Cash is King – Upside Down Mortgage Solutions

April 6, 2008

Upside Down Mortgage:Getting Your Bank to Work with You

Listen in on a Interview I did on Loan Modifications and the

Fannie Mae and Freddie Mac Streamline Loan Modification Program


See my New Post

Refinancing Upside Down Mortgage

“Refinancing SECRETS for an Upside Down Home Loan that Banks Don’t Want You To Know because it will Cost them THOUSANDS of Dollars!”

Follow the Link here “Refi Secrets for Upside Down Loans!” 

It is estimated that 1 in 10 homeowners with mortgages are upside down in their homes, as of March, 2008.

As alarming as that is, the projection is that as home values continue to plummet, 1 in 3 home owners will be upside down by the end of this year, 2008. Let me just take a moment to explain exactly what I mean when I say upside down. It means that you owe more than your home is worth. Another term for this situation is “underwater.”

A good example would be a friend of mine who has a house he built in Tampa, Florida, and has just moved into it from Long Island, NY. He owes $295,000 on it and the builder is now selling similar houses for $185,000. My friend is seriously underwater.

Not only that, his mortgage will adjust in a year to a number that will probably push him into foreclosure. He no longer wants the house. What he doesn’t know, is that neither does the bank! They do not want a house that is worth less than the financing on it sitting on their books.

Loss Mitigation can be his solution.

This is the process of mitigating or lessening the losses associated with assets, in this case homes.

It is a department in a bank and it is also the process of negotiating a solution that will mitigate losses for both the bank and the homeowner, typically allowing him to stay in the house so that it does not drag down the bank’s balance sheet.

Could my friend negotiate his own loss mitigation deal? Yes, he could also remove his own appendix, but the outcome in both cases would probably be disaster. Were he to call the bank, he would be ill prepared for what he will likely encounter.

First, he will have difficulty finding the right person to help him.

Second, if he eventually stumbled upon the loss mitigation department, they would probably not talk to him because he is not delinquent or in foreclosure and he would not get anywhere.

His best chance is to be represented by a loss mitigation professional negotiator.

This is someone, usually a former banking insider or mortgage broker, who is now working on the other side of the desk, helping those who are in trouble with their loans. He will know where the bodies are buried in the bank and will be familiar in many cases with the specific personnel in the bank’s loss mit department.

If the homeowner can show that his DTI, Debt to Income ratio, is under 50% now, and he has proved that he can make his present payments but would go to a 60% or higher DTI upon the reset of the loan; the loss mitigator is in a good position to negotiate a loan modification that would recast the loan without the scheduled increase.

Although the homeowner’s DTI is simply calculated by dividing his income by his total monthly debt load, the homeowner may include or exclude items or report them in a manner that will quickly get his proposal shot down by the bank.

Say he is paid weekly, bringing home $1,000/wk. He puts his monthly income down as $4,000/Mo.

In reality, there are 4.3 weeks in a month, so he is short changing himself by $300/mo. Not a big deal?

What about something as simple as reporting the cost of food for a family of four, for instance? The homeowner may report their actual figure of say, $800 month. He has no way of knowing that the bank is satisfied with a pro forma, $100/person/month figure for food. So now, he has short changed his income by $300/mo and overstated his expenses by $400/mo. Such a net swing of $700 month could easily push his DTI into the rejection zone.

The loss mitigator, on the other hand speaks the bank’s language, knows and understands their criteria and procedures, allowing him to help the homeowner tailor his situation to satisfactorily meet them.

The alternative to the bank is not a positive one.

The homeowner stops paying. They bring a foreclosure. The house does not sell at auction so they have to continue it on their books as a non performing asset which is a black mark on their finances.

It has been observed that the total cost to the bank to take a house back, in terms of lost interest payments, legal fees, administrative fees, maintenance, repairs, taxes, insurance, broker fees, etc; including the loss on the house when it is eventually dumped on the market at a fire sale price, could easily total $50,000 or more!

It just makes more dollars and sense to have the homeowner in the house, making payments he can afford while keeping a non performing loan off their books. That is the outcome of a successful loss mitigation.



