Loan Modification

[raiden031]

I'm wondering whether I should apply for a loan modification. The main questions are whether its ethically right to do so given my situation and whether I'm a fool if I don't take advantage of this opportunity.

Anyways I bought a home (townhouse-condo) 3 years ago in a highly over-priced market, and currently my house is worth $50k less than I owe. My wife was working back then so we had much more income and now we have a 1 year old and she's been staying at home because that made the most financial sense to us. Anyways I feel like I'm wasting money because I might qualify for a loan mod, being that my housing payment equates to like 33% of my gross income. I have a 6.75% interest rate which is higher than anyone I've ever met, despite having top-notch credit. Despite all this I'm able to get by and make all my payments and keep the credit card in check as well.

Anyways I'm more like a republican when it comes to finances, but just wondering what others think I should do based on this? Without knowing too much about this program, it doesn't really feel like the right thing to do since I don't need the extra cash flow, but it would be nice to have and I feel like I'm getting ripped off with my current mortgage.

 

[Power Player]

First off, is your mortgage fixed at 6.75? If it is an ARM, and will adjust at year 5 then yes you should apply for a loan mod.

"I have a 6.75% interest rate which is higher than anyone I've ever met, despite having top-notch credit. Despite all this I'm able to get by and make all my payments and keep the credit card in check as well. "

If you can get by and make all your payments, then you probably will not qualify to be modded. You need to be a little upside down usually each month.

 

[Geezer Guy]

Could you just refinance your existing loan at a better rate?

 

[raiden031]

First off, is your mortgage fixed at 6.75? If it is an ARM, and will adjust at year 5 then yes you should apply for a loan mod.

"I have a 6.75% interest rate which is higher than anyone I've ever met, despite having top-notch credit. Despite all this I'm able to get by and make all my payments and keep the credit card in check as well. "

If you can get by and make all your payments, then you probably will not qualify to be modded. You need to be a little upside down usually each month.

I have a fixed rate mortgage. I'm probably a borderline case. My overall debt is not increasing but is slightly decreasing over time. However every now and then I have to pull out of my savings account which is getting smaller over time because I don't have the means to replenish it, plus I can't put money away for my son's college and put the bare minimum in my 401K to get a company match. So its not so much about the present, but about being able to save for the future...

 

[raiden031]

Could you just refinance your existing loan at a better rate?

Typically a refinance will cost a couple thousand dollars and they will only finance 80% of the value of the home. Currently my primary mortgage balance is about 25% higher than the value of my house so I'm underwater by a good bit.

 

[Power Player]

if you can show that you are upside down monthly somehow by a couple hundred or so, then you should be able to get modified.

 

[Geezer Guy]

... Anyways I bought a home (townhouse-condo) 3 years ago in a highly over-priced market, and currently my house is worth $50k less than I owe. My wife was working back then so we had much more income and now we have a 1 year old and she's been staying at home because that made the most financial sense to us. Anyways I feel like I'm wasting money because I might qualify for a loan mod, being that my housing payment equates to like 33% of my gross income. I have a 6.75% interest rate which is higher than anyone I've ever met, despite having top-notch credit. Despite all this I'm able to get by and make all my payments and keep the credit card in check as well. ...

You may have purchased your home 3 years ago for more than it's worth today, but that only effects you if you wanted to sell your home today. Right? If you plan to stay in your home, the price could well come back up the years to come.

Sounds to me like the problem is that you had a kid and your wife quit working. The loss of income is what's hurting you - not the decrease in value of your home. Maybe it's time for Mrs Raiden to get a job after Raiden gets home to care for Jr, or for Raiden to get a 2nd job.

 

[raiden031]

You may have purchased your home 3 years ago for more than it's worth today, but that only effects you if you wanted to sell your home today. Right? If you plan to stay in your home, the price could well come back up the years to come.

Sounds to me like the problem is that you had a kid and your wife quit working. The loss of income is what's hurting you - not the decrease in value of your home. Maybe it's time for Mrs Raiden to get a job after Raiden gets home to care for Jr, or for Raiden to get a 2nd job.

The problem with being underwater was that I couldn't legitimately re-finance, so I'm stuck with the high interest rate. Like I said, I can get by, but I feel like I'm throwing away money that I could salvage if I got a loan mod. I know that owning this house will never amount to any positive ROI, but its a matter of when to cut the losses. Its only 2 bedrooms, so its not something I can expect to spend many years in, especially if we want to have more kids.

 

[jgn1013]

Try to get the loan mod, don't worry about what others or you think about taking advantage of the system. You have a family now, DO WHATEVER IT TAKES... You are throwing hard earn money away.

 

[TheSubdude]

You're not going to get a mod at 33% DTI; the point of the program is to avoid strategic default for those who have suffered loss of income from employment loss or reduction of income. 31% is the general reset rate, and you are only 2% off.

If I remember correctly, you must also be at least 2 months behind on your mortgage payments.

Find a local mortgage professional and have a consultation.

