Have your lender fund retirement

September 25th, 2009, 1:00 am · Post a Comment · posted by Mathew Padilla

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…

John in Long Beach writes:
Q. I’m recently retired and find, not surprisingly, that my fixed income from two partial pensions and Social Security covers my expenses but leaves very little in the way of “disposable income.” I have $74,000 remaining on a mortgage with a 6.125% interest rate. My monthly payment (principal, interest and escrow) is $715. The homes in my area sell for around $550,000 to $675,000. My question: Since I accept that I’ll likely never pay off my mortgage, would refinancing help to put me in a better day-to-day cash flow position?

A. This is a guess because I don’t know your numbers but you may have trouble qualifying for much of a loan based on your admittedly reduced income. And the more money you borrow, the higher your monthly outflow. That doesn’t cure much.

You seem to be a candidate for a reverse mortgage. That allows you to convert your equity in a lump sum payment that you can invest or to receive a monthly income for life. Frankly, I think you are penalizing yourself unnecessarily to be sitting on a half-million dollars in equity and not be able to do what you want, like have a little fun.
You can find out more information at website www.reverse.org. Sadly, the site is a little out-of-date and many of the links do not work. But it is a good place to start.

I would warn you about one thing: this is complicated because program costs and benefits vary with your age and other factors. Although government-approved counselors are, theoretically all OK, let’s remember that it IS the government! I would not rely upon that. Your job should be to find a knowledgeable, experienced counselor. Get references when you think you have found the right person and check those references!

WantingtoRefinance in Brea asks:
Q. We currently owe $615,000 on a first mortgage, and $35,000 on a home equity line of credit. The rates are fixed, and our current monthly payment is $4,250 for the first and second, which is an interest-only equity line (although we always make payments beyond that). We never miss a payment, have outstanding credit, and have very steady income. We have been unable to refinance because no one believes our house will appraise for over $780,000 (last drive by estimate was around $725,000). We are trying to take advantage of current interest rates and lower our payment without taking any additional money out of our house and without putting any additional money down. Isn’t there someone out there that would like our business? Would we have a better chance of getting a bank’s or mortgage company’s attention if we were willing to do a 15-year fixed-rate mortgage?

A. First, rather than guessing what your home might appraise for I suggest that you select a lender and have them order your appraisal. That is going to cost you $400 but at least you will know what is possible.

From here on it is tricky. I assume that you have a genuine jumbo mortgage that is not owned by Fannie Mae or Freddie Mac. Second, it is important to know if the HELOC 2nd was done to finance the purchase or whether it was taken out afterwards. If it was used to buy the property, the terms and process will be easier. The rules on this are, literally, 19 pages long.

The good news is that there is a potential that may work for you. Both Fannie Me and Freddie Mac have expanded loan limits in high cost areas like Southern California that might allow you to refinance the 1st even if it were at 90% LTV if the HELOC was used to buy the home. If not, you would need to ask the lender on the HELOC to allow a subordination of their loan to a new 1st. Maybe they won’t. Catch 22. So you have to call that lender and ask their subordination policy.

Bottom line, you are going to have to: (a) be flexible and creative and (b) work with an experienced, competent loan officer. Most of the people at 800 numbers are just “telephone answerers” who do not know what they are doing. So find someone local with whom you can sit across the desk.

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.

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