- The Washington Times - Wednesday, September 20, 2006

Q: I recently have been through a divorce and was notified last week by my employer

that I will be laid off.

The mortgage payment on my house is $2,700 a month. I don’t have a lot of equity in my property, but even if I did, I wouldn’t be able to sell the house quickly. My neighbor’s house has been on the market for almost a year.

I tried to refinance, but was declined because my credit rating has dropped due to my divorce. I currently have an interest-only mortgage with a 6 percent rate for five years.

I want to avoid bankruptcy, if possible. Can I negotiate other terms with my lender? Can I give the house to them? Perhaps the lender will allow me to suspend my payments until I get settled in a new job. Any advice is appreciated.

A: You are in a very difficult situation and, frankly, I don’t see any easy solutions based on the information you have given me. You have suggested several things worth exploring. I can’t possibly tell you if any particular course of action will solve your problem, because I don’t have enough details. But let’s look at your situation objectively and consider a couple of plans.

Since you already have a 6 percent loan with an interest-only payment option, refinancing would not significantly lower your monthly payment.

Refinancing to a so-called option ARM might lower your payment through negative amortization. This means the monthly payment does not cover the interest charged each month. The unpaid interest is added to your loan balance.

Even if you could find a lender that would offer you such a loan, it’s not something I would endorse, primarily because you soon would lose what little equity you have left in the property due to the deferred interest and the high upfront costs typically associated with these loans.

Negotiating with your lender is certainly worth a try, but I honestly doubt it will do any good. Lenders want to avoid foreclosures, but most have a huge portfolio of loans. Renegotiating with a defaulting borrower is not usually the policy for most lenders.

It would be wise to look into selling your house in more detail. Although your neighbor’s house hasn’t sold, it may be overpriced. An experienced real estate agent can tell you the price you can reasonably expect to get for your house. This exercise can determine how much, if any, equity you might be able to realize.

Have you considered getting a roommate? I know a retired woman who went through a nasty divorce and ended up with nothing but the house and a large mortgage she couldn’t afford. Instead of selling, she brought in two roommates. The rent offset the mortgage payment enough for her to stay in the house.

Although no one wants to file for bankruptcy, it is something you should discuss with an attorney. I am not qualified to advise on this subject, nor am I suggesting it’s the right course of action. Based on your letter, however, it’s important that you educate yourself on all the alternatives. This will help you make the best decision in an unfortunate situation. Good luck.

Henry Savage is president of PMC Mortgage in Alexandria. Reach him by

e-mail ([email protected]).

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