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Dear Dr. Don,
I have an 80/20 mortgage and the payments are steep. We were told by our previous mortgage company that we could lower the
payment by refinancing in six months and combining the mortgages into one mortgage. We have been in our house for two years
and the home's value has decreased. We are on the verge of defaulting on our second mortgage. Any suggestions?
-- Lani Loanloss
 Dear
Lani,
That "refinance in six months" advice is 18 months old. But if it's any consolation, it probably wasn't good advice when you
first heard it. Being upside down in a car loan is one thing, but being upside down in a mortgage is quite another. You didn't
give me the particulars, but it will be very difficult, if not impossible, to refinance your mortgages when you owe more than
the home's appraised value.
Project Lifeline was announced in
mid-February as a way for homeowners to forestall
foreclosure. The Bankrate feature "A
lifeline for delinquent mortgage borrowers,"
describes the program and names the six participating
lenders. They include Countrywide, Wells Fargo,
CitiMortgage, Chase Home Finance, Washington Mutual
and Bank of America.
Even if your lender isn't participating in Project Lifeline, pick up the phone and talk to your second mortgage
lender. The lender may have its own approach to the situation. Don't wait for events to unfold. Be proactive and make things
happen. Your local housing authority may also be able to offer a financing solution.
Debt Adviser Steve Bucci discusses some of these issues in an earlier column,
"Alternatives to walking away from a mortgage." You may need to look into
either a deed in lieu of foreclosure or a short sale to get out from under the property. A short sale -- where the lender accepts
less than the outstanding loan balance as payment in full for the loan -- is an attractive option if you can make it work with
a first and second mortgage outstanding.
The Bankrate feature "Everyone could
win on home 'short sale'" explains that process in greater detail.
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