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Posted On: 11/21/2012

QUESTION:

We have an 80/20 loan. We’re not behind on payments, just having trouble because my husband lost his job and is disabled. We pay $1,200 a month and have a $132,000 loan balance, but our property is valued at $94,000. The lender says it will not allow a loan modification. What can we do?

ANSWER:

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You bought property with nothing down by using an 80-percent conventional loan and a 20-percent second lien. Because equity in the property has fallen, you are financially upside down – you owe more than the property is worth.

Not every lender participates in the government’s loan modification program; however, you should see what options are available under the Home Affordable Unemployment Program. There is also a $7.6 billion Hardest Hit Housing Markets Fund that may be able to provide assistance. Call an HUD loan counselor at 888-995-4673 for specific information. There is no cost for this service.

Please be aware that you may not have been speaking with your lender, the party that owns your loan. Instead, you are likely speaking with a “servicer,” a company that collects payments for the lender and initiates foreclosures when payments are not made.

Buying real estate with nothing down is attractive, but for most borrowers – and lenders – the better financing choice is to get financing with mortgage insurance from such sources as the FHA, VA or conventional loans with private mortgage insurance.

There are costs to mortgage insurance, but there are also benefits. The FHA and VA both have programs to protect borrowers against foreclosure and to encourage loan modifications, as do private mortgage insurance companies.

The purpose of such programs is to keep borrowers out of default. Why? For insurance plans, fewer defaults equal fewer claims.

When looking at a loan modification, see if you can get an interest-rate reduction, a principal write-down, a longer mortgage term or all three.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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