Getting a Mortgage Cramdown to Save Your Home

Posted by  on Apr 21, 2009

Mortgage cramdowns aren't just another recent symptom of bad economic times. In fact, historians can trace the buzzword back to documents penned in the late 1600s. Forcing your creditor to accept new terms and conditions on a mortgage or on other large debts is never easy. However, financial experts warn that cramdowns and other mortgage modifications may be the only way for some Americans to remain in their homes.

By definition, a cramdown happens when a bankruptcy judge modifies a home loan. However, most home loan modifications result from collaboration between borrowers and lenders who want to refinance a loan before it becomes "toxic." While most mortgage companies have been reluctant to offer modifications to customers, a growing number of lenders now admit that marking down home values for emergency refinance loans may be the only way to remain solvent.

How to Modify Your Mortgage Outside of Bankruptcy
Many financial experts advise clients to seek help early instead of waiting for a bankruptcy court to decide their fate. The best mortgage lenders have already implemented routine mortgage modification programs that benefit from federal support. To qualify, you should:

  • Assess the potential selling price of your home to ensure that your remaining mortgage is less than 105% of your property value.
  • Use a mortgage calculator to review the potential monthly payments on a thirty-year, fixed rate loan.
  • Contact your lender as soon as possible, since the modification process may take time and mortgage rates may likely go up during your application period.

Preparing for Your New Mortgage Payment
Modifying your mortgage is just the first step in holding on to your home during tough times. For many borrowers, cramdowns and voluntary modifications often mean slightly higher monthly housing payments. Even though today's best mortgage rates will help you save money over the long run, coping with a higher payment may force you to make tough choices:

  • Prioritize your mortgage payment and utility expenses over all other monthly bills. Credit card companies may call you, but are unable to seize your home.
  • Review your weekly spending for fast food and groceries, since many households can cut as much as 50% in wasteful purchases.
  • Adjust your entertainment spending, cutting out cable television or trips to the movies if necessary.

Partnering with your mortgage lender, your family, and your community during today's housing crisis can keep you in your home. This way, you can build a strong foundation that will help you thrive during future boom times.


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