The classification of mortgage makes an enormous difference in the loan workout world, especially when it comes to a lender deciding whether or not to do a loan workout.

For new readers--the term "loan workout" in this space  includes loan modifications as well as any other actions a lender will take to get the monthly  payment down, such as agreeing to write off some of the principal balance.  "Loan mod" is just the current buzz word.

But let's get down to brass tacks. The terms "purchase money mortgage" and "cashout mortgage" are so loaded, it's impossible to do one short blog over the terms.  I'll settle for a few declarative statements and provide the backup later.

First, a definition: A purchase money mortgage is the loan you take down to buy your property.  It's not a HELOC (home equity line of credit) or  re-fi (when you refinance your property).  And under current Oregon law, (and this is important),  purchase money mortgages, pretty much, are not subject to deficiency judgments if the owner goes into foreclosure. That is, the owner can't be sued for the difference between a property's loan and selling price. 

But what if the owner took advantage of falling interest rates, as well as lenders falling all over themselves to make new loans,  and the owner refi'd? In that instance, which happened a lot, the loan is no longer a purchase money loan and becomes a cashout loan.  It's likely subject to a deficiency judgment.  Deficiency details aside, lenders view cashouts with a lot of skepticism.

Anyway,  I was going to do a post arising from an article I read yesterday on the role of cashout loans  in recent mortgage lending, especially as they affected the current real estate  crisis. It's something no one seems to want to talk about.

Watch tomorrow's entry for talk on how workouts affected, and may have helped cause,  the current crisis. See also www.terradigmrealestate.com