any insights?

2

2006buyer_IHB

New member
scenario:



my friend bought in 2006 875k, 5% down, first loan 700k 5/1 io 5.875 resets 2011 citi (attempted to modify but have had no luck!), 2nd loan 121k 7.875 fixed provident (offered a discounted payoff, but no luck!). both purchase loans.



comps selling for 575k (talega)





Due to strong 2008 salary (which is down significantly this year) he qualified for a loan to buy a second house, he was told to write a letter saying current house was not working for us due to a noisy neighbor, and the need for a home office for job. In that letter to lender he stated his intention to rent current house, wait for the market to turn around then sell, and in the meantime carry both homes loans.





his questions are as follows:



1) anybody have experience executing the above scenario?

2) anybody have any insight on what it is really like living with f'd up credit?

3) is he at risk for any type of real estate fraud charges?

4) any insights to people or stories with non-recourse loans,where the banks have attempted to claim wrongdoing or judicial claims?





long story short, aside from the morality issues here, are there any compelling reasons not to do this?
 
scenario:



A "friend" bought in 2006 875k, 5% down, first loan 700k 5/1 io 5.875 resets 2011, citi (he has attempted to modify but had no luck!), 2nd loan 121k 7.875 fixed, provident (he offered a discounted payoff, but no luck!). both purchase loans.



comps selling for 575k (talega)





Due to strong 2008 salary (which is down significantly this year) he qualified for a loan to buy a second house, and was told to write a letter saying current house was not working for him due to a noisy neighbor, and the need for a home office for his job. In that letter to lender he stated his intention to rent current house, wait for the market to turn around then sell, and in the meantime carry both homes loans.





His questions are as follows:



1) anybody have experience executing the above scenario?

2) anybody have any insight on what it is really like living with f'd up credit?

3) is he at risk for any type of real estate fraud charges?

4) any insights to people or stories with non-recourse loans,where the banks have attempted to claim wrongdoing or judicial claims?





long story short, aside from the morality issues here, are there any compelling reasons not to do this?
 
I'm not sure about the answers to your four questions, but I am curious how you qualified. So you can handle all 3 loans (1st. 2nd and new loan) ? From what I remember reading the banks caught on to people buying the second house then stopping to make payments on the first, so they would be counting both houses in your DTI calculations. I also thought they were not counting rental income (and even then only 75% of it) unless you had a lease in place. Of course, if that lease is fake you probably open yourself up to fraud.



Do you know if they debt serviced all 3 loans in their anlaysis? Can you afford all 3 if you don't have a renter and that is how you qualified?
 
I'll double post with your double post (hmm one was you, one was "a friend") :



I?m not sure about the answers to your four questions, but I am curious how you qualified. So you can handle all 3 loans (1st. 2nd and new loan) ? From what I remember reading the banks caught on to people buying the second house then stopping to make payments on the first, so they would be counting both houses in your DTI calculations. I also thought they were not counting rental income (and even then only 75% of it) unless you had a lease in place. Of course, if that lease is fake you probably open yourself up to fraud.



Do you know if they debt serviced all 3 loans in their anlaysis? Can you afford all 3 if you don?t have a renter and that is how you qualified?
 
If underwater on one house, why would a person want a second one? Or to put it another way, when you find yourself in a hole, why keep digging?



Also, mortgage fraud (i.e., offering knowingly false information to the lender to secure the loan), probably not a good idea, lest your friend find himself a third home with no mortgage, but lots of roommates. Don't forget, the "letter" may have been delivered by mail, fax, or e-mail, also opening up potential charges for mail fraud or wire fraud. Good times.



Lastly, why do you want to be friends with such a person?
 
your points are well taken, any advice? the goal really is to reduce monthly mortage payment and find a way to get a fixed loan instead of a floating i.o...





keep in mind this are good people stuck in bad situations
 
Sure looks like fraud there, if there wasn't really a noisy neighbor or home office. That is a felony. Of course, if they arrested everybody who's committed real estate fraud of this realatively minor sort in the past few years, there wouldn't be room in the prisons for anybody else.
 
[quote author="EvaLSeraphim" date=1253316856]If underwater on one house, why would a person want a second one? Or to put it another way, when you find yourself in a hole, why keep digging?



Also, mortgage fraud (i.e., offering knowingly false information to the lender to secure the loan), probably not a good idea, lest your friend find himself a third home with no mortgage, but lots of roommates. Don't forget, the "letter" may have been delivered by mail, fax, or e-mail, also opening up potential charges for mail fraud or wire fraud. Good times.



