Cheat Sheet Q & A:

Topic:  Underwater Refi for a 1st and 2nd mortgage

Here’s the full question: 

We have question for you and hope that you will be able to help.  We are looking to refinance our home, but are having difficulties finding a company or bank that is willing to work with us.  We, like most people are underwater, and due to certain circumstances have two mortgages. 

The problem is that we cannot find any one that will combine both and give us one lower payment.   We were hoping that maybe you, through your knowledge have heard of a company / institution, or maybe lead us to somewhere to research anyone that helps people in our situation.  Any help in this matter would be greatly appreciated. 

Bottom Line:  So I’ll get right to the bad news.  There isn’t a HARP product or other program available to combine a first and second mortgage (with a home that is underwater) into one loan.  So unfortunately your options are greatly limited.  So what are your options and how should you attempt to move forward? 

  • Perhaps seek a professional estimate for the current value of your home so you can understand what the current market value for your home is.  With local real-estate values posting strong year over year price increases you may be in a better position than you realize
  • Pursue a HARP 2.0 Refi on your 1st mortgage.  While you can’t combine the two mortgages under HARP, as long as your first mortgage is backed by Fannie or Freddie (and if it was under $417,000 at the time you originated it – that’s almost certainly the case) you should find success in a HARP refi on the 1st regardless of how underwater it may be provided that you’re current on your payments
  • Take the savings from the HARP 2.0 on the 1st and pay the monthly difference towards the second to get it paid off sooner and increase your equity position in your home

I wish I had a panacea for you but I don’t.  If you need lending options for HARP 2.0 on the first I can make a couple of recommendations.

If you have a question or topic you’d like me to address email me:


Inside the stock market sell-off – what to consider:

Bottom Line:  Over the past few months I’ve tried to provide information for you to consider so that you wouldn’t be surprised and/or caught off guard with what we’ve seen of late in the stock market.  At some point the Federal Reserve would have to begin to change its course and stocks would need to trade on fundamentals rather than on being the only viable investment option (aside from real-estate) because of the Federal Reserve’s policy.  As part of that effort I’ve occasionally been demonstrating the historic average value of the market vs. where we’ve been trading.  To demonstrate I’ve been using the historic average P\E of the S&P 500 and comparing it to the P\E ratio of the S&P 500.  Over the last four months the market has been trading at a premium that’s been more than 20% greater than the historic average.  That premium is what I believe we can attribute to the Federal Reserve’s policy.  So if the Fed is going to slowly work it’s way out of the equation naturally the market will begin to react. 

I’ve been doing this so that you’re not caught by surprise with stock market volatility returning.  With the Federal Reserve pushing people towards stocks, all news is good news.  Good news was good news and bad news meant that the Fed would keep pumping free money into the financial markets and leave interest rates at zero.  That’s not going to be the case any longer.  Extraordinary circumstances will always cause periods of unusual activity in the stock market but fundamentals will always be the driving factor in the end.  So let’s take a look at where we are after the two day severe sell off in the stock market:

Historic avg. P\E of the S&P 500 is:  14.5

The current P\E of the S&P 500 is:  18.3

So the S&P 500 is still trading at a level that’s right at a 20% premium to it’s historic average.  So does that mean that the market will drop by another 20%?  Not necessarily.  My hope is that the stock market stabilizes and earnings grow and catch up with stock prices as the Fed scales back.  That being said it’s important to understand what’s possible and it would be wise to be prepared for the worst case scenario just in case. 


Bye Fed, hello cheaper commodities:

Bottom Line:  This is part two of the Federal Reserve reaction.  As big as the move has been in the stock market (as a result of the Federal Reserve hinting that they intend to scale back QE later this year), the reaction in the commodity market has been much more severe.  Why? 

Commodities are US dollar denominated.  That means that they are sold around the world in US dollars.  If the dollar is weak, the price of commodities will rise as it will take more dollars to buy the same amount of a given commodity.  If the dollar is strong, prices will drop as a dollar will have more purchasing power for a commodity.  Commodity prices are one part supply and demand – one part currency value. 

According to my estimates the Federal Reserve has watered the US dollar down by up to 21% over the past 3+ years with QE (or what some call money printing).  That watering down of the dollar caused a rise in commodity prices.  Just the expectation that the Fed will stop doing this in the future has cause the US dollar to strengthen significantly.  This had led to a huge selloff in many commodities.  Gold and silver have been especially affected. 

Gold hit a high above $1900 per ounce a few years ago as many bought it on the fear of the US collapsing it’s currency. 

As gold became expensive many turned their attention to silver which hit a high above $48 per ounce.  So where are they after the recent selloff?

  • Gold as I type this is at $1283 per ounce
  • Silver is at $19.43

These losses have clearly been much more severe than the stock market.  What’s important here is that the cost of living for the average American has been dropping as everything from gas to food has been rising in cost faster than their income has grown – in part because of the Fed’s policy.  Lower commodity prices is generally good for the average quality of life. 


Home Prices jump again but the NAR President issues a very real statement about the future:

Bottom Line:  The National Association of Realtors has released May data that shows the average home price rising by 15.4% year over year in May.  That makes six consecutive months of double-digit year over year increases nationally.  But the President of the NAR issued an honest assessment of the future. 

I’ve been indicating that the real-estate recovery will likely moderate this fall (once the summer buyer season has concluded) as the current rates of increase won’t be sustainable with investors indicating that they’ll scale back on their real-estate investments this fall and with mortgage rates rising (reducing the buying power of those financing).  The President of the NAR acknowledged this stating that the current rate of growth is unsustainable with the average income only growing by 1-2%. 

That’s an honest assessment and one I’ve glad to hear because the NAR was on the wrong side of the housing bubble during the boom times and falsely led many buyers to believe the housing market would be ok.