Foreclosure in Worcester>Question Details

susanbenedet…, Home Owner in Worcester, PA

what is aalternative financing called a wrap around?

Asked by susanbenedetti, Worcester, PA Thu Jan 12, 2012

presently our house is majorly upside down and we are currently under going a loan modification(which we started in aug 2011 and we are still submitting needed information ). wanting as much knowledge to make an informed decision. someone mentioned a wrap around as alternative financing. What is this and ccan it help?

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Upside down is the description we hear too often. You most certainly are not alone in this situation.

In your research you are discovering there are alternatives available such as a 'wrap around' mortgage. As others have noted, if you are too far under, there simply will not be sufficient market space to make this a feasible options. Great care must be taken to avoid the 'Due on Sale' clause included in nearly every mortgage that a 'wrap around' may trigger. The outcome of your loan modification may change your options significantly. Make certain you lender is advising you of the new refinancing options that are available also.

You do have options. However, each and every one must take into consideration your situation and the outcome that will be most beneficial to you. Your CPA, attorney and real estate adviser (a truly multi-dimensional one) can develop a proper plan with multiple exit strategies that will minimize your risk.

The hardest decision you must make is 'Do I need to keep my home?" Reconciling this reality is the most difficult. The rest is simply execution of the right strategy.

Reach out and talk to a few professionals. If they can not describe to you at least three strategies, then please keep looking. After all, one is short sale, two is 'wrap around' and how hard would it be to come up with just one more? Find the right professional, and take whatever action is needed to get on with your life.

Best of success to you.
0 votes Thank Flag Link Fri Jan 13, 2012
Susanbenedet, Very sorry to hear your situation. You are not alone trust me. If the bank won't grant you a loan modification, you may have to seriously consider short-selling the property. This will bide you more time, and be able to offer the bank a different solution than them foreclosing which is the worst case for you. I agree with all the below, the Wrap Around was used quite a bit 18-20 years ago. Not really an option for you from what you are describing.

Best to see if your lender with qualify you for the: Home Affordable Foreclosure Alternatives (HAFA) Program. If you do they can give you up to $3,000 in moving expenses. Under a traditional short-sale you would receive $0. Always consult a reputable, and knowledgeable Attorney regarding your options.

Best of luck to you,

Rob Hughes: Long & Foster Real Estate Inc.
(Associate Broker) (AB065650)
(Hughes Associates) (Realtor since 1987)

Office: 610-225-7400 x7438

Cell# 484-410-9765 (Preferred)


0 votes Thank Flag Link Fri Jan 13, 2012
Alan, Glad it kept you awake!!! As I said, the semantics may be geographical. Out West, we called it a wrap around...lenders and brokers alike. Kind of, sort of, like "wet" funding versus "table" funding...they are one and the same, but have different names in different areas.

Like, I "press" my clothes, but many people "iron" their clothes. I can it POtato, some call it poTATo....LOL! Or, CA will ask for a termite report on every loan; whereas asking for a termite in WA/OR will make any MLO roll their eyes (termites don't like the rain and are non-existent in the NW). But, hey, we can call it whatever we want, right? BTW, cross collaterization works too...though umbrellas in WA/OR are used for things other than loans. hehehehe
0 votes Thank Flag Link Thu Jan 12, 2012
Hello Don has it in a nutshell.
Dee, I think you are confusing wrap around financing with an umbrella mortgage or cross collateralization.
The only reason I know is because I was awake for that part of the state licensing class >>>>>Just kidding.

0 votes Thank Flag Link Thu Jan 12, 2012
Susan, @Don gave a great and simplified explanation of a wrap, or wrap around, mortgage. I agree that I am not clear how a wrap could help someone who has negative equity on their home.

Interestingly, my initial thoughts about a wrap around mortgage are decidedly different that Don has laid out; however. It may be a geographical "thing", but a wrap (at least in my experience) is generally used more often for commercial lending. For example, a business owner is wanting to invest in a property for his/her business; however, the bank is not 100% comfortable with the business projections, the down payment and/or any other aspect of the file. However, the business person has substantial equity in a private residence and/or other real estate properties. The bank may agree to the purchase loan of the new business property, but will "wrap" around the entire real estate portfolio.

I am not sure this practice is that prevalent today; however, twenty years ago it was quite the rage with lenders. And, the result could be disasterous. At one time ('92) I had a client who had agreed with the bank to wrap his primary residence and vacation property with the business purchase. The business went sideways and the bank called the note. The borrower had SUBSTANTIAL equity in the other properties; however, no one would finance a cash out because of the wrap mortgage and the bank would not release the wrap because it was their only chance of getting repayment on a loan. At the time, I could not even convince hard money lenders to loan 50% loan to value...all because of the wrap encumberences (the wrap lien would always trump the new lien, so any new investor would have no recourse on repayment in the case of default).

In either explanation of a wrap mortgage, I fail to see how it would help you; however, it anyone is looking at entering into my "version" of the wrap around mortgage I would recommend extreme caution...and a real estate attorney. To my knowledge the client I was working with for months lost both homes to the bank. One was worth 575K with a mortgage balance of around was an extremely disappointing scenario to know there was no financing solution for the client. Best to you!
0 votes Thank Flag Link Thu Jan 12, 2012
I'm not sure that a wrap would be appropriate or help you.

A wrap or wrap around is when new financing is "wrapped" around the current loan. To give you a somewhat oversimplified example: Suppose you bought a house 5 years ago for $200,000. You started off with an 8% mortgage on $190,000. Your principle/interest payment would be $1,394.

Now you want to sell. The house is worth $230,000. (A wrap only works when the value's gone up, not down.) A buyer comes along and wants to buy but, for whatever reason, can't get a conventional loan. So the owner offers "wrap" financing. The owner says: "I'll handle the financing. You pay me 10% down, so you'll owe $207,000. We'll do a 25 year mortgage [so it's timed to end at the same point as the underly 30-year mortgage] at 7%. So you'll pay me $1,463 in principle and interest." So your new mortgage would wrap around the old mortgage. The owner would take $1,394 of your payment and send it to his bank and keep the rest. (A wrap mortgage can work better when interest rates are higher than the initial mortgage, too, which is not the case today.)

So, in short, I really don't see how a wrap could help you. You'd be wrapping your already too-high mortgage with another one, making your home even more overpriced than it is today.
0 votes Thank Flag Link Thu Jan 12, 2012
Don Tepper, Real Estate Pro in Fairfax, VA
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