So the Feds Are Bailing Out the Banks

[rolanni]

As you know, Bob, the Federal Government is working like a lunatic thing to shore up the mortgage industry. You may have asked yourself, as I have, where they're coming up with the money in these lean times, having already spent every dime in the treasury.

Well.

Let me tell you a story.

Eighteen years ago, Steve and I "bought a house" as the saying goes. What we actually did, of course, was Acquire a Mortgage. Because we live 'way out in the country, we got ours with what was then called the Rural Housing Service of the federal government.

This mortgage has many idiosyncracies, as you might expect from a government program. For instance, payments are tied directly to income-before-expenses, reviewed annually. Every year, I get to educate a new "counselor" on the realities of freelance incomes. Also, because of the income-before-expenses side of things, it's a little hard to, how shall I say this, save money. But, hey, it's our mortgage, and no one else was stoopid enough to take on a couple of freelancers, so we love it for the ugly child it is.

Yesterday, we got a letter in the mail from Rural Housing, which now sports some highfalutin alphabetsoup name. We have...

...wait for it...

We have...

90 days (from the date of the letter) to refinance our house

Yes! On top of everydamnotherthing we have to do before June 1, now we have to figure out how to refinance an elderly raised ranch located in the heart of Central Maine in the middle of a housing slump.

Because, yanno, the government needs money. NOW.


...if you want me for any little thing, I'll be hiding under the bed.

Comments

[jhetley.livejournal.com]

Well, you can put up your next four books as collateral...

(Even if the bank _does_ understand publishing, that might look attractive compared to an elderly raised ranch etc.)(I sure wouldn't want to try to finance this pile of dry rot and lead paint and knob-and-tube wiring.)

[jelazakazone.livejournal.com]

Is this true? I mean, is it legal? They can force you to refinance? Is it at all possible this could work in your favor? I'm so confused.

[adamek.livejournal.com]

Ouch. I strongly suggest a credit union rather than a bank. A bank's motivation is to make a profit from you. A credit union just wants to provide services and stay in business. How much equity do you have in your house? It might be more feasible to sell it & move into something smaller. My dad's a real estate agent north of you. (Roger Ek, Northern Maine Land Man).

[kalimeg.livejournal.com]

Oh good idea -- the place you work should have one -- like "School Employees Credit Union" that I used when I worked at KU.

[magda-vogelsang.livejournal.com]

I'm afraid all I can really say is "Ouch!" and "Good luck!", and that you have my sympathy.

[(Anonymous)]

Can we help? Perhaps not with money, but with ideas?

Did you have a 502 direct loan or a 502 guarantee? (I'd expect a direct, based on what you said about the payment structure). Did they say *why* they wanted you to refinance? (IE, the day job makes your income too high, or your area is no longer "rural" enough, or something).

If it's a matter of you no longer qualifying based on income, you might be able to get help from the state of Maine's housing program (see: http://www.mainehousing.org/Index.aspx ).

If it's that you're no longer "rural" enough for USDA, you might be able to get help from HUD (Housing and Urban Development).

Another resource is the Home Ownership Preservation Foundation, at http://www.995hope.org/ . Although they normally focus on people facing foreclosure, they may at least be able to redirect you if they can't help -- and they are free.

What did the RHS/USDA say would happen if you did not refinance by the end of 90 days?

--Susan

[rolanni.livejournal.com]

Did they say *why* they wanted you to refinance?

The dayjob kicked us over the income limit, not that the dayjob is all that lucrative, but in addition to other incomes last year (see "freelance income, realities of" above)we went over the top.

What did the RHS/USDA say would happen if you did not refinance by the end of 90 days?

I think they send us to Iraq. OK, not funny. I'm not sure there was an "or"in the letter -- which is home, while I am...not at home. Lots of "musts" though, including needing to provide a certain number of rejection letters from other lenders to prove that we tried.

[(Anonymous)]

My experience with this is somewhat out of date (I no longer have family living in rural Maine) but I think that this is a try-on based only on the change in your income.

*IF* I am right -- and that's a big if -- you must make a good faith effort to find new financing. (This is why they want to see the rejection letters. And the letters can't be rejections for, say, lack of documentation).

If you truly can't find other financing you may be able to keep the RHS/USDA loan, but expect this cycle to repeat every year.

I'd suggest making a copy of the letter and keeping it with you. Make copies of your tax forms, too. Check with local banks so you can start collecting those rejection letters, and I would also check with the Maine Housing folks for advice.

If the dayjob has a credit union, see if you can get anything through them. You may not have been there long enough.

Also, many day jobs have some kind of employee assistance program -- called many different things. Sometimes these are run in-house, sometimes they are outsourced and it's an 800 number you call for advice. Depending on the program, it may provide some hours of free legal assistance. Check with whatever your day job calls "personnel" or "human resources".


If you make the effort and can't get a loan, and RHS still won't let you keep their loan, you may be able to appeal. This site ( http://www.ruralhome.org/pubs/guides/appealing/appealing.htm
) has some info on the appeals process, although they are somewhat more focused on people developing low income housing than the individual owner.

You might also want to consider using the resource of your federal congresscritter or senator -- whichever one you find most tolerable. However, doing as much as you can on your own first is generally a good idea. Then the congresscritter is helping a constitutent who is following the rules but being bullied by the big, bad federal agency....they like that better.

As I said, if I'm right about the trigger for this, then even scraping past it this year might only be buying you time. If the dayjob alone would not be enough to trigger a problem, you may need to look at restructuring your finances long term. (For instance do Saltation donations count toward that income-before-expenses, with the eventual cost of printing the books not considered at all?) But for that you would need specialized legal/accountant advice.

