I sent a client who is early on the path to trouble to his lender to try to do a ‘Help for Homeowners’ loan restructuring. This was the first failed attempt by the government to stem the tide of foreclosures late in last administration.

She would be the latest prospect I had sent to an attorney, an accountant and back to the bank. Her situation is this and generally the same with the other prospects who ran that gamut. She bought when prices were high. She had sold a condominium and put minimal down payment on a house with a conventional loan. When the home price spiked she was sold a negative amortized loan from a friend and pulled cash out. Years passed, the value of the home dropped 50%, and the interest rate reset so that the interest only optional payment is 50% of her take home income.

The attorney told her she is on he hook for the difference should she sell. Having good credit, she saved a nice little nest egg for a young woman in her 30’s and would do fine if she could correct the loan problem. She wants to protect her credit but in order to do so she has to get out of the loan.

Since banks are not refinancing people whose loans are in excess of their home values and they are not giving loans to people who would be paying in excess of 50% of their net take home pay. Every month the negative amortized portion of the loan is added to the loan basis, in other words she is going further underwater. Right now, this woman in on the path to losing the home. It’s not a mater of ‘if’ it’s a matter of ‘when’ unless something changes.

We discussed the ‘Help for Homeowners’ plan. The jist of the program is to help people stay in their homes by restructuring the values to current market prices, with reduced loan basis and fixed rates, but you give as little as 50% of your equity to the bank. Don’t worry about the accuracy of these specifics because the details are as irrelevant as the program. I advised her to give it a try.

She called Indymac Bank and asked about their ‘Help for Homeowners’. Yes, I said Indymac. The bank the federal government owns….THE BANK THE FEDERAL GOVERNMENT OWNS! They told her she had to be 45 day’s late on her mortgage payments in order to qualify.

She called me asking if she should make her tax and mortgage payments. Unfortunately I am licensed and couldn’t tell her what the smart thing to do was.

I am now sending her the specifics of the Obama plan. I’ll keep you posted.