Image source: https://s3.consumersadvocate.org/prd/mongo/image/c_image/58a5d9a9c2d65c604c217f8a/56-percent-of-homeowners.png
They are hard to find but the answer is YES. There is a home loan refinance program that can dramatically reduce the amount a homeowner owes on the balance of their home loan(s) - as long as the homeowner meets a few criteria discussed at the end of this article. This is NOT a loan modification that simply offers a temporary reduction in the interest rate and monthly payment. Using a Note Repurchase Program or Loan Balance Reduction Program, homeowners who find themselves owing more than their home is worth can literally shave up to hundreds of thousands of dollars off their existing loan(s) balance which results in a small instant equity position and a large monthly savings from lower mortgage payments. As if this wasn't enough good news, the homeowners credit score is NOT negatively affected by this program.
Here is how it works. The company that is handling the Loan Balance Reduction, usually a team of lawyers and real estate professionals, will group a portfolio of existing notes of their clients from a particular lender, Bank ABC, and present the bank with an all-cash, take it or leave it, offer to purchase the entire portfolio of notes at a significant discount to current market value. If accepted, and I'll explain why the banks are often willing to do this, the investor then turns around and underwrites a loan back to the original homeowner at 95% of CURRENT APPRAISED value. The homeowner has now repurchased their home for under present market value, saving a bunch of money from a lower mortgage amount AND monthly payment!
Now why would any bank in their right mind take so much less than what is owed to them? The answer is simple. Liquidity. Banks today need cash to lend (this is their business) and are required to have certain cash reserve levels by The Federal Reserve to stay in business. Many major banks are struggling to get Uncle Sam out of their Board Rooms and rid themselves from the shackles known as TARP (Troubled Asset Relief Program). By removing a non-performing asset from their books it frees up cash that the bank can immediately turn around and use in their business activities. Rather than risk the increasing probability of having to foreclose and own these non-performing assets in a year or two, many banks are willing to take the immediate cash infusion.
Who qualifies for this program? In order to take advantage of this program a homeowner (including investment properties 1-4 units) must have a Loan-to-Value ratio of AT LEAST 125%. Meaning the total amount owed for all loans on the property must exceed the present value of the home by 25% or more. Secondly, the homeowner must have an income source and a debt-to-income ratio of 50% or less (based on the new lower mortgage payment!). The process takes approximately 2-3 months to complete and ALL credit quality qualifies, you can even be in the Notice of Default or Trustee Sale (except NV) phase and be able to take advantage of this program.
