Written By: Glenn Michaels, Op-Ed Writer
Recently I had a mortgage application where the borrower was paying about 8% on her mortgage. In today’s market the borrower is a prime candidate for a refinance transaction for a lower rate.
The major stumbling block for the borrower is the property value is substantially lower than the mortgage balance. The borrower’s mortgage balance was approximately $223,000.00 and the property value is now worth approximately $135,000.00. Here is a classic case where the borrower is “underwater” and about to walk away from her mortgage.
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The borrower has been paying her mortgage on time for the previous 12 months so I knew if the loan was owned by Fannie Mae or Freddie Mac the borrower might qualify for Harp 2 refinance at a significant rate lower than what she was paying now. I immediately went on both agency web sites to see if either web site indicates that they own the borrower’s mortgage. As luck would have it, neither Fannie Mae nor Freddie Mac owned the borrower’s mortgage.
Next I decided to inquire if the borrower’s mortgage was a mortgage insured by the FHA or guaranteed by the VA. If they were I could easily do a Streamlined Refinance. As luck again would reveal that the borrower’s mortgage was not a government mortgage.
Next I asked the borrower to go back to the mortgage servicer and ask if they would allow a “short refinance.” The mortgage servicer responded with a “yes” and then said “Make Me an Offer.”
Remember loan officers you can resurrect a mortgage file going nowhere by advising a borrower to request a “short refinance.”
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The borrower must make an offer to the mortgage servicer, a reasonable offer based on what is owed and what the property is worth. In this case the borrower will make out very well; a lower mortgage amount, a lower interest rate resulting in a much lower monthly payment.
You have to sometimes think outside of the box to make a deal work. Short refinance transactions can and do happen if the numbers work. The borrower must make an offer to the loan servicer that is realistic and the loan officer has a deal that would not normally work.
About The Author
Glenn Michaels - As an NAMP® Opinion Editorial Contributor, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter (www.MortgageUnderwriter.org). As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years.
