Hindsight

NEW -> Contingent Buyer Assistance Program
This thread has got me thinking. What would happen if a homeowner who is 20% or more underwater simply stopped paying on the piggyback 20% loan? The 2nd lienholder would not foreclose because there would be nothing for them to get in the foreclosure. The first lienholder does not care because they are still getting their payments. If the 2nd lien goes unpaid, how long before it is uncollectable? Is there a statue of limitations on this kind of debt? Would this debt accumulate with interest being added to the unpaid balance like a zero-coupon note? See <a title="Permanent Link to How Homedebtors Could Avoid Foreclosure" rel="bookmark" href="http://www.irvinehousingblog.com/2007/04/16/how-homedebtors-could-avoid-foreclosure/" linkindex="20" set="yes">How Homedebtors Could Avoid Foreclosure</a>. If a homeowner failed to pay the 2nd for 10 years, and went to sell the house, would payment of the unpaid balance, plus interest and penalties be collected at that time? I could easily see these seconds being converted to zero-coupon notes out of necessity in a cramdown.





What would happen if subprimer quit paying on the 2nd mortgage?
 
<p>Well, in Florida, and I hardly see why it would be different there except in details, the 2nd mtgee would continue to accrue interest and late fees until the Statute of Limitations is reached. At some point, unknowable, a atty could argue "laches" ie, delay, in Fla if the debtor relied in some way on the delay. These are long Statutes of Limitations, here, 5 years after the date of maturity, if that can be determined by the recording data, otherwise 20 years, but I think the title underwriters would be happier if you waited longer than that.</p>

<p>After 10-15 years it may be possible to clear title if the lender has been out of business are really long time. But you have to join them in a lawsuit and really, really try to find and serve them.</p>

<p>This is a dangerous thing to do, just to pay the first, because if the 2nd wakes up they could foreclose. Tho, if you consider the first payment rent, why not?</p>
 
Same bank has both, I tried as soon as the prepay was up to refi just the 20 but no one not even the original lender said it was possible. I still say it could or should be because they are different loans/accounts. I wont try to pull anything funny, I will just keep paying my bills and wait and see what opens up and explore all of the programs out there. The main goal is to keep my house and my good credit, hope I can do both.
 
Question, I have heard that the jumbo loan amount for CA has or will be increased,What will that do for someone in my situation? Or will it help me at all?
 
The raising of the conforming limit should narrow the spread between conforming and jumbo. It will probably raise the conforming cost while lowering the jumbo cost somewhat. It will only help if you could meet the criteria for a conforming loan.
 
The sad reality is we have another 20-25% in devaluation before the housing market hits capitulation. It may take many years to get back to where the OP is in the black. Borrowing your way out of debt is not the solution.

Take the hit. Jingle Keys. Or wait till your LTV is even a larger negative number ? Its like a bad day at the track. Tear up the tickets and stop gambling or as a real gambler says. Stop chasing when your upsidedown on a bet.
 
<p>Never throw away your losing tickets. Never. You need them to write off against that bad beat jackpot you win in December.</p>

<p>:)</p>

<p> </p>
 
I would like to address the questions posed by IrvineRenter.



1. Did you realize there was a risk of not being able to refinance? Did your mortgage broker tell you it would not be a problem, and did you believe them? EVEN IF ANYONE TOLD HIM IT "WOULD NOT BE A PROBLEM," SINCE WHEN DOES THAT PRECLUDE THE BORROWER FROM CONDUCTING HIS OWN DUE DILIGENCE?



2. Did you compare the cost of ownership to the cost of renting? Was it cheaper to own based on the initial payments? WHEN HAS IT EVER BEEN CHEAPER TO OWN IN SOUTHERN CALIFORNIA ABSENT A COMPLETE MARKET MELTDOWN? EVEN THEN, IT'S STILL NOT CHEAPER TO OWN. IF "OWNING IS CHEAPER THAN RENTING" EVER OCCURS, WE'RE NOT IN CALIFORNIA.



