The number of homeowners underwater nationwide is estimated to be at least 25%.   That means that 1 in 4 homeowners owe more on their home than it is worth.  Although there have been some success stories regarding loan modifications the vast majority of the tales tend to be "nightmares".  The numbers are no better for Santa Cruz County.  I hear time and time again that after months and months homeowners continue to get the run around with lost paperwork and transferred calls.  The frustration level builds and often ends the owner throwing in the towel.  Even if they do get an offer for a modification, it is often not affordable.  And even if it is affordable, the homeowner does the math and figures out how long it will take to pay off the loan, and how long it will take for the value of the home to come up to the value of the  loan, and often decide it just does not make financial sense.   This leaves the homeowner no option to stay in the home and their options become short sale, bankruptcy or letting the home go into foreclosure.

 

So what is the solution?   Many believe that the only way out of this mess is for lenders to offer "short refinance". A short re-fi would be a loan modification where the lender agrees to reduce the amount owed to them, A.K.A principal reduction.  This means that the homeowner continues to pay the mortgage, but on a loan value that is closer to the actual value of the home.  Recently, Wells Fargo and Alloy Financial (formerly G.M.A.C) have started conducting pilot programs to test out an FHA short Refi program for loan in their portfolio. Other major lenders such as Chase, Bank of America and Citibank said they will not get involved without the participation of Freddie Mac and Fannie Mae. Fannie and Freddie own a huge percentage of the loans serviced by the major banks and will not allow their loans to qualify for Short Refi.

 

At least it is a step in the right direction that Wells and Alloy are trying it out, and Short Refi has become a relevant topic of discussion.   For more info here is an article from the New York Times  http://www.nytimes.com/2011/03/13/realestate/13Mortgages.html?_r=1&ref=realestate