Lewis and Patricia Gonzales despaired of ever refinancing their adjustable-rate mortgage before its payments became unmanageable.
“We tried eight or nine lenders and they said yes at first,” Lewis Gonzales said.
None of them refinanced the couple because they owed $237,000 on a Westminster home that was being appraised for under $220,000.
But Jim Smith, a loan officer at American Guaranty Mortgage in Greenwood Village, last fall refinanced the couple into a 30-year fixed-rate mortgage at 6.5 percent through the Federal Housing Administration.
That was much more manageable than the 10.8 percent rate the family faced once the first mortgage adjusted.
“Any FHA lender can do this,” Smith said. “But it has to be packaged, presented and explained properly.”
Half or more of the homes in Thornton, Northglenn, Federal Heights, Brighton, old Westminster and parts of Aurora now are worth less than the mortgages backing them, according to an analysis from .
Negative equity can block a refinancing, especially for borrowers like the Gonzales, holding an adjustable-rate first mortgage for 80 percent of the purchase price and a second mortgage covering the 20 percent down payment.
FHA rejects second mortgages on new loans it originates, but it will underwrite refinances that retain existing second mortgages.
The refinances must follow the rules laid out in a U.S. Department of Housing and Urban Development mortgagee letter written Oct. 31, 2005.
The new FHA mortgage must be for 95 percent or less of the current appraised value of the home. Among requirements for borrowers: They must be current on their payments for the past year and have enough income to cover payments on both mortgages. The most difficult part of getting the loans done is convincing the second mortgage holder to “subordinate,” or accept a second lien position, Smith said.
Some lenders agree because they realize the alternative is likely a foreclosure that will leave them with a total loss, Smith said.
He said he has made more than 100 of what he calls “home-saver” loans.
Gonzales said he has learned a painful lesson, one that will keep him away from adjustable-rate and interest-only loans.
“It makes your payment lower at first, but in the long run it catches up to you,” he said.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