And perhaps, perhaps there will be an unexpected good outcome of this. You may have enough equity in the house that you could refinance with a new long term loan and end up with more predictable payments. A lot will depend on your age, how many years you are planning to work at the dayjob, what kind of income you would have in "retirement", etc. Ask around at work for people's suggestions on the best local loan person, then go to them and see what kind of loan they could offer.

Please keep all your readers updated and let us know how we can help.

--Susan

[sethb.livejournal.com]

So what they really said is you have to either refinance or prove you can't because a bunch of banks won't let you? Unless you have a real sweetheart rate now, that shouldn't be too much of a problem (albeit an annoying amount of hassle).

[6-penny.livejournal.com]

I bet that they haven't adjusted that income limit for inflation since Noah was in diapers!
Condolences and I wish I could help.

[mbarker.livejournal.com]

Might be a good topic of conversation for the literary tea at the governor's house that Steve's going to? Or did he already do that? Seems as if the governor might be interested in how the authors in Maine are being evicted from their homes . . .

[sartorias.livejournal.com]

Oh lord.

I wonder if this means Halliburton is about to take over the mortgage industry, along with everything else in the world.

[sleary.livejournal.com]

Great googly moogly.

[sambear.livejournal.com]

OK, that's completely ebil. I hate this kind of thing!

[lornastutz.livejournal.com]

ok rich get richer while middle class (gads I hate "class" terms) disapears....what's the government gonna do when they so overburden us that their revenue base also disappears?
Will we go to work and the government then gives us an allowance?

[malkingrey.livejournal.com]

God, that sucks.

(And I am ever-so-grateful that back when Himself's mother died and her three kids split the proceeds from selling the family home in Westchester NY between them, that we promptly turned around and used it to pay off our own mortgage. Because I wouldn't put it past the current government to start screwing around with VA loans as well. God knows, they've done everything else they can think of to screw over the soldiers they're getting killed.)

[serge-lj.livejournal.com]

Saying that I'm sorry about your situation won't change the situation, but I truly am.

[moon-happy.livejournal.com]

:~( I wish I knew how to help make this turn out okay.

[elbales]

Uggghhh. How stupidly unfair.

May it go smoothly.

[zola.livejournal.com]

You have several advantages here that may be a big help. I am undoubtedly telling you some stuff you already know, but better too much information than not enough. We bought our very first house two years ago, so my info is quite up-to-date and hopefully it will save you some time. :)

You've told us you have lived in the same house for 18 years. That means you have a certain amount of equity in it, even if the current value is less than what you paid for it, itmeans that you are known to your general community, and it also means you have a payment history.

These are very big advantages! This kind of solid history can be what tips the scale for a loan approval.

The very first thing to do is to gather your documentation, which shouldn't be too terrible since it's tax-filing time. I would go to your regular bank to start. Just go in--you don't need to make an appointment, generally, you can speak to one of your customer service people, show them the letter from your current mortgage holder and ask them what you need.

Make copies of every form you fill out. If your loan is turned down by your current bank, you will have to apply at other banks, so copying the forms means that you only have to think about it once--you can just copy the information from one form to the next without having to invest a great deal of mental effort. ;)

Unless you are missing information, they usually won't mess around with giving a yes or no, so make sure to write down what documents they are asking for. If your regular bank turns you down, then try some of your smaller local banks next.

While the types of loans out there can be headache-inducing, do bear in mind that a limited ARM (Adjustable Rate Mortgage) isn't a bad thing--if a regular bank offers you an ARM that is capped, that gives more flexibilty in what is required of you to qualify.

The key word you are looking for is "capped" or "limited"--that's language that says "the interest rate isn't going to go up by more than "X" a year, and it will not go up by more than "X" amount over the life of the loan.

Since you've already been paying for 18 years, you can also probably also get a shorter term mortgage, say one for fifteen years or twenty, and that also opens up more options.

I don't think you are going to have much of a problem. 18 years ago, houses weren't all THAT expensive, at least compared to now, so I would be very surprised if you are going to need a loan of more than 20k to 30k. In this day and age, that's not a huge amount of money.

The biggest thing is not to give in to the temptation to cash in any equity unless there's a real need--like if you have a couple of credit cards to pay off and you want to get a little more money to pay them in full, that's fine, just CUT UP THE CARDS if you do. Or if you know you need to fix the roof or whatever it is.

As far as having no savings go... I had a boss who used to say "Money to money and none to the dummy".

What he taught me, that I finally started using when I hit my thirties, is that you can ALWAYS save. It doesn't have to be a lot, either--even five bucks a week makes a difference.

Pay yourself first. Decide on an amount for every source of income. Like 10 a week from the job, 20 bucks every time you transfer your PayPal money, 1% out of every royalty check you get and so forth. Just put it in your savings account like you were paying a bill that was due and forget about it.

You would be amazed at how quickly you build up a solid reserve. Seriously. I whined on Steve's blog about having to replace the transmission on our van, quickly followed by two more major repairs, but you know, I had the cash to pay for it, I didn't have to put it on a credit card or cut back on normal expenditures to do it--and all because I just keep socking away that small amount of money.

Naturally, I've upped my regular savings rate to repay it, but you know, it's a lot nicer to be paying myself back for free rather than paying some usurious interest rate to a credit card company.

I wish you the best of luck, and one silver lining to all this?

Once you get your mortgage, you will no longer have to spend the time every year explaining the nature of freelance income to a counselor. :)

[groblek.livejournal.com]

Yipe! Good luck!

[kk1raven.livejournal.com]

I don't have anything useful to say about this, but I do wish you good luck in getting it resolved.