Worried about upcoming loan maturing.

[sherrenee]

I filed chapter 7 bankruptcy in July of last year it was discharged 11/23/2009. We have a first mortgage through Citi and a HELOC through a local bank here. Our first mortgage is a fixed rate. Our HELOC is maturing 10/2011 which from what I understand is a 15 year term with a 5 year amorization. I am extremely nervous about this. We are not able to afford a balloon payment but want to keep our house. I fear our home has lost some value which means we probably have zero to negative equity. Also on our HELOC we have only been paying interest. Any advice about what to do would be helpful.

I am also fearful that if we are able to renew that our payments on our HELOC will double. We are currently at 70,400 making interest only payments and our interest rate is 9.09%. We owe about 103,000 for our first mortgage. Our house was apprasied for 180,000 in October 2006.

[helpmeout]

The first question is: Did you reaffirm either the mortgage or the HELOC?

[StartingOver08]

It is time to stop being afraid. It is easier to make decisions once you have the facts.

First, answer the reaffirmation questions above. Then what is the actual current value of your home as of today? Get a CMA from an experienced Realtor. An appraisal from 2006 has no bearing on current market value.

Post your answers and maybe we can help you with some pointers to formulate your plan.

[sherrenee]

Yes, we did reafirm both mortgages. Arkansas law requires reaffirmation.

Also I am not sure of the current value of our home, in 2006 in was valued at 180k. We live in in Northwest Arkansas which did have a boom on houses however we live in an area that was not hit quite as hard as other places in the region.

[helpmeout]

Yes, we did reafirm both mortgages. Arkansas law requires reaffirmation.

Then you are pretty much stuck with the terms. You may be able to get the second to negotiate with you, but it is doubtful since they know that you can't bankruptcy them anytime soon.

You may be able to get out of it depending on whether or not the time limit to revoke a reaffirmation has passed. If it has, you are stuck. And the second can choose to foreclose. And come after you for any shortfall. I read your history and it also looks like the time to revoke it is gone, as well.

[sherrenee]

We are wanting to keep our house. I am just concerned about what to do when the balloon payment comes around and I obviously don't want to have a huge second mortgage payment.

We should be able to renew the loan since we are set up on a 15 year term with 5 year amortization.

[helpmeout]

We are wanting to keep our house. I am just concerned about what to do when the balloon payment comes around and I obviously don't want to have a huge second mortgage payment.

We should be able to renew the loan since we are set up on a 15 year term with 5 year amortization.

You no longer have a choice in the matter. Since you reaffirmed, you are stuck with the house. You are also stuck with the consequences if you are unable to come up with the balloon payment. Which would be you lose the house and they go after you for the shortfall.

If you want to keep the house, then you are going to have to come up with the balloon payment or hope that the value went down even more so that the second won't want to foreclose. Contact a real estate agent and have an appraisel done on the house. And then go from there.

[sherrenee]

Because borrowers may not have the resources to make the balloon payment at the end of the loan term, a "two-step" mortgage plan may be used with balloon payment mortgages.[1] Under the two-step plan, sometimes referred to as "reset option", the mortgage note "resets" using current market rates and using a fully-amortizing payment schedule.[4] This option is not necessarily automatic, and may only be available if the borrower is still the owner/occupant, has no 30-day late payments in the preceding 12 months, and has no other liens against the property.[1] For balloon payment mortgages without a reset option or where the reset option is not available, the expectation is that either the borrower will have sold the property or refinanced the loan by the end of the loan term



Refinancing
# Home owners can choose to refinance the balloon payment to another type of mortgage when the lump sum payment is called due. The owner can choose any loan product that they are eligible for in a refinance which will typically be one of three loan products: FHA, VA or Conventional loans. There is a credit, income and debt qualification that the home owner would have to meet in order to be considered for any type of refinancing products.

When a owner refinances a balloon payment mortgage there is no equity stipulation as there would be on any other type of refinance. As a matter of fact, the owner has the option of re-amortizing the loan to a 30 year note to keep the payments lower, while continuing to build equity in the property over time. Or the owner can refinance the remainder of the note for 23 or 25 years, keeping the equity built up over the initial term.
Converting
# The home owner can also do a conversion of a balloon payment loan into a conventional loan. The home owner would have to re-qualify for the conventional loan that they wanted to obtain and in many cases would be expected to have a small down payment.

A loan conversion is simply extending the terms of the balloon payment loan while inflating the interest rate to whatever the going conventional market rate might be. This doesn't reset the clock or any terms of the original mortgage, it simply increases the monthly payment, so it is unlike a straight refinance.


We should have this option. We have never been late on the payment, no liens, and are the owner occupant.

[StartingOver08]

You have two liens - the first and second mortgage are each considered a "lien". Most people don't understand that a mortgage is a lien.

Now, if the info you posted above refers to a different kinds of lien, like a tax lien or mechanics lien, then that is a different issue. Check with the lender.