Friend Having Mortgage Problems - What would you do?
One of my close friends is having problems with her mortgage so I thought I would ask for some advice/ opinions.
Background: They bought the house at the peak for around 800,000 and the house is probably worth 200,000 less than they paid.
They did an 80/ 10 mortgage(s) with 10% down.
They have been sporadically paying the mortgage and my friend was frantically looking for a job to help her DH pay the mortgage so it wouldn't foreclose. She did get a job.
Now the bank has put them on a one year plan to contune to pay their mortgage as well as paying off what they hadn't paid last year. It comes to over $7000 per month including the 2nd loan which has an interest rate of 12%.
They also have to pay car payments and college tuiton for their 3 children.
Knowing that the house is worth 200,000 less than they paid, what should they do? Try to struggle through 2008 to get caught up on the mortgage at 7000 per month, or try to get the mortgage company to accept a short sale?
My advice to her so far is to talk to the 2nd mortgage co about reducing the 12% interest rate and to find out where her payment would be after the year of $7000 per month so they can decide whether they can comfortably pay it afterwards.
Any thoughts? What would YOU do?