Trying to help sister with mortgage refi...

[HardDrive]

I knew my sister and her husband were badly underwater. I finally got her to reveal the ugly facts.

Took out jumbo, zero down, 40 year (WTF?!?!) mortgage in 2007 at 7%. Took out additional loan to cover balance at 9%. Original price was just north of $600k.

The home is in the Highland Park area of LA. Today they owe about $580k. Zillow says the place is worth about $450k. Payments per month are about $5000! Comps in the area are bad. Real bad. They live up on a hill, but the prices of homes in the flats kill their values....

They don't want to walk away. They have decent income. But those numbers....dear lord.....

Is there any scenario in the universe that would allow them to refinance to a better rate? We could potentially have my parents co-sign the loan. Any hope?

[Dantilla]

I would NEVER ask my parents to co-sign.
It's bad enough to have family members hurting. Expanding the pain is not the right solution.

[Dantilla]

Are they able to keep making the payments, or are they behind?

[red-beard]

This is exactly what HAMP is for, but almost no one qualifies...

[s_morrison57]

The Canadian banking laws prevented this sorta thing from happening and thats why we never had the big recession a couple of Sept's ago that the states went through. If you can't afford it then the Canuck banks won't lend it to you - period.
Sorry to hear about your sis but don't get the parents involved
Finn
"I love Gary Bettman"

[Mark Henry]

Holy poop!

I know you want to help but...
I'd only ask the parents if they can afford to lose that coin.

The big thing with relatives carrying that big of a debt load is that they often lie and it's actually worse.

Slippery slope.

[HardDrive]

Are they able to keep making the payments, or are they behind?

They can make the payments, but it seems insane to do so. I guess the one bright star is that the neighborhood is stable, perhaps even on a slow uptick.

Theyre great artists, but financial maters elude them.

[Hugh R]

I'm 57 and would not want to co-sign an underwater mortgage for my 25 y/o daughter if she had a mortgage. I have too much riding on getting to retirement.

Think about it this way, they could afford it then and apparently they can still make the $5,000/month payment. What they don't like is that its not appreciating like they hoped. LA real estate will come back, especially in nice areas like Highland Park. They should just hunker down and pay it. I know people who lost a lot of value about 20 years ago in LA when Lockheed left, they were underwater for a least a decade and even in today's market they are up.

[stomachmonkey]

Sounds like they need to bring $250,000 to the table to make it happen.

[Dantilla]

Originally Posted by HardDrive

They can make the payments, but it seems insane to do so. I guess the one bright star is that the neighborhood is stable, perhaps even on a slow uptick.

Theyre great artists, but financial maters elude them.

What a tough position. Insane to stay, insane to go. No easy solution. On the bright side, this may be a big "wake-up" lesson on money management.

Putting the same noose around your parent's neck can do no good for the family. If your parents are able to supply enough cash for a huge down payment, a re-fi may be possible. But then is the cash a gift, an interest-free loan, or what does that do to their financial/estate planning? Whatever happens, your parents should NOT take any legal responsibility.

[red-beard]

If they can hang, inflation will fix this in a couple of years.

[nostatic]

About their only hope is short sale and then rent. My g/f is in escrow short selling her house (oddly enough, in Highland Park). She was underwater and had a fairly criminal loan (though not as crazy as your sister's). Her issue was she just didn't make enough money to live close to comfortably. She tried to refi multiple times but since she actually made her payments every month she didn't qualify for any of the programs. She finally decided to short sell and everyone eventually signed off. I think she sold for $249K and owed $375K or something (bought at the peak of the market).

Your sister has a couple of options:

1) stick it out and hope that the value comes back up. Be ready to wait 5-15 years depending.
2) try to short sell. Will likely be stuck renting unless they have a bunch of cash for another down payment. Minimal credit score hit.
3) "strategic default" - walk away. Will be stuck renting and will take a big credit score hit.

[stomachmonkey]

Originally Posted by HardDrive

I knew my sister and her husband were badly underwater. I finally got her to reveal the ugly facts.

Took out jumbo, zero down, 40 year (WTF?!?!) mortgage in 2007 at 7%. Took out additional loan to cover balance at 9%. Original price was just north of $600k.

The home is in the Highland Park area of LA. Today they owe about $580k. Zillow says the place is worth about $450k. Payments per month are about $5000! Comps in the area are bad. Real bad. They live up on a hill, but the prices of homes in the flats kill their values....

They don't want to walk away. They have decent income. But those numbers....dear lord.....

Is there any scenario in the universe that would allow them to refinance to a better rate? We could potentially have my parents co-sign the loan. Any hope?

Sorry your sister and her husband are such morons.

Don't involve the folks or any other family.

It's not like your sister has a right to a loan or anything.

Let her take her lumps.

[look 171]

Originally Posted by HardDrive

I knew my sister and her husband were badly underwater. I finally got her to reveal the ugly facts.

