Tagged with " ARM"
1 Nov
Posted in: My Ongoing Story
By    Comments Off on A Loan Deferred

A Loan Deferred

Losing the ARM

In 2006, the ARM interest rate was going up, up, up, and after several months of waiting it out in hopes of an interest decrease, (and calling my own and other mortgage companies every couple of weeks about possible solutions), I started to consider taking a high fixed rate mortgage. There wasn’t much else to do, it was either get it fixed at a high rate, or watch it continue to go up past 10% in the ARM.

US Bank

US Bank was ready and willing to solve my problems. While the lowest interest rate they could offer me was 8.49%, they boasted that as long as I continued to keep my 2nd mortgage with US Bank, that I could refinance at any time with no closing costs. I asked what the catch was, and they said “No catch. Refinance with US Bank at any time with no closing costs.”

Me: “So when the interest rate drops to 6%, I can walk in to US Bank, and refinance at that rate, no closing costs?”

US Bank: “Yes”

If I prepay the whole loan, or move to another lender, I have to pay a penalty of 1% of the original loan amount with a minimum of $250 and a maximum of $500. But why would I ever want to move my loan to another lender if I could refinance any time with no closing costs? So I refinanced at 8.49%, a 15-year loan for $564/month. The intention was to refinance as soon as rates dropped; they couldn’t stay that high forever.

New total monthly mortgage: $1800
Initial monthly mortgage: $1150

I’ve been paying this $1800 monthly mortgage for 5 years now, and have never missed a payment.

When interest rates finally came down a couple of years ago, I visited US Bank for a refi, confident that I was finally going to get my mortgage back under control. However, now refinance was not an option because I had no equity, due to the crash. My house was worth much less than what I bought it for. Possibly even $40,000 less, give or take $20,000 dependent on the Zillow estimate or various bankers I spoke with.

I realize that this makes perfect sense to a financial institution. Who is going to refinance a loan that does not have sufficient collateral?

I’d like to offer another perspective on this issue.

Do As I Say, Not As I Do

I bought my house for $0 down. I had no collateral and no co-signer, and the banks were more than happy to lend me money when the bubble was getting bigger and thinner. I was a loan risk, but I didn’t know it back then. They encouraged me to dive in and I did. It was my first house and I’d never taken out a loan before. 6 years later, I am making 1/3rd more income than when I bought the house and worked at an ad agency. I’ve had to make this happen through hard work and long hours, mainly just to pay my minimum mortgage requirement after the refi.

  • My house is worth less.
  • I make 1/3rd more income.
  • I’ve never missed a payment.
  • I never had collateral for the initial loans.
  • I never put any money down for the initial loans.

It’s no more of a risk now then it was when they gave me the loan in the first place.

The burden falls to the people who have these high interest rate loans, even though most of us never had collateral in the first place, but were given loans by the banks nonetheless. I’m happy that I was able to purchase the house, and that I was able to make a life to sustain it as best I can as a result of crash of the housing market (in retrospect, only because I was laid off and worked as hard as I could as a freelancer to make ends meet). My concern is that they gave me a loan with no collateral and $0 down, and now I have no collateral and no equity, just like I did back then, the banks screwed up the housing market, and I still can’t refinance so that I can live sustainably.

If I didn’t have equity then, why is it that I am not allowed to refinance because I still don’t have equity, and they are already the owner of the loan and my home? If I don’t have equity, how is it more of a risk for them to refi? I am already a risk, and a higher one if I can’t sustain the $1800 payments indefinitely. It’s not a risk to them at all to refinance the underwater home that they already own. It’s just not as profitable.

I guess that is what the HARP is for, but I’m still not able to access that program to date.

How Much More Can I Give To Thee, O Bank of America and US Bank?

I’ve invested $121,200 total in payments over the last 6 years for a house that I bought for $200,000 and may or may not be worth at least $50,000 less, give or take $20,000.

It’s possible that I could do this for another 5 years (totaling $242,400 in payments), and still have no equity, or just be starting to build equity. That is the thought that woke me up. As busy as I am trying to work hard enough to bring in the amount I have to bring in to make ends meet, I have to start working harder to understand why my mortgage company and my bank won’t help me out of a situation that they are responsible for in the first place. And if I am going to put all of this work into figuring out this program that is supposed to benefit people just like me, I may as well share the journey so that others can be helped along the way too.

31 Oct
Posted in: My Ongoing Story
By    Comments Off on Welcome to Your New Home

Welcome to Your New Home

A Dream, Not Deferred

In April, 2005, I bought a house. I was a 36-year old, single woman working at a prominent advertising agency in Minneapolis, MN. 1 week after closing on the house, I was laid off, and I did what any former freelance designer would do: I started making phone calls, redeveloping contacts and fought my way back into the freelance market.

The Mortgages

My $600 rent was about to more than double to become a mortgage to accommodate a $206,000 loan (the maximum amount I was able to borrow) for my cute little fixer-upper, single-family 1914 bungalow in St. Paul, MN.

I had two loans totaling $206,000.
Total payment per month: $1386

(Numbers rounded to the nearest dollar.)

1. American Mortgage Network, Inc.
AKA First Equity Mortgage (AKA Fannie Mae)
30-year fixed
$1155 | Monthly Payment

$988 | Principal and Interest
$120 | Property Taxes
$046 | Hazard/Flood Insurance
$000 | MIP/PMI

2. CitiBank | Home Equity Line of Credit
15-year ARM (Adjustable Rate Mortgage)
6.75% | April, 2005
$231 | Monthly Payment
9.25% | December, 2006
$324 | Monthly Payment

The Plan

The mortgage broker’s strategy was simple: start out with these 2 loans to get into the house, and refinance when interest rates drop to get out of the ARM. Seemed simple enough.

The plan was to get me into the house (or any house) quickly. “Buy now, tweak later” was the attitude.