Lastly, why do you want to be friends with such a person?</blockquote>
Eva, let me be more clear on what he is asking.

He can buy another house for $575,000 for much less payments than his current house on which he makes payments on $821,000. Same house, for much less payment.

And then he will lapse on payments on the first home and let it get foreclosed on.

Only cost to him is bad credit.

He is asking what are the chances he will get caught and prosecuted for fraud and/or other crimes.

But, he is a good person.
 
You mention "salary" in 2008 so I am assuming that your "friend" is a W-2 worker. If that's the case 2008 tax returns will not be sufficient as salaried employees need to provide the last two pay stubs along with the last two months of bank statements. If your friend was self-employed, then they would be looking at the last two years tax returns AND all bank statements. If your friend isn't earning enough to cover all three of these loans, the bank statements will show it.



It is definitely fraud, but I still doubt that it could be pulled off with the stricter underwriting standards.
 
[quote author="2006buyer" date=1253319306]your points are well taken, any advice? the goal really is to reduce monthly mortage payment and find a way to get a fixed loan instead of a floating i.o...





keep in mind this are good people stuck in bad situations</blockquote>


That's a tough problem. I think the only way to reduce the monthly payment is to refinance and put a lot of money down. This is probably a very unattractive idea since he may have to put $300K down before any bank will touch him. If your friend doesn't want to take $300K on the chin and live with a $575K mortgage afterwards then it may be time to walk.
 
david 174 thanks for insight.



That is correct, pre-qualified for loan. so maybe unrealistic to begin with.



and since he does not have 300k, to even start the conseratvion of a refinance that is not an option.





1) walk away - bad credit, no home

or

2) stay and blow through savings trying to salvage house
 
[quote author="2006buyer" date=1253316795]he qualified for all 3loans in analysis.</blockquote>


I doubt it makes it through underwriting.



Approval is one thing, getting it to close is another.
 
so he lives in a house with negative 300k in equity. many people would choose to just let the house go.



as for buying a second home first, most lenders require the buyer to have sufficient equity in BOTH homes, so he wouldn't be able to buy that second home anyways. lenders aren't that foolish.
 
Paging Solylent now please. Anyway, I have heard that they are no longer qualifying people with market rent for another place. I've heard that you have to have an actual rental contract and have it rented out before they'll include any rental income.
 
[quote author="hs_teacher" date=1253324005]so he lives in a house with negative 300k in equity. many people would choose to just let the house go.



as for buying a second home first, most lenders require the buyer to have sufficient equity in BOTH homes, so he wouldn't be able to buy that second home anyways. <strong> lenders aren't that foolish</strong>.</blockquote>


I guess it was about time they learnt
 
[quote author="2006buyer" date=1253315368]scenario:



A "friend" bought in 2006 875k, 5% down, first loan 700k 5/1 io 5.875 resets 2011, citi (he has attempted to modify but had no luck!), 2nd loan 121k 7.875 fixed, provident (he offered a discounted payoff, but no luck!). both purchase loans.



comps selling for 575k (talega)





Due to strong 2008 salary (which is down significantly this year) he qualified for a loan to buy a second house, and was told to write a letter saying current house was not working for him due to a noisy neighbor, and the need for a home office for his job. In that letter to lender he stated his intention to rent current house, wait for the market to turn around then sell, and in the meantime carry both homes loans.





His questions are as follows:



1) anybody have experience executing the above scenario?

2) anybody have any insight on what it is really like living with f'd up credit?

3) is he at risk for any type of real estate fraud charges?

4) any insights to people or stories with non-recourse loans,where the banks have attempted to claim wrongdoing or judicial claims?



?</blockquote>
 
You 300k upsidedown and will never be able to refinance until the market comes back in 2030. Unless the bank wipes away the 300k in principal in a loan mod this one is going back to the bank. Most lenders have stopped this practice of allowing someone to "Lease" out the current home. I doubt he qualified as now banks require you to be able to qualify only if you can afford both payments period and the rental income does not count. If you can actually carry both houses to qualify why buy add a second home under a letter of fraud? This whole thing just smells of fraud, suck it up or walk away...Sounds like someone wants their cake and eat it too. If both of these loans where the original loans on the home then they are non recourse after that its up to the bank. Correct me if i am wrong but i believe congress passed a ban on recourse loans in 2006 as they knew the housing market was going to take a big crap and all those recourse loans would go through Federal court so they just made it go away as the courts would be jammed for years. With that said i have heard of judges ignoring that and throwing people in jail so best talk with or hire a lawyer on this.
 
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