My sister-in-law has come to me for help, and I'm not really knowledgable enough to answer her, given the immediacy of things, but told her I'd do some quick research. I thought while I was doing that I'd throw it out here because there's such a large cross section of people who've been exposed to so much!


Her husband passed away in 2012. I found out just last night that she has basically been living off their savings, his lump sum pension, and some insurance money, and, for all intents and purposes, it's run out. She's in her early fifties.

Due to Covid, she'd been able to put the house into forbearance last January, but has made roughly 6 payments in the last 18 months, so she's about 12 payments behind. That apparently is important because some of the get-out-of-forbearance options only allow you to be 12 months at most behind (???).


She requested some sort of evaluation of options to be taken out of forbearance since she's sort of hitting it's limits (???) and they've offered to restructure the loan by lowering the rate from 5.5% to 2.8%, and to adjust the remaining 17 years back to 30, to lower the monthly payment from about 3300 to about 2100 (including escrow). If I understand it right, the new loan balance is the old loan balance at the time it went into forbearance, plus the accrued interest and some nominal penalties from before it went into forbearance (and these numbers do seem to "add up").

Anyway, the obvious thing is she/they should have refinanced eons ago, but w/o a job or "income" she didn't think she could (I also suspect credit rating may be an issue, certainly recently, since she's apparently stopped paying bills).

Obvious thing #2 is that she should have downsized long ago, and with the the housing market literally on fire the last year or so, should could have pulled out, cashed in, and moved somewhere cheaper and perhaps been solvent enough to actually continue to live like a retiree.

But... her life is where she is. Her kids are in that area (and, to be fair, one has been at home through the pandemic). She wants to remain where she is for the time being.

She's got good skills and previously had a pretty good job. She's decided to return to work and try to recover financially.

To that end, the proposed house payment will be much more manageable (and there's plenty of equity in it for whenever she does decide to downsize or relocate).

She's got enough cash to last "a few months" at the new rate, which gives her time to find a job and start drawing a paycheck. She has a widow friend who is in the process of selling her house, and would like to move in with her and will pay $750 a month.


Anyway...

I hadn't heard from her in quite a while, but she dumped this on me last night and wants to know if it's a "good deal" (i.e. should she do it). Apparently she only has a few more days to process the restructuring paperwork.

In the big picture, I'm thinking a lower rate is good, and from a household budget picture, a lower payment is good. TBH, given her credit history, I'm surprised the rate is actually that low. If she gets a job and receives a little roommate money, it ought to work.

I'm wondering if perhaps there are better options, but, frankly, since her goal is to stay in the house, it doesn't sound too bad to me. In fact, under the circumstances, in terms of not loosing the house, it sounds pretty good.

I just wonder if perhaps it's a competitive thing and she should talk to other lenders, or accept this offer from her current mortgage company. She says the paperwork is full of disclaimers advising them to seek counseling from HUD. It's an FHA loan and that stuff is all regulated, so I figure one lender is as good as another, but I really don't know.


Thoughts? Is anyone out there familiar with the mortgage industry or this process?

Does she have any other payments?
Subscriptions, etc?

Cut everything possible and do a Rummage Sale to get rid of all the extra crap.

She will be selling the house before too long, the victim of poor planning.

If it took her 9 years and the threat of foreclosure for her to realize she might need a job, the problem sounds deeper than just a refinance.

With that big a mortgage payment, I assume the house is both fairly large and nice. She definitely doesn’t need large now, which entails higher taxes and maintenance. She should sell it, and probably score a few hundred thousand, which will give her a year or more to find a good job, instead of a few weeks, and still have some money for retirement. That she doesn’t want to move is not particularly relevant. If past behavior is an indicator, a smaller mortgage payment is not likely to help.

My $0.02. Yeah, hard nosed.

As a single person with a decent-paying professional job, I would not want to shoulder that high of a mortgage payment on my own. I don't think it's a sustainable solution for her to do that. My thinking is that she might consider selling the house, living with her friend until she is employed, and then look into buying a two bedroom condo in her locality, possibly on a 15 year mortgage. A quick consult with an experienced real estate agent might be in order to see if this plan is feasible given her (maybe?) sketchy credit rating.

