I asked Nadine how long it had been there and she said that it was on our doorstep after soccer. My eyes went wide and I announced that it was the loan modification package. I ripped it open and found 8 pages and a FedEx return envelope. I didn't want to read, I just wanted to look at terms. Page 1- words, Page 2- words, Page 3- three payment coupons which are 80% of our current payments, Page 4- words, Page 5- words and three date/payment items that corresponded with the payment coupons from page 3. I felt like I was missing something (and considering that I'm not a speed reader, and that I opened the package 30 seconds prior, perhaps that was why my daughter's worst subject in school is reading comprehension). So I enlisted Nadine to read as I read.
We started from the beginning.
- Page one says: I qualify for the workout plan. My monthly payments are based on the income information that I provided, and my payments during the test period are an estimate of what it will be if I pass the test period. They will charge me for an appraisal or BPO (broker's price opinion- which is provided by an Realtor) or in my case, I heard the last rep say that he'd order an AVM (automated valuation model). Page 1 continues with saying that if I can't handle the payments, they will still work with me to figure out a solution. It concludes by saying that if my payments are received, they consider that I have agreed to the terms of the plan.
- Page two is: three payment coupons that are about 79.8% of what my current payment has been. Now keep in mind probably the biggest challenge with loan modifications- A mortgage payment can consist of a handful of line items. Those line items can include (but aren't limited to) interest on your mortgage, principal on your mortgage, private mortgage insurance premium, property tax estimates, property insurance estimates, late fees. Now what a lot of people do is pay as little as they can to the mortgage company and figure they can take care of the rest on their own- specifically the taxes and insurance. Now these items are required for everyone who has a mortgage, but in our paycheck to paycheck society, a lot of people would rather pay those specific items exactly when they are due and perhaps with a credit card- as opposed to setting money aside each month in anticipation of those payments. So mortgage companies set up what called an Escrow Account specifically for this purpose. If you haven't been set up like this prior to your loan mod, then your revised payment can easily be MORE than your old payment. Say your mortgage payment was $2000 per month and that is just principal and interest. You pay $2500 a year in property taxes and $500 a year in homeowners insurance but you pay those on your own. If your mortgage company reduces your payment to $1800 a month, that's pretty cool isn't it? But now they will require that your taxes and insurance are escrowed, so your monthly payment will now be about $2050 per month- hardly any monthly relief, but in the big picture, you're still saving $2400 a year in immediate cash flow. If you're not clear on this, feel free to add a comment below- I'm in real estate so it's easy for me to understand, but that doesn't make me smart in whatever it is YOU do for a living!
So, bottom line is that we already had an escrow account and so if and when my loan was modified, I knew that those items were already part of the equation. To summarize, my new trial payment is now several hundred dollars less than what it was.
- Page 3 tells me what to do now: to accept this offer, simply pay the coupons on the previous page instead of what I had been paying. I have to send payment to a different address and if I send the wrong amount, it screws up the process. They don't require any additional documentation. They gave me a phone number to call if this new plan is not practical. They say that any foreclosure sale would be cancelled if the terms are complied with. It says that my credit score may be affected by accepting the modification. It states that my debt-to-income ration is 31.01% (I assume that means with the new payment). It states that if my debt-to-income ratio is over 55% I'm required to seek credit counseling from a HUD-approved agency.
- Page 4 looks like a contract/agreement and is full of "legaleeze": It is a statement that says that they will modify my loan permanently if everything I've provided is true and if I make the three payments. It says that the modification will be an amendment to my current mortgage.
- Page 5 is the second page of the agreement: It says more of the same plus: "the lender will hold the payments received in a non-interest bearing account until they total an amount that is enough to pay my oldest delinquent monthly payment in full (I have no delinquent payments). It says that if I miss a payment during the three months or if they find out that any condition of my documentation is not true, that the plan will terminate. It also says that this is NOT a modification and that the modification only goes into effect if I've met the payment terms of the trial period and if my documentation remains true.
- Page 6 is a FAQ (frequently asked questions). Of note are "How was my payment determined?"- 31% of total gross monthly income. "How will my credit be affected?" If already late, then normal reporting, if my payments are current then no effect on credit as long as I make the payments. "When will the modification be permanent?" If all three payments are made they will re-evaluate my qualifications and a decision will be made within 20 days of final payment. "Will my interest rate and principal and interest payments be fixed after modification?" Interest rate and monthly payment will be fixed unless the new modified rate is below current market interest rates. If that's the case, it will be fixed for five years and then it may increase by 1% until it reaches the cap- the cap is determined when the loan modification is made permanent- so you have five years advance notice of what that cap will be. "Are there incentives for being current?" (this was the interesting one) Once modified, you may qualify for a pay-for-success incentive, where if you make your payments in full and on time, you'd get sort of a cash benefit of up to $1000 per year for five years (to help built equity). But the benefit is lost if 90 days late on a modified payment.
- Page 7 is a boilerplate HUD statement warning the consumer about foreclosure rescue scams as well as contact information for the Special Inspector General for TARP (troubled asset relief program) in case you do encounter any fraudulent activity.
Now it only took about 1 minute to really get the gist of the letter, so no time was lost on the day. So, I guess you can say that a solution has been reached (sort of). Until those three payments are made and the loan is permanently modified, then this is only an interim solution, but it's definitely a step in the right direction.
Then Nadine disappeared. I gleefully rangled the kids into the car to go play baseball, but when I called Nadine, she was in the backyard, trimming a bush... I snapped at her about baseball and then I realized what she was doing. And so for the next hour we trimmed the bushes that hadn't been trimmed in over two years- a little bit of home ownership pride was restored and she wanted to get right on making out house beautiful again. I wish I could have gotten a picture of her jumping in the trash can to compress all the clippings.
Don't give up hope in your situation!