That's how long it's been since I've done anything at all related to our loan modification/housing situation. To get you up to speed, check out the post from way back in April 2009
To summarize, we have a 5 year interest only loan coming up to the "adjustment" in July 2010. It will essentially become an adjustable rate loan at that point with our loan amount of a shade over $300k. We bought when values were high and now they're low.
As our standard of living has been manageable for the past year, the loan mod has not been a top priority. However as that July 2010 date creeps ever faster towards us, the time to act is now.
The irony of these sort of situations is that when business is good, it's easy to make your mortgage payment. When a family member loses their job and thus regular income, it's sort of difficult to qualify for a new loan in today's tightened lending environment. So, the right time to do something like this is while you still have stable job security- something that is becoming more difficult for Americans every day.
So my wife is gainfully employed and I own my own company and 2009 was a decent year for us. But unfortunately, I've had a real negative attitude about our home for the past 2 years. A plant dies- I don't want to replace it. Carpet has a stain- I don't want to clean it. Don't get me wrong, we're not slobs by any means (despite having two kids and a dog). But why would you want to put another dime in your upside down home when nobody appreciates those investments any more. I'm not saying that nobody appreciates a clean nice looking home, but when you're in the black and you want to sell, you want to get as much out of your home- for yourself. When you are going to get foreclosed on or if you are short selling your home, it really doesn't affect your personal bottom line whether you have a dead tree in your yard or dirty walls.
So finally, in December 2009 I called my lender- and surprisingly, it went pretty well. I called the main 800 number on my statement, was channeled to customer service and was transferred to the loan modification department. And here is where our fearless leader- Mr. Obama stepped in- The lady asked me three questions:
- How much are your homeowner's association (HOA) dues?
- Do you have less than $4700 in liquid assets?
- Is your gross monthly income less than $5000?
Based on those three questions, within 30 seconds it was determined (based of course on our particular loan) that we do NOT qualify for the "Making Homes Affordable" plan. So the kind lady transferred me to the Loan Servicing Department.
Once there, the gentleman whom I spoke with told me his employee number and told me that I would need to fill out the Financial Analysis Package which is on their website. He told me that once that application is returned, I'd get a call within 15 days confirming receipt of said package and that within 60 days, they would have a loan modification option that I would be able to accept or decline. The only cost associated with this would be a drive by appraisal of my home at the cost of between $100-$150, which would then be tacked onto our loan balance.
As you may already know, I am a real estate appraiser. I actually do appraisals for my lender (coincidentally), and I actually do them for the department that I was contacting. I could tell a side story of why my 2009 was pretty good, but that's too much of a tangent- let's just say that appraisals are more in demand when the market is going bad. If you'd like to learn more about my work you can check out my professional blog at Appraiserdude, or follow my on Twitter @appraiserdude.
So since I "talk the talk", I asked some questions which I'm sure are not uncommon (remember, these are with my lender only and might be different with another lender):
What is the typical solution? A chunk of your principle is deferred as a balloon payment and your new loan is based on the reduced principle balance. So if you owe $300k, they might defer $100k, and give you a new 30 year fixed loan with a $200k balance- When you sell your home, you still owe the entire balance. They typically give you "step" interest rates on your payments, so for the first 6 months, your interest rate might be 3%, then it kicks up to 4%, etc.
How does this affect my credit? It does not affect your credit as there is no credit check. The decision is based on the information you provide along with your payment history with the lender.
What out of pocket costs are there? None- the only cost would be an appraisal and the fee is rolled into the loan balance.
What other stipulations are there? If you don't have an escrow account for property taxes and or homeowners insurance, they would be required. So if your current mortgage payment covers principle and interest and you pay your property taxes and or homeowners insurance as those bills arrive, they'd require those to be rolled in. This typically freaks people out since their new payment might actually be more than their current one, but the lender is simply making it more practical for them as those two required payments are now part of the deal (and don't get me started on the fact they the lender earns interest on that escrow money before it's actually due to the insurance company or municipality).
Also, they would require that your mortgage payment is automatically drawn from your checking account- so no more mailing payments.
Finally, he told me that the new loan would not be assumable. That means that if i sell the home, the new buyer wouldn't be able to take over my loan and its terms.
Fortunately for us: our escrow is already part of our payment, our payment is already automatically withdrawn and assumable loans are not common in the first place and I have no need for one.
Also of huge importance for this sort of situation, we only have our first mortgage. So there is one loan on our house. On past homes we've had second mortgages or home equity lines of credit (HELOCs) which means that two entities (besides us) had a financial interest in our home. If we owed $300k for our first, $75k on our second, and our home was worth only $200k, then it sort of throws a wrench into the whole process as the lender who carries the lien on the second mortgage will probably get shafted in the process.
As I had built a rapport with the guy from loan servicing, and since I understand his world (a little) I flat out started venting to him a little. Anyone who knows me knows that I talk a lot. So I expressed that it sucks that responsible people who try to play by the rules are getting hosed for trying to do the right thing while people who know the system are taking advantage of it, walking away from loans even though they can pay them and in fact profiting from the situation our housing market is in. Sure there are guys like Bernie Maddoff who flat out commit fraud, but there are those who take advantage (legally) of the fact that the real estate market is inundated with foreclosed homes, the government has bailed out banks and any other loophole they can find to make a buck.
He then told me that I could simply skip a payment and the bank will automatically send me a preapproved loan modification package... that's what floored me.
So, if I play by the rules, fill out a form, put together a profit and loss statement for my business, show my family cash flow, get copies of pay stubs, copy my 35 page tax return, and then send that in, I'd have the same results as if I simply skipped a single mortgage payment. Doesn't that make you sick? Whatever happened to being responsible? Whatever happened to maintaining a good credit history?
When a friend of mine can short sell a million dollar house simply because he's upside down and immediately buy a $500k house- while at the same time buying a Cadillac Escalade and Jaguar, it makes you wonder.
So, bottom line is that today, I sent the loan modification package to my bank. Yes, I've really started the process. Stay tuned for updates and post a comment if you have any questions about this or anything else. I look forward to it.
PS. If you haven't figured this much out yet: You can do it yourself. Turns out that banks are willing to get something done (at least they claim to). So before you call a "loan modification" company to help you out, call your own bank and see what needs to be done in your situation.
PPS. After I posted this blog, I got a new follower on Twitter whose website is an absolutely FREE loan modification help site. Check it out.