My mom was also widowed at a young age, and I think one of the biggest mistakes she made was in not downsizing quickly enough to more affordable housing. When she did downsize, she went for a high-end condo, whereas a more affordable condo would have made a lot more sense.

Beyond that, your SIL is *badly* in need of a financial education. She should perhaps look into a personal finance course at her local community college. She also needs to start reading good, solid books on personal finance. When I was young, I started with Syliva Porter's Money Book. Although it's dated, she could probably learn plenty from it, and I'm sure there are lots of updated, good, middle-of-the-road finance books for her to choose from. A simple web search of "best personal finance books" yielded this list:

https://nymag.com/strategist/article/best-personal-finance-books.html

She needs to start socking money into savings and investments ASAP. A no-load blended (stocks and bonds) or target date fund (i.e. "Retirement Target 2035") from Vanguard or T. Rowe Price might work for her.

The truth is, if she doesn't educate herself, she might be facing no retirement or a very limited retirement, and worse, she might become prey to those who would take advantage of her financial ignorance.

My wife used to work at a mortgage/ foreclosure non-profit. She counselled many people in trouble with a mortgage and finances. Sometimes they can get a modification that helps them recover.

I would tell her to look into a service like that. They know the options, laws, etc. and can provide the best options and advice.

Thanks. I think this is essentially what's happening.

Take the deal on the house. In the worse case she can sell the house down the road.

As a widow is she eligible for any early social security benefits?

Is there a pension her husband would have qualified for now if he were alive and would she qualify for any benefits?

Just thoughts.

Also. Many lenders are doing a covid no paperwork and not qualifying reset on the loans so this may be her one and only shot at a refinance.

Thanks for the thoughtful answers, Heartless (funny to say that)!
I didn't ask her about SS survivor benefits.
The loan restructuring ended up being basically what you described.
I think things will be OK.

Some encouragement might be in order. Employers are desperate for help, so she's in a good job market. The housing market is very hot in most parts of the country, so there's that. Insist she not sell unless she's given you all the figures, and not to "We Buy Houses!" folks--they're predatory house flippers.

On the other hand, if she does sell, even at a good high price, her replacement will also be high /sq.ft. She shouldn't do a swap unless she's had a good tax accountant look at her figures, cause she could get hit with a nasty capital gains tax.

(Major, mega-corporations are buying single-families like mad. They're a big part of the bubble. Expect there to be a major increase in rentals over owners in the next 5-20 years.)

Let's say her house is appraised at $500K, and she has $300 paid down, and owes $200. So she looks for a house around $300, which she can buy outright--for cash. She sells her current one for $500, pays off the outstanding $200, and uses the $300 to buy the new one.

But that would take time and be complicated.

Pay careful attention to Heartless' post, just above! She may have a small window of opportunity to exploit this re-fi opportunity, especially if it's low paperwork, no points, and skip-the-credit check and house inspection. That's what they were doing in the early aughts, and I sure took advantage of that!

On the basis of your limited info, Anon4this, I suggest she take her bank's offer and reduce her rate, and take in her friend. It's a bird-in-hand deal. With her situation stable, she can take her time to explore other options, such as the one I outlined above.

She may love her big old home and want to stay there, you know? Or what if she's having trouble with stairs? Lots of factors to consider here.

Edit: Get a house inspector in there to look things over. She's been living there alone for a while, and I'll wager there's a fair number of things that need repair. Figure out what that will entail, and include that in your calculations.



Edited 1 time(s). Last edit at 10/27/2021 02:25AM by caffiend.

You're right, the refi might be a good short-term solution. I still think that's an unsustainable mortgage for most single people for the long term, though.