Copyright 2008 Bill Young
Bill is the Director of a nationwide loss mitigation network. If you are a real estate professional looking to augment or replace your regular income, the loss mitigation industry could be your answer. More information Click here: http://Loss-Mitigation.Info or call Bill at 646-961-3818



  1. read this now…

    Buyers need to understand they are under contract with a SELLER, not with a LENDER. If, for any reason, a lender cannot close a loan on the closing date, there are NO CONSEQUENCES to the lender, but the consequences to the buyer can be tremendous. Too …

    Trackback by read this now — April 8, 2008 @ 2:03 am | Reply

  2. The Mortgage Forgiveness Debt Relief Act of 2007 removed the last incentive for borrowers to remain in “their” homes. This law must be rescinded and replaced with the Patriotic Mortgage Repayment Act of 2008.
    The Patriotic Mortgage Repayment Act of 2008 – If a borrower defaults on a mortgage and the market value of the collateral is insufficient to repay the money borrowed, the Treasury will recover 105% of the residual borrowed, but unpaid amount using IRS collection methods and interest schedules. Such a law would prevent the general population from bailing out the speculators that purchased more house than they could reasonably afford. These wannabee flippers took grandma’s money out of the bank, now the bank has collapsed the the FDIC is having to pay off Grandmas. The least these deadbeats should do is repay 100% of grandmas’ money to the treasury plus 5% as a handling fee.
    It should be trivial for the borrower to meet his obligation. After the foreclosure sale recovers 60% of the original loan, the payments on the remaining 40% loss should be well within the budget of even the biggest speculative wannabe flipper real estate genius that bought at the top of the market using grandma’s money.
    Buying on margin with no downside risk must be removed to prevent the debacle from bubbling and bursting again. House prices should be marked to market quarterly. If a mortgage borrower’s equity is ever insufficient to cover the gap between value and principle the creditor should demand immediate additional funds or immediately foreclose before the squatter further destroys the value of the property.
    McCain has flipped from his personal responsibility stance to “As president of the United States … I would order the secretary of the treasury to immediately buy up the bad home loan mortgages in America and renegotiate at the new value of those homes — at the diminished value of those homes and let people be able to make those — be able to make those payments and stay in their homes.”
    Obama the topper will soon reveal an even more outrageous save the home “owners” bailout principle reduction plan.
    These statements will serve to immediately increase the default rate.
    1. Get behind on your mortgage.
    2. Drain your bank account by paying extra on your Escalade.
    3. Wait for Washington to change your mortgage payment like magic.
    4. Cha Ching mo money fo big screen, big rims and gold teeth.

    Comment by Foreseer of unintended consequences — October 15, 2008 @ 3:10 pm | Reply

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  4. […] Brent Lane writes that his friend owes $295,000 on a condo that might be worth less than $190,000.  And “Mike […]

    Pingback by Household Money Tree » Blog Archive » Upside-down mortgage? — February 8, 2009 @ 7:45 pm | Reply

  5. My mortgage is $450,000 (1st & 2nd). Current price is $260,000. Loan servicer (Virtual Bank)denied a loan workout. I have a medical and finacial hardship. I decided to stop paying the mortgage. I don’t know what else I can do.

    Comment by Omar — February 14, 2009 @ 7:41 am | Reply

  6. Just before the bubble popped in FL I was left with a decision to move out of my current home or buy it when the lease was up. I could not really afford to move as all the housing was too expensive in the area & sacficing my income by giving up my job would have resulted in no retirement plan / medical insurance. The house I purchased I was able to get a slight break on and closed at 168,000. No more than 2 years down the road the house is worth 88-92,000. The payments have required me to spend just about all my savings & inquire help from family members to continuely make the payment. I have gotten behind & caught back up several times now avoiding foreclosure at all cost. I cannot seem to find anything to help me. All these bailouts tend to benefit those that are not using all means to make their payments & walking away. I could buy the house across the street for sale which is the same size and knock off 400 a month in payments giving me back a life that is just not all stress. Anyone one the proper resource to contact. Laywer? Real estate attorney? I do not know if I can make it like this forever. Please if anyone knows E-mail me some support.

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