3. Did you buy because you planned to stay in the house for more than 10 years? Would you stay there if you could? WHY IS TEN YEARS THE CUT-OFF POINT FOR HOME OWNERSHIP? ACCORDING TO FANNIE MAE, THE AVERAGE TENURE IN A LOAN IS 7 YEARS. WHAT'S YOUR POINT?



4. Did you think house prices were going to continue to rise after you purchased? If so, why? IF HE STAYS FOR TEN YEARS, WHICH IS PRESUMABLY WHAT YOU'RE RECOMMENDING ABOVE, WHAT DIFFERENCE DOES IT MAKE WHAT HE THOUGHT ABOUT RISING PRICES?



5. Could you afford the payments on a 30-year fixed if you were able to refinance the full loan amount? SOME LENDERS MAY BE OPEN TO THIS.



6. If you have not refinanced, your purchase money loans are non-recourse, and the lender cannot seek a deficiency in a default. [ONLY ON THE 1ST] Are you now considering stopping payment on the mortgage and allowing the bank to foreclose? IF HE GOES TO FORECLOSURE, THE 1ST LENDER WILL HAVE NO RECOURSE, PURSUANT TO THE ONE ACTION RULE (Google for definition). THE 2ND LENDER MAY GO AFTER HIM FOR A DEFICIENCY, BUT NOT LIKELY.
 
I would like to address this comment by IrvineRenter: The raising of the conforming limit should narrow the spread between conforming and jumbo. It will probably raise the conforming cost while lowering the jumbo cost somewhat. It will only help if you could meet the criteria for a conforming loan.



There's talk of bifurcating conforming loan limits to force "add ons" (price adjustments) to loans over $417000 (in CA). That is, over 417000, a consumer may pay as much as 100 bps more for the risk perceived by an investor in lending $729,750 to one borrower vs. $350,000 to two borrowers.
 
Posted: A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain. --Mart Twain



Here's another one:



If you owe the bank $500,000, they own you, but if you owe them $50 million, you own them." --credited to Donald Trump
 
I am not real sure what you are saying Socagal. I know now that I can qualify for a conforming or conventional loan but I have no down but the killer is the LTV on a refi. So by going with the no money down super broker I shot myself in the foot. I just hope when it goes adjustable it wont be a sharp increase.
 
<em>"WHEN HAS IT EVER BEEN CHEAPER TO OWN IN SOUTHERN CALIFORNIA ABSENT A COMPLETE MARKET MELTDOWN? EVEN THEN, IT'S STILL NOT CHEAPER TO OWN. IF "OWNING IS CHEAPER THAN RENTING" EVER OCCURS, WE'RE NOT IN CALIFORNIA."</em>





It was cheaper to own than to rent before 1975 and from about 1983-1986 and 1995-1999. Basically, after each bubble, prices drift down until it is cheaper to own than to rent. In fact, this is why prices stop falling after they start their downward decent.





"WHY IS TEN YEARS THE CUT-OFF POINT FOR HOME OWNERSHIP? ACCORDING TO FANNIE MAE, THE AVERAGE TENURE IN A LOAN IS 7 YEARS. WHAT'S YOUR POINT?"





I was interested in knowing if this was intended as a long-term purchase. Because if it wasn't, he was flipping, and I would feel much less empathy for a flipper than I would for a long-term homebuyer who is getting screwed by his inability to refinance. This is also why I asked about his belief concerning future prices. A long-term homeowner does not care as much as a flipper. The sad stories that come out of this bubble are those buyers who only wanted a home for their families and were not motivated by greed, and yet they are going to have to deal with the problems created by everyone else.





<em>"6. If you have not refinanced, your purchase money loans are non-recourse, and the lender cannot seek a deficiency in a default. [ONLY ON THE 1ST]"</em>





This is wrong. All purchase money mortgages are non-recourse in California. The second lender may not go after him unless the 2nd was a refi or a HELOC.
 
subprimer wrote: I know now that I can qualify for a conforming or conventional loan but I have no down but the killer is the LTV on a refi. So by going with the no money down super broker I shot myself in the foot.