We're not as objective as we like to think. My point is to acknowledge the emotional issues and try to be honest. Anon4this' SIL has lived there for a long time, and parted from her husband there. She may not be ready to "move on." If that's the case, you run the numbers and tell her, "This is what it will cost you to enjoy the comfort of these walls, this neighborhood, this garden, etc. If that's what, then..."

Down-sizing would probably force her to deal with the excessive furnishings and property she has probably accumulated, and be an opportunity to "encourage" her to cull.

Checking out a seniors' community might be a good idea.

Thanks for the thoughtful answers, caffiend.

Thanks for the responses. I was surprised how negative and critical some where, but I guess I actually set that tone with my own response and shock at the situation.

I spent the evening with her, and her daughter, and even met the lady who'll be moving in.

So, first misunderstanding is that she's not completely broke. As I mentioned, even without any changes, she's got a few more month's worth of "budget," but she also has her own untouched 401k and IRA portfolio that she can start drawing on in a few years, if she wants or needs to, or even now with penalties, but she's smart enough to have realized that she needs to turn things around in the short term.

The house is undoubtedly worth about $650k, but comparables have been selling as high as 750k in this latest boom. Some of that extra may not "stick" after the pandemic, but it's an area that experiences steady price appreciation in general, plus Amazon is moving into the area in a big way (Washington DC suburbs), fueling the housing market even before the pandemic. Anyway, she owes about $350k, so has 300k+ in equity, and, again, has been smart enough not to refinance that to live on, other than skipping these recent payments.

So, as a contingency plan, she can easily pull the plug and walk away with her home equity and retirement plan any time she wants to.

As to her current plan, she has strong IT skills and credentials, and has reentered the workforce once before, after her kids were in school and old enough. Even entry level salaries in the area are about 70k, but she's more likely to land a job nearer 100k, but even at entry level the house payment is reasonable. The roommate money will help with that too.

I didn't realize that the roommate had actually also been her roommate in college and also when they first started working, so they are certainly suited to be together. They were joking about becoming the Golden Girls.


Anyway, what's run out is mostly the big lump sums of money that came in after her husband passed away. She said they had talked about it, and that she should live a little after the misery that led up to his death. On the plus side, she was very active in her kid's high school activities, was able to pick them up and drop them off for anything and everything, and also put them through college in this window of time (the younger just finished remotely last May).

She admitted she probably stayed in this mode too long, and is somewhat excited about going back to work, and was essentially ready to until Covid struck. She has a degree in Computer Science, and a masters degree in IT, but in the last year or so she's also been working on Data Analytics certificates and hopes to marry that up with her background skills.


Her main concern was the restructuring. Hidden problems or better options. It turns out to be exactly what Heartless described above: a no points or penalties, no qualifying or credit check, no inspection, restructuring of the loan.


Anyway, things aren't as dire as they seemed yesterday!

A last thought: Be on the watch for reluctance, or even paralysis, to make a decision. A decision needs to be made fairly soon. My guess is that the bank's refi will be best.

Remind her that every decision has its good and bad points, its benefits and risks. Every decision. Remind her that she may experience the equivalent of buyer's remorse, and afterward something might (MIGHT) have looked better, but the decision was (will be) made, and to get on with things.

So the situation is not quite as dire as you first thought. In a pinch, $300K would get a nice, middle-of-the-road 2 or 3 bedroom condo in many places in Maryland.

I think her house payment would be uncomfortable on 70K, but would be very do-able on a higher income. With an agreeable roommate, it would be quite easy. I would suggest that she get a lawyer to look over the refinance agreement.



Edited 1 time(s). Last edit at 10/27/2021 05:29PM by summer.

A good CPA may do her more good. I know money is tight now but when she is working again she really needs to see a good CPA period. One that will review all the assets and expenses and set her up with short and long term goals. It was a chunk of change but one of the best things we ever did. Having a plan will empower her too and relieve a lot of the stress she is feeling.

One other thing, by having her friend live with her that makes her a landlord and she may need to pay tax on that money. Just because they are friends doesn't change that it will be seen as income. With all the other stress the last thing she needs is to get on the wrong side of the IRS.