Short Refinances

You can tell that trouble is brewing in the housing market because people have started resorting to unconventional methods in order to obtain and keep home mortgage loans.  For example, it is so difficult to qualify for a home mortgage loan, given the astronomical interest rates, that assumable mortgages are experiencing a resurgence in popularity.  A scary specter from the days of the 2008 housing market crisis is even visible on the horizon, namely the zero down payment mortgage, which is so risky that, until recently, lenders were not even willing to consider it as an option.  In another instance of desperate times calling for desperate measures, there has recently been an increased demand for short refinances, where the lender discounts part of the mortgage loan balance so that the borrower can avoid a default.  To find out more about short refinances and other ways to avoid defaulting on your mortgage, contact a Washington, D.C. real estate lawyer.

How Do Short Refinances Work?

A mortgage refinance is where a borrower takes out a new mortgage loan on a real estate property that the borrower already owns.  The borrower uses the loan money to pay off the old mortgage and then repays the new mortgage to the lender in installments.  Mortgage refinances account for about a quarter of all mortgage loans originating in 2023.  Borrowers choose to refinance either because it will enable them to pay less interest overall or because they want to lower their monthly payments by extending the term of the loan or accounting for the home equity they have built up while making payments on the first mortgage.

With a short refinance, the borrower is usually already underwater on the mortgage, which means that the payoff amount exceeds the appraised value of the house.  The lender agrees to refinance the mortgage for a lesser amount, usually even less than the appraised value of the property.  This means that the lender loses money, but from the lender’s perspective, it is the lesser of two evils, because the lender would lose even more money if the borrower defaulted on the mortgage.  The lender would have to pursue foreclosure proceedings, and even if the borrower agreed to surrender the property without going through the foreclosure process, the lender would incur expenses in the process of reselling the property and leaving it unoccupied until it resold.

Unfortunately, demand for short refinances exceeds supply.  They have not been prevalent since the Obama administration when, in order to avoid a repeat of the 2008 housing crisis, the FHA offered short refinances where borrowers could trade in conventional mortgages for FHA mortgages for a lower amount, but unfortunately, that program ended in 2016.  Short refinances are starting to make a comeback, though.

Contact Tobin O’Connor Ewing About Short Mortgage Refinances

A Washington, D.C. real estate attorney can help you find a way to refinance or renegotiate your home mortgage if your mortgage is underwater.  Contact Tobin, O’Connor, and Ewing in Washington, D.C. or call 202-362-5900.

Source:

finance.yahoo.com/personal-finance/short-refinance-171610742.html