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how to refinance my house loan when house price dropped

It seems like the eventualities I was discussing a couple years back (see housing bubble stories here) have finally come to pass. A reader arrived here today wondering "How to finance my house loan when house price dropped". It is a difficult question. At a certain point when the money you owe is more than the house is worth no one is going to be happy about lending you money unless you have a good income stream or some other assets as collateral.

Many of the companies which were in the business of extending loans for the full value of the property with no income verification have imploded and lending standards are tightening. The entire "sub-prime" lending world has disappeared. This is happening at the same time as some of the teaser rate loans are undergoing their metamorphosis into instruments with a fairly high rate and correspondingly high monthly payments.

So the simple answer is talk to your lender. If it looks like you are going to go bankrupt or default on the loan they have some motivation to work things out with you. If they aren't willing to talk to you it is unlikely anybody else will be.



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