Took out jumbo, zero down, 40 year (WTF?!?!) mortgage in 2007 at 7%. Took out additional loan to cover balance at 9%. Original price was just north of $600k.

The home is in the Highland Park area of LA. Today they owe about $580k. Zillow says the place is worth about $450k. Payments per month are about $5000! Comps in the area are bad. Real bad. They live up on a hill, but the prices of homes in the flats kill their values....

They don't want to walk away. They have decent income. But those numbers....dear lord.....

Is there any scenario in the universe that would allow them to refinance to a better rate? We could potentially have my parents co-sign the loan. Any hope?

That sound like a bit high for Highland park. I live in Mt washingotn, which is right next to HP. I have to get through HP to my house. I have been playing with buying and selling in HP for a bit. If the house is clean and does not need a lot of work, you can still get good money for it. 5-600K does not sound like HP. The flats really does not effect the value up in the hills. She may be in Montecito Heights, or Gavanza. those areas hold their values well pretty well.

Don't walk, try to sell if they can.

[look 171]

Originally Posted by HardDrive

They can make the payments, but it seems insane to do so. I guess the one bright star is that the neighborhood is stable, perhaps even on a slow uptick.

Theyre great artists, but financial maters elude them.

The area is still very strong. I sold a place last year the third day it came on the market. The buyer offer 22k over the asking.

[look 171]

Originally Posted by nostatic

About their only hope is short sale and then rent. My g/f is in escrow short selling her house (oddly enough, in Highland Park). She was underwater and had a fairly criminal loan (though not as crazy as your sister's). Her issue was she just didn't make enough money to live close to comfortably. She tried to refi multiple times but since she actually made her payments every month she didn't qualify for any of the programs. She finally decided to short sell and everyone eventually signed off. I think she sold for $249K and owed $375K or something (bought at the peak of the market).

Your sister has a couple of options:

1) stick it out and hope that the value comes back up. Be ready to wait 5-15 years depending.
2) try to short sell. Will likely be stuck renting unless they have a bunch of cash for another down payment. Minimal credit score hit.
3) "strategic default" - walk away. Will be stuck renting and will take a big credit score hit.

you guys have to tell me these things. I would have love to buy it from her.

HP went way up 5-6 years ago. Nice ones are still in the 300k+ range. Traditionally it was a working class neighborhood. the up swing in the market drove the price up, because there were no affordable housing left. Once the market went south, young working professionals who saved, bought in HP in droves. They still are. There are still hot pockets in LA, but not too many fixed up starter homes on the market. A nice one will come on the market. If you don't make your move, its gone in a couple of days.

[RANDY P]

Unless it's securitized by FNMA or FHLMC (which it probabably isn't) you're dead. Even then, 125%LTV is a push, you probably wouldn't comp that high.

rjp

[wdfifteen]

Originally Posted by HardDrive

The home is in the Highland Park area of LA. Today they owe about $580k. Zillow says the place is worth about $450k. Payments per month are about $5000!

They've got two things going on here, their home, and their investment. As an investment, their situation sucks. But what would they have to pay to rent a similar place? If it was worth $5000 a month to them to live in it before, then shouldn't it be worth that much now? As long as they like the place and they can pay $5000 a month to live there, that's what they should do. Yeah, they're screwed on it as an investment, but do they like living there?

Never get the family involved in a co-sign, especially on a bad financial deal.

[red-beard]

Originally Posted by HardDrive

I knew my sister and her husband were badly underwater. I finally got her to reveal the ugly facts.

Took out jumbo, zero down, 40 year (WTF?!?!) mortgage in 2007 at 7%. Took out additional loan to cover balance at 9%. Original price was just north of $600k.

How bad is their credit? 7% in 2007? I think they are not going to be able to refi.

And someone putting up $250K for them? Bad idea. They need to take their lumps and keep paying, or try to go with a short sale. As I said above, if inflation hits, the effective value of the loan will reduce.

[nostatic]

Depends on where in Highland Park. HP is slowly regentrifying as the artists that used to live in Silverlake and other "hip" areas are moving in as they were priced out of the other places. HP has a fair amount of cool older Craftsman houses that unfortunately ended up as part of the "hood" and saw a fair amount of abuse, along with other crap being tossed up. For those that don't know LA (socal actually, as San Diego is the same way), lots of hills in neighborhoods with canyons and houses tucked everywhere. They are probably on the upslope towards Mt. Washington. Some cool houses there, some crap, and some of the streets are a PITA. I have no doubt the comps even "on the hill" are around $450K. There was a serious correction in that area between '06 and now. It has leveled off but those that bought around '06/'07 are out of luck.

The real question is how much they make, where they work and want to live, and how much rent will be for an "acceptable" place. $5K/mo rent in that area would get you something ridiculously good, and in fact would put you in South Pasadena in a really cool place. In fact I think you'd be hard pressed to find a $5K/mo rent house in HP, and it would be the exception in the neighborhood.