If you NEED--rather than PREFER--to refi to a lower rate, you're right...you shot yourself in the foot, but in terms of losing equity, you haven't lost value--the bank has. For all practical purposes, you have no loss until you sell and, even then, YOU don't have a loss--the bank does. If you had made a down payment, your cashola would be gone by now, so by purchasing 100% leveraged, you shifted all market risk to the bank. If you still have the capital you would've sunk into the house had you made a down payment, you can use that money to supplement your monthly payment (if the payment goes up when the rate adjusts). If you have no capital, you speculated and you lost. You thought you had the opportunity for appreciation, but the market moved against you. Insofar as being at any risk at all for equity erosion, you're not--the bank is. Why are you blaming the situation on the "super broker?" Did he hold a gun to your head? < teasing >
 
"6. If you have not refinanced, your purchase money loans are non-recourse, and the lender cannot seek a deficiency in a default. [ONLY ON THE 1ST]"



This is wrong. All purchase money mortgages are non-recourse in California. The second lender may not go after him unless the 2nd was a refi or a HELOC.



***

What am I missing here? Don't the two sentences above say the same thing?
 
SoCalGal,





On your last comment, yes, in a way the two sentences say the same thing. Purchase money is non-recourse in Cali. So, if the second was a purchase loan, then they are SOL. If the second was after the purchase they could try to go after them, but good luck. If the first was refi'd then, they could go after them as a recourse loan, for the first. That is what IR means, the refi, makes it a recourse loan, first, second or even third mortgage, anything after the purchase money becomes recourse. So, if they got a second mortgage, but defaulted on both the purchase money first, and the refi'd second, the second could technically go after them for the money. But, again, good luck with that.





BTW, it sounds like you are of legal mind. Not a bad thing, we have some great legal minds here, and the more the merrier. But, seriously, how is that the legal minds find their way here? I mean, is it because you can "google" a case like no other or what?
 
I'm not a lawyer, but I worked for lawyers in various specialties for nearly 20 years. I'm a loan originator (17 years) and short sale negotiator now.



You're right...if the 2nd was originated after the purchase, it's a recourse loan.



Let me make sure I understand...in CA, a mortgage lender, according to the "one action rule," can take only one action against you: A non-judicial foreclosure, or a judicial foreclosure. The result of a non-judicial foreclosure is just like the purchase money rule, a lender can only sell the property to pay off the loan. If the sale doesn't pay off the mortgage, the foreclosing lender can't get the unpaid balance from you. However, the lender can get the balance from you in a judicial foreclosure. The good news is judicial foreclosures are too uncertain and costly for lenders that they are almost non-existent. BUT if a junior lender?s security interest is wiped out by a senior mortgage foreclosure, the junior lender can obtain a deficiency judgment for their unpaid balance because they have not yet had their one action against you (subject to the purchase money rule, of course). This situation is very common these days for that 2nd mortgage you used to remodel the kitchen, or bought that Escalade, or refinanced a purchase 2nd mortgage.
 
Your last comment was totally correct.





Perhaps this will help: <a title="Permanent Link to Selling for Less" rel="bookmark" href="http://www.irvinehousingblog.com/2008/02/18/selling-for-less/" linkindex="11" set="yes">Selling for Less</a>
 
Socalgal, you are right I don't care what my house is worth at the moment except for the fact that my loan will reset in 3 yrs. I am no flipper. You are right Super broker held no gun but I kind of let him run with it instead of shopping around more for a pro. I can only blame myself in hind sight, at the time I thought we were doing what people do, get married, have kids, buy house, never thought it would turn out horribly. So I think I have to try to to whats best for me if I can possibly negotiate a "cram down" that would be best otherwise we may walk or try a short sale in a year or so.
 
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