Orange County Register

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

StillWondering in Placentia asks:
Q. Do you think it is better to refinance (we’ve been approved) to combine an existing 30-year-fixed 1st and a fixed home equity line of credit (HELOC) with a 20-year term into a new single loan (also a 30-year fixed) and thereby save about $6,000 a year in payments? In order to do so, we are being told we’ll have to reduce the limit of that HELOC (to comply with an 80% loan-to-value) because obviously our house’s value is down compared to what it was when the HELOC was originated. Doing so will then impact (eliminate or reduce) our ability to draw future cash. We can handle the current payments without a problem. We just want to be prudent and not pay more than we have to and still keep an eye on the future.

A. What you have found is that lenders offering home equity lines of credit have finally become risk averse. This is not surprising because those lenders did a lot of loans over 80% of the value of the property and those loans have pretty well been wiped out. Big, big losses for lenders.

Consequently, most if not all, HELOC lenders are reducing their risk. Sometimes they just send a borrower a notice telling them, “Your maximum limit has been reduced to XX.” Often, that amount is the existing outstanding balance on the loan.

In other cases, as yours may be, the lender might feel safe with your current balance that might be at 90% LTV. But given the refinance, another set of rules probably kicks in and they want to take the opportunity to reduce risk even further, like by keeping the limit at 80%.

I do not know of any HELOC lenders offering loans over 80% LTV so you will have to build your cushion the old fashioned way, saving money. You can start out by sticking the $6,000 savings into a savings account.

Kelli in Chicago asks:
Q. My husband and I bought a house on Chicago’s North Shore in 2004. We put down 27% and currently have a 5-year jumbo ARM that will reset in 2012. Payments were not a problem until six months ago when my husband was laid off. He has had to take a job at less than half his old salary until the economy improves. We have spoken to two realtors who both say we would be lucky to get the price of the mortgage in today’s market. We can’t afford to pay brokers’ fees and taxes of about $100,000 to get out.

We stopped making payments this month. We would like to modify our loan but our mortgage company went out of business in April and we don’t have a new servicer yet. I know we need to hire a good lawyer to head up the negotiations. My first question to you is, does it matter where the lawyer is based (locally, in the same state as the lender, servicer, etc)? Also, we would like your advice on what strategy to take with the lender. I know there are lots of extenuating circumstances. In a nutshell, we are very good credit risks (high FICO) who got very unlucky and made some costly mistakes. We have no other debt — no car payments, credit cards or loans. But we need our payments to be cut in half if we are to stay here (which we want to do for our kids mostly).

A. Stories like this make me very sad, not just for the damage caused to families like yours, but for the additional damage caused up and down the block as, if, and when your home might go through foreclosure. It also bothers me that our industry has such a terrible record of making meaningful loan modifications. That said, the government has just announced a new initiative. They have made agreements with the largest loan servicers in the nation to begin a serious effort at modifying loans. I hope yours is among them.

When you find out who the new loan servicer is, be sure to stay in close touch with them and see if you can work something out. Certainly your situation would be more attractive to a modification than many others. Note that because there are likely hundreds of thousands of people in your situation all calling their lenders, you will need to be very persistent with them so you get toward the front of the line.

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question.

Johnson will answer up to three questions each week, so keep checking back for a response. If many questions are submitted, it could take a while to get a response, or he may never get to it. Also, readers keep submitting variations on the same question, which has already been answered: what to do when you can no longer afford your mortgage. I have decided not to publish most of those questions, because they are repetitive, although I appreciate the difficult situation many homeowners are in these days.

Read prior questions and answers by clicking on the headlines below…

• Is ‘walking away’ from a home justified?
• Real estate investors get no sympathy
• The case for buying a home now
• Bigger home loans coming to O.C.
• A complicated mortgage that could fund retirement
• Loan doors open for serial housing investors
• Forget dodging refinance fees
• No job, no refinancing
• Avoiding a rate hit on an investment property
• Who qualifies for Obama’s mortgage refinance plan?
• Paying off a mortgage vs. refinancing
• Mortgage problems of the wealthy
• The skinny on 40-year mortgages
• Refinancing questions and answers
• How to buy with little money down
• Do banks renegotiate mortgages for ‘good’ borrowers?
• Is it time to buy a rental property?
• Caution urged on mortgages that fund retirement
• Refinancing can be tricky if your home was recently for sale
• Shopping for lowest rate is dumb way to get a mortgage
• Speedy mortgage payoffs could cost you
• Paying your mortgage may be the best use of your money
• A ‘good’ borrower these days is someone who…
• When insurers kill your mortgage application
• Mortgage insurance companies not giving breaks

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