The Short Refinance

by 01 Aug 2008
A short-refi (short-refinance) has been around for quite a few years. Until its recent exposure, it has been said to be one of the industry?s best kept secrets. It is not common knowledge that a lien holder will accept a short-payoff of the current loan, while allowing borrowers to keep their property and refinance with a new lender. But, that is exactly what can be accomplished with some lien holders and a properly negotiated short-refi offer. You will notice that I said some and not all lien holders. This is because the final decision to accept a short-refi offer is completely in the hands of the investor on that particular mortgage. This is also true with short-sales or loan modifications. There is absolutely no company out there that can guarantee a short-refi, short-sale or loan modification will be accepted. That is one thing that the property owner should keep in mind and acknowledge upfront when hiring a third-party to perform any of these solutions. In getting short-refis completed, our company can say that we do have a 70% success rate, which gives our clients far better odds than most. A short-refi can be done for property owners in a lot of different situations, which is a far better alternative than what has been available to them in the past.That is exactly what we are offering them, an alternative. A short-refi can obviously help a client that is facing foreclosure, but the bigger picture is that it can also work for those that are upside down on their mortgage or have an ARM getting ready to adjust. The client does not need to be behind on payments to qualify for a short-refi. There are many property owners that owe more than the current market value of the home and are paying on time. These people can be helped also. It is a little easier to get the process moving when the homeowner is behind on payments, but it is not necessary. Most lenders give priority to those that are behind or closer to a foreclosure, than those who are not. Since fall of 2007, lenders have been taking longer than usual to process a short-pay offer, whether it is a short-refi or a short-sale. Lately, it has been taking a minimum of 45 days and up to 90 days to complete the process, with some exceptions taking even longer. Since last fall, lenders are becoming severely backlogged with these types of files along with foreclosures and trying to handle the increasing workflow with the same staff they used a year ago. Some lenders have disappeared in the past year, while others have downsized drastically to stay afloat, which has definitely not helped the situation. In the past, the only alternative that a homeowner facing foreclosure has had is bankruptcy or the foreclosure itself. A lot of brokers have sent their clientsin this direction mainly because they knew of no other option. Lately, loan modifications have come into the limelight, but that still isn?t the best solution for most homeowners. Don?t get me wrong, a loan modification is a far better choice than a foreclosure or bankruptcy, but a short-refi still outweighs the benefits of a loan modification. That is why for our clients, we offer the lender a short-refi offer first and if for any reason it is not successful, we then offer to negotiate a loan modification for the client, at their request. A short-refi can basically create equity in a property, seemingly out of thin air. It corrects the mortgage to the current market value, eliminating an upside-down loan. A loan modification can keep the homeowner?s interest rate down to a comfortable level and usually put them into a fixed rate loan, while also placing any arrearages back into the loan. But with a loan modification, if the property is upside-down or close to it, by the time arrearages are placed back into the loan, it will be in worse shape than before. This is fine, if the homeowner?s intentions are to keep the property long enough for the market to turn around. The main purpose of a short-refi or a loan modification is that the home owner is allowed to stay in their home, which is the ultimate goal. Also, with a lot of homeowners realizing that their property is not worth nearly what they owe on it, several of them have opted to just walk away. A short-refi gives homeowners hope, that they can relieve themselves of an upside-down burden, in some cases can save the property from foreclosure. This keeps them in their home, gives them a peace of mind, and allows them to get on with their lives. The reason a short-refi can be successful, is because lenders truly do not want a property back as an REO (real estate owned). If a property goes to foreclosure, in most markets, the lender is getting the property back and that is not what the lender wants. When a lender gets an REO, there is a lot of responsibility for the lender that comes with it. These include costly items, such as maintenance on the property, property taxes, clean-up crews and hiring a real estate agent to sell the property. It can cost a lender tens of thousands of dollars to get rid of a property once it has been foreclosed. Lenders are not in the business of taking care of properties. They are in the business of lending money. Therefore, lenders are willing to do some outrageous deals to avoid obtaining another REO. Second lien holders, on the other hand, are usually willing to settle for pennies on the dollar, because they know if a property does go to foreclosure, a high percentage of them are going back to the first lien holder, which in turn leaves the junior lien holders with absolutely nothing. I started my company negotiating short-refi?s because I have been there myself. A couple years ago I found my own family facing foreclosure. Seemingly, we had no where to turn and the thought of loosing our home was weighing heavy on my mind. For months, I tried anything and everything to avoid foreclosure and save our home. I definitely ran into a lot of dead ends and empty promises. The short-sale scam artists seemed to be coming out of the woodwork. Short-sales are definitely another decent alternative for those willing to give up their home and if done properly, can benefit all involved. But the companies that start calling as soon as an NOD hits public knowledge and demand that the homeowners sign quit claim deeds are the ones that make me leery. Some of the brokers I ran into had me paying off large debts (mainly old medical bills) to increase my FICO score, which in the long run, didn?t do a thing for me. The way I see it now, I was throwing away money that I could have put to better use. I got lucky, in the sense that the negotiator at the lender that was foreclosing on us, actually cared about our situation and ended up offering us a short-refi option. He taught me the ins and outs of a short-refi, including what they were looking for and what they were not. I was at 100% LTV on my own property and ended up completing a short-refi at under 65% LTV. It wasn?t until last summer, after speaking with several brokers, that I realized how important a short-refi could be to so many people. In speaking to other brokers and hearing of their client?s situations, we decided to create a company to help both the client and the brokers, by negotiating short-refi?s. Over the past year, we have networked with several brokers throughout the United States. When a broker has a client that is in need of a short-refi negotiation, these brokers turn the client on to our services. If the client decides to sign up, we work with the client and the broker to negotiate a short-refi. Once the short-refi is successful, we then turn the client back over to the broker, to complete and fund the new loan. It ends up being a win-win-win situation. We gain a client, the client gets to keep their home and the broker ends up with a deal they can actually fund. We have also started working with brokers that want to become an agent for our company, where we teach them the entire process of a short-refi negotiation and we supply them with leads. If you would like more information on short-refi?s or if you are interested in becoming part of our team, please visit our website at or feel free to call us at (319) 248-9543. Loren Gingerich is the founder and owner of Wizard Lending LLC, dba:


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