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Can't refinance: property value went down

Thu Dec 20, 2007 10:12AM | By Tony

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Q: We have a big problem with our adjustable rate mortgage. We bought this house 3 years ago and paid $160,000 with 10% down payment, getting a 3 year interest only ARM from a mortgage professional who explained every little thing about how this loan would work, even pointing out that our purchase price was a bit high in his opinion. We got 6.75% interest rate with no mortgage insurance. Now after making interest-only payments for 31 months, and facing possible 2% hike in interest, we have tried to refinance with 4 lenders/mortgage companies, but were denied. The same reason was cited by all 4 - the value of the our house is only $140,000, may be $142,000. That is bad enough, and we are quite upset. But even more upsetting is that we are looking at $240 increase in monthly payments. We simply can't afford that hike.

A: Sounds rather depressing, check the latest developments with the government relief programs, but I doubt they will work in your case. You didn't mention the lender but sounds to me that is not a sub prime loan. Call your lender and explain the situation. State that you would walk away from the house unless they send you a letter, promising to keep the interest at 6.75% or convert it to a fix rate. They may counteroffer you with say, 7.5% which is not too bad. They don't need another foreclosure. Emphasize that with the current market value you have nothing to lose, and will rent. See if your lender has what is popular now - a distress homeowner support or assist center. Be polite but straight to the point. With large amount of unsold homes which the banks are ending up today, they may simply agree. If they don't, you have little choice, I am afraid.

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