TheSubdude,
loan officer > senior loan officer > manager > underwriter
2002 - 11/2008

 

[Fearsome Forehand]

I think you should do an online investigation to find the lowest 30 year fixed rates and then factor in your out of pocket closing costs among those lenders who offer the best rates. Google is your friend. Or, as suggested above, consult with a few brokers if you don't enjoy doing your own math. If you are underwater to an extent that bars refinancing, you should probably just stand pat for awhile and see what happens with the market. As you are about 50K underwater, a modest market correction will put you back at even which should allow you to re-finance at a better rate. Tell the wife her vacation is over and get yourself an illegal alien nanny.

In the coming years, interest rates are likely to go up considerably due to the current insane fiscal policy. T Bill rates will start to edge up as the default risk increases. When there is an economic recovery, the Fed will start raising rates to curb inflation and/or control growth to a sustainable level. Everything points to rising interest rates. As soon as you can lock in 5 points somewhere, do it. Your lower payments should make that move pay off.

If you aren't planning on moving in the next few years, you should be fine. If the feds will stop intervening and allow the market to bottom out, it will finally bottom out. And then, house prices will start to edge up again. The fact the feds have not allowed the market to bottom out has delayed the recovery in housing prices. Sensible buyers will steer clear of purchasing a home until they are confident the market has bottomed.

This latest program is another cash for clunkers type of deal. If one can't afford one's home, either renegotiate terms with the lender, sell the home, or default. In any of those cases, a renter you should be. If someone makes a bad investment, why should other taxpayers have to bail them out? (It isn't as if they were going to share the gain with the rest of us if the investment had paid off mightily.) Seems stupid to give money borrowed from China, Japan, UK, etc., to people who can't manage their own finances. I believe most of the people (70%?) who the feds "helped" with their mortgages previously ended up defaulting anyway. Programs like this simply delay the inevitable and prolong the economic misery. Government policies largely created the housing bubble in the first place. But, of course, now the same government is going to fix it all. Fat chance.

Many people in the OP's predicament have defaulted on their mortgage, rented the foreclosed house down the block and ended up favorable a grand, or two, or three per month. Of course, their credit will be trashed for a while by doing so. Since the OP is only 50K under, I think he should stick it out. If he was 350K under, I would have another opinion. There are areas in CA where people dropped $650K+ for houses a few years back that are now worth around 250K to 300K. Such people are probably better off defaulting and renting the foreclosed house down the block.

 

[onehandbh]

If you take the load mod your credit rating takes a pretty
big hit. Like 100 pts or something. Even applying for it
temporarily dings your credit rating.

 

[hollywood9826]

Yea Raiden The Loan mod probably isnt the way to go and if you dont have the cash on hand to refi for a lower rate your probably stuck until you can pay the house down a bit or the value comes up.

If you want to talk to a pro and go over your options I can get you my friends contact info. He is like brother to me and they do business the right way. If theres something he can do to help he will.

 

[downs_chris]

just be prepared for it to take a while....it's definitely do-able, but they (your lender) will drag it out...well, at least in my experience with it...i know some other who have had it go a little more smoothly...good luck! definitely give it a try...

 

[stoutman11]

your best bet is to refi under the HARP program. Which will allow to refi even if your upside down in your home at todays rates. The downside is the refi will have fees/expenses where a loan mod is free. The upside is you save your credit and can get up to $5k principle reduction on your loan for free. This is coming from someone in the business.

You could qualify without your wifes income for the mod (potentially) however you will be ste up for a trial plan for 3 months while taking a credit hit. Then you will need to submit a lot of paperwork and keep your fingers crossed when they verifiy your income docs.

Summarize- for you a refi under the HARP program is your best bet.

 

[r2473]

I'm wondering whether I should apply for a loan modification. The main questions are whether its ethically right to do so given my situation and whether I'm a fool if I don't take advantage of this opportunity.

Did you end up doing this?

We managed to "jigger" with our financial picture enough to do this. We will now enjoy a 4.125% until 2015 and then 5.25% for the remainder. Our previous interest rate was 6.375%. We are going to save a few hundred each month.

We tried last year under the "Obama" deal and didn't qualify, but we received a blueprint on how to qualify. Now we do.

 

[raiden031]

Did you end up doing this?

We managed to "jigger" with our financial picture enough to do this. We will now enjoy a 4.125% until 2015 and then 5.25% for the remainder. Our previous interest rate was 6.375%. We are going to save a few hundred each month.

We tried last year under the "Obama" deal and didn't qualify, but we received a blueprint on how to qualify. Now we do.

No I didn't bother. I just got a 5% raise in salary, plus that being coupled with the fact that our loss of income from my wife's staying home was by choice (to have a child) rather than by bad luck, I'd say chances are I'll waste alot of time and won't qualify.

I was thinking about the Obama Refi program as well, but that one would likely cost a couple thousand in closing costs, and I didn't anticipate much of a difference in the monthly payments to really make it worth it.

There was an article that came out recently that said in my area, its expected to take another 6 years before housing prices reach their preak (which is when I purchased the house). So that means I could own a house for approximately 9 years and sell it for the same price that I paid. By then I'll have paid a decent amount of principle, but I don't know if I'll make any significant profit after the 6% real estate comission gets taken out.