Mortgage Modification
This is an email from my wife’s friend who lives in Las Vegas:
I’m writing this to give you all an update on my housing situation. You’ve been included in this e-mail because you’ve shown me your interest in what happens and have given me your support throughout this entire bullshit ordeal.
Back in July 2008 it was apparent to me that I was going to have trouble making my payments and proactively reached out to my bank to discuss my options. They were no help to me at all. My last payment was made in Nov 2008. Sometime in early 2009 I got my official ‘default’ letter… no big deal. April 2009 I got my ‘election to sell’ letter which gave me the exact date my house would be put up to auction (Mid-May). 10 days after that letter, I was approved for President Obama’s Making Home Affordable Modification Plan (HAMP). The initial deal required me to make 3 monthly payments in an amount that ended being 1/3 my normal payment. If I was able to make the 3 payments (Trial Period), then my lender would draft and send me out final Modification Documents with a monthly payment in the amount close to the 3 Trial payments. Done. I made the payments. The Modification Documents were not sent out to me by the agreed upon date of Sept 1, 2009. My lender lied or committed fraud… u decide. After 3 months of bugging the crap out of a lot of people that work for my lender (up and down the chain of command), and some outside help from Senator Harry Reid’s office, Lt. Gov. Krolicki’s chief of staff, and CCCS (a HUD consumer advocate group), the Modification Documents were finally sent to me early this week with all the details.
The deal is NOT what I had been expecting. My lender doesn’t take ANY loss at all, which pisses me off. Long term, the deal sucks… Short term, the deal is good. Here’s what they have done:
Old Principle=267k
New Principle=281k (they added something from the 12 months that I made no payment)
They take roughly 185k and put it in Forbearance for 40 years. (I don’t pay it down nor do they charge interest)
The remaining balance (roughly 100k) I pay down like any normal mortgage over 40 yrs. My house TODAY is worth roughly 100k, so I think that part is fair.
Years1-5= 2% interest resulting in a total monthly pymt of <$800
Each year after the interest increases by 1% until it reaches 5% and then HOLDS for the life of the loan. Total monthly pymt never goes higher than $1000. (taxes & insurance r included)
THAT part is the part that I like… it will keep me in the house with a payment lower than any apartment or house that I could RENT! Plus, technically it is still mine.
Remember the 185k that has been sitting off to the side? That comes into play when 1)40 years expires, 2)I sell the house, 3)I refinance the house. If any of those 3 things happens, the 185k comes back into play. This is the part that sucks!
The way I see it is like this… If I do not take the deal, then they will foreclose on me relatively soon (I’ve held off for 12 months, not sure how much longer I could delay if I don’t take the deal). I cannot find an apartment or house to rent for less than $800/mo (which is what I’d pay if I take the deal). I’m locked into a payment that is less than $800/mo for 5 years guaranteed (rents tend to go up…). If within those 5 years (or whenever) I decide to bail, I can always default again and let the house go (which is the situation I’m in right now). OR if I decide to buy another house while prices are dirt cheap, I can always rent out this house while enjoying the CHEAP monthly payments under this plan. OR if things do actually start to go up (which I don’t think), it is possible to get back to even on this house by selling it… someday. Also, in 40 years I will be 75 y/o and really…. Am I gonna give a shit then if I still owe 185k on this crappy little house that I hope I’m not still living in when I’m 75?!?!? OR in 40 years it will sell for more than 185k and it won’t matter anyway…
That’s the deal. Not what I had been expecting, but it looks like it is in my best interest to take it. Worst case scenario, I pay $800/mo until I decide to default on it again. Best case scenario, prices go back up relatively soon and I get back to even.
I think there may be more options:
1. Arson (not recommended and you have to torch all your stuff to make it look good; pets too).
2. A short sale. The lender has to share in the losses and your credit is fucked forever. You get out of the mortgage but may never get another one, at least until the economy recovers in full. Also, you gotta find a new place to live.
3. Bankruptcy. The judge could shove a deal down the throat of the lender. Your credit is also fucked with this option.
4. Hunker down. This requires patience, weapons, rations and supplies. Make them throw you and your shit out. Maybe take a few of them with you. May require building a cement bunker under the living room.
5. Take the deal, even with the drawbacks. I would not count on prices going back up any time soon.
6. Abandonment. Let them sort it out after you get a new place to live (hopefully not your car in the desert). Perhaps you trash the place on your way out like so many others have done. AT least get the precious metals.
7. Bet the place on one hand of blackjack at the Mirage. If you win, you get to pay off the mortgage, if you lose, it belongs to the Mirage and is their problem (of course the bank will still want to get paid by you).
I can’t think of anything else right now, but good luck to your wife’s freind.
Walk away.
Just walk away. They will probably never live in the house long enough to break even. The bank isn’t going to forget about the $185,000, and why should they?
Property values in Vegas are at early 90′s levels and still falling. If your friend needs to find a place to live for around $800 a month I can look on the MLS and help find one. And I could probably avoid the whole – “you got a house you couldn’t afford and now want to get pissed at the bank when you don’t feel like paying them back for a loan that they gave you and you agreed too? STFU!!!”
Seriously – if they need to find a house or condo to rent I can help.
Bankruptcy would be the way to go. Everything is done properly and you don’t necessarily have to stop paying on good debt like credit cards etc.
Talk to a bankruptcy attorney before you decide on any give strategy…
Let him/her tell you the benefits and negatives of filing. seven years later, if you keep your act together, your back to 700-800 credit score and rockin’.
Taking the deal would be like hugging an anchor while lost at sea.