1. Pre-Foreclosure Loan Refinance – (SHILO Solution) - You would refinance to avoid resets, or “unaffordable” payments, etc. Currently loan “eligibility” is based upon new federal regulations requiring the “fully adjusted indexed interest rate”, not the teaser rate. Lack of equity as a result of the devaluation in home prices has restricted borrowers’options. This could result in many borrowers failing to qualify for the refinance option. But if the borrower can qualify, this may be the most immediate solution. However, if the type of loan and terms including any adjustments or resets simply postpone the resulting inability to pay, then this may not be a solution at all. Brokers and lenders must also now document that any loan they give you has a “net tangible benefit”. Refinancing may not be possible for many borrowers in the current real estate market because:
(1) the market price or value may have fallen to a point where your equity is insufficient to qualify for a refinance,
(2) the fully indexed interest rate may reveal an inability to qualify, and/or
(3) the revised or eliminated loan programs are more stringent than when you obtained the loan your are attempting to refinance, precluding youfrom qualifying with the available loan programs.
Key issues of concern for a refinance depend upon:
A. Amount of Income and/or or Assets (whether you can document it or not),
B. Credit score and credit report (high scores can place you in easy qualifying loan
C. Value or appraisal of home (a high valuation will result in more equity to allow
you to qualify in more loan programs)
D. Amount of home equity (depending upon the requirements of the particular loan
program you are seeking)
E. Amount of Cash for upfront loan fees
F. Availability of easy qualifying loan programs (loan programs change all the time;
you need a broker who can shop many differing programs to meet your unique situation; if you have negative default marks on your credit, you may need a lender who has a loan program that will give you a second chance) If you succeed in a refinance, the default or foreclosure will be cured or null and void.
This solution should be preset by contract as a safe harbor intelligent loan option (SHILO) afforded all borrowers in their loan documents at loan origination, refinance or at loan workout.
2. Short Refinance – (SHILO Solution) - A short refinance or shortrefi would allow a refinance to a new affordable loan, at a loan amount less than the current loan balance owed. This would require the lender(s) to agree to refinance your loan to another loan to an amount less than the amount due on the defaulted or troubled loan.
There are many reasons that a lender might agree to do same, all of which will require you to prove that you could afford the new loan, as opposed to the troubled loan, probably for reasons beyond your control or fault. The goal is to refinance to avoid loss in asset devaluation and pending resets, etc. This would allow homeowners to stay in homes, create part of the ‘equity’ that was lost in the massive home devaluation and obtain “eligibility” and “affordability”. This solution should be preset by contract as a safe harbor intelligent loan option (SHILO) afforded all borrowers in their loan documents at loan origination, refinance or at loan workout. See Delays and Problems With Short Sales and Short Refinance in the new book “13 Homeowner Solutions to Default & Foreclosure! Help Homeowners Keep Their Homes, and Lenders Keep Their Loans ” at:
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