufficient to pay off roughly 50% of your loan balance, your servicing lender may accept 50% to satisfy the present mortgage lien and subordinate a second mortgage for the remaining balance. 

The CLTV (Combined Loan to Value) is the total of all mortgages against the property divided by the appraised value of the property.  Many programs limit the CLTV to 90% or 100%.  One advantage for FHASecure is that there is no CLTV limitation or restriction.  

Now, why would a servicing lender be willing to assist in restructuring your loan in this way? 

Because the property is upside down and presumably, the borrower is in imminent danger of default or “currently facing foreclosure!” as you have said.

G-DUB, if you don’t have an ARM then the FHASecure is not the program for you, but you sound like a candidate for a loan modification or short sale.

I encourage you to watch our free thirty-minute seminar on How To Avoid Foreclosure.

Thanks for the questions and hope this helps.

Paul

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