When the Mortgage Tail Wags the Dog, a Perspective from the President of New American Funding

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Rick Arvielo, President of New American Funding, talks about one of the reasons why many homeowners are facing foreclosure.

Rick Arvielo, President of New American Funding

Rick Arvielo, President of New American Funding, a mortgage bank that specializes in home loan solutions for troubled borrowers through FHA, talks about a growing issue that isn't receiving much press and is costing people their homes. The issue has to do with Second Trust Deeds holders refusing to re-subordinate behind a new FHA loan, which locks borrowers into their current First Trust Deed with escalating payments.

Arvielo says, in order to appreciate the magnitude of this situation, consumers need to understand the market from 2005/2006. A very popular product during that peak in the mortgage industry was the 80/20. That is an 80% First Trust Deed attached with a 20% Second Trust Deed or, 100% financing. This was a very popular loan in the Sub Prime category, where the borrower would receive a favorable rate for a two-year period on the first Trust Deed (TD) and then the interest rate would increase aggressively.

Arvielo observes, "The problem now is we are in a declining market, so these 100% loans are currently at 110% or higher. In many cases we can qualify the borrower for a new 30-year fixed FHA loan on the First TD, bringing their escalating interest rate down and fixing it in the 6% range. We can do this because FHA currently allows the combined loan total to be over 100%. The problem is the Second TD holders are refusing to subordinate, which locks the borrower into their First TD that often times has increased to 9% or higher."

"The only explanation I can come up with for the subordination denial is that FHA requires mortgage insurance, which serves to increase the new first TD amount. Even though the ultimate outcome is the borrower's monthly mortgage expense comes way down, the second TD note holder sees the first TD balance going up, so they turn down the subordination. Or, even crazier, the bank has policies in place that they won't subordinate over 100%, even though they are already over 100%."

When this happens, Arvielo says the future is grim. The borrower, who already owes more than the house is worth, is trapped in a loan where the interest rate is adjusting to unmanageable levels, which literally forces the borrower out of his home.

Arvielo says the solution will require government intervention. One avenue he suggests would be to approve stripping the second TD from the title when it could be proven there isn't enough equity to support the lien. That threat, he says, would likely be enough to get the note holders to cooperate.

Arvielo says this problem is getting worse and receiving surprisingly little press. He urges regulating agencies take action before more people lose their homes.

About Rick Arvielo and New American Funding
Rick Arvielo is President of New American Funding, a mortgage bank that specializes in home loan solutions. New American Funding is committed to providing top quality service. The company offers a wide range of loan programs that are competitively priced. Using the latest technology, the company has made the borrowing process simple and convenient. New American Funding offers competitive rates and eliminates fees associated with a loan arranged through a broker. The company's loan consultants listen to clients' needs and make sure they understand completely, then discuss the options and make sure clients thoroughly understand them. From application through funding, New American Funding makes the loan process simple and convenient. For more information, please visit http://www.newamericandirect.com.

Media Contact:
Rick Arvielo
President of New American Funding


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