American Residential Law Group Loan Modification with BOA

[Lel]

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MBerg wrote:
Thanks so much for your reply, it was helpful. I do have another question you might have insight into: My lender's documents ask for all of expenses; although our mortgage payment (not including taxes) are not above 31%, our expenses are high and the bank's documents ask for a detailed list of every expense, including my student loan or other loan payments. How likely will they be to take these into consideration, even if the mortgage itself isn't above 31% of gross income?

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The 31% ratio - referred to as the front-end debt-to-income ratio - includes all homeownership-related expenses.  This is sometimes referred to the PITIA: Principal, Interest, (property) Tax, (homeowners) Insurance, and Association fees (for condos).  So if your PITIA exceeds 31% of your gross (not net) income, then your lender your lender will try to bring this ratio down, if they accept your case for consideration of modification.

Other debts, such as car loans, student loans not in deferment, personal loans, and credit card debt is factored into the back-end DTI ratio.  Typically, lenders like this to be below 43% of gross income, but there's some wiggle room.  However, if your overall monthly obligations, which include these debt payments as well as other expenses (food, gas, utilities, etc.), are too high, this can lead to a rejection of one's request for loan modification.  This rationale is that if your expense burden is excessively high, then it may be equally likely that you will fall behind on your mortgage whether or not you get a modification.  Over half of those who receive modifications are delinquent again in 6 months, according to market studies.

[Anonymous]

Thank you so much. I do have one more set of questions:  I was told that if I miss one more mortgage payment (we missed one) it might help our loan mod case. That coupled with the fact that my husband was out of work from March through Oct (consulted some), and fairly high expenses -even if our actual mortgage payment isn't more than 31%. Do you know if that is the case? We would still pay the escrow so that wouldn't increase, and we were told the missed payments could realistically be on our account indefinitely, until the end of the mortgage.

And, if we did miss a second payment and then made a payment the next month, would we likely be granted a forbearance if we asked for it? Or would the 2 missed payments hurt that as well? 

We don't WANT to miss payments, but we want to put ourselves in a position to either get a loan mod if possible - if the 2 missed payments, high expenses and temporary job loss made that possible - or apply for forbearance while we catch up, as Mickie said. Any advice would be greatly appreciated.

[Lel]

Intentionally missing payments to try to force a loan modification is not considered to be a good strategy, and it can't be undone if you don't get results.  There's lots of people already seriously delinquent on their mortgages who are seeking modifications; deliberately adding yourself to that group won't necessarily make your case more visible.

By the way, what is your current interest rate?  Is your loan fully amortized, or interest-only?

Let me see if I understand your financial situation.  Previously, from March through October, you had a drop in income, which led to a missed payment.  Did this eventually get paid?  You mentioned that your property taxes were not included in your escrow until recently, which caused your monthly payment to go up.  But these property taxes, whether included in escrow or not, still had to be paid by you.  So your monthly home-related expenses didn't change, but the manner in which you paid them did.  Am I understanding this correctly?

If your PITIA represents less than 31% of your current gross income, then there's really no grounds for a loan modification.  Your mortgage would be considered to be affordable as it stands.  A hardship that no longer exists (your husband has a job now, correct?) cannot be used to qualify for a loan modification. 

[Anonymous]

Our rate is 7.125%, and we are upside down on our mortgage (loan is currently at $373,000, and our home's value has dropped to probably about $300,000 at most). Do you agree that perhaps I should try to ask for a 3 month forbearance instead, get caught up with the escrow? If my mortgage payment is about $2750 (minus our escrow), how does a forbearance work? About how much  (approximately) would my monthly mortgage payment increase after the forbearance is done? We are about 3 years into the mortgage.

[Anonymous]

another warning here.  Looking for a modification because you are underwater generally will go nowhere.  it is very rare (except of course in all those radio and TV ads, that someone gets a principle reduction and that is usuall someone when the lender gets busted with bad documentation or there is a serious problem like death in the family.  From all of your psots so far, there seems to be little cause for a loan modification, you just need to get the escrow caught up so the "extra' payment part is gone.  technically, you should have had the money already saved for this for your taxes and it should not have been an issue (and will not be a factor in the bank giving or not giving assistance). 

As far as missing another payment, once you are 2 payments behind, the bank will likely not accept less than a double payment until it is caught back up so there would be no point to it. 

[MattH]

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@Anonymous wrote:
Our rate is 7.125%, and we are upside down on our mortgage (loan is currently at $373,000, and our home's value has dropped to probably about $300,000 at most). Do you agree that perhaps I should try to ask for a 3 month forbearance instead, get caught up with the escrow? If my mortgage payment is about $2750 (minus our escrow), how does a forbearance work? About how much  (approximately) would my monthly mortgage payment increase after the forbearance is done? We are about 3 years into the mortgage.

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When was the loan taken out?  That sounds like a rather high rate, what were the factors that made it impossible to get a better rate when you bought the residence?  Have any of those factors improved since then?

[Lel]

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MBerg wrote:
Our rate is 7.125%, and we are upside down on our mortgage (loan is currently at $373,000, and our home's value has dropped to probably about $300,000 at most). Do you agree that perhaps I should try to ask for a 3 month forbearance instead, get caught up with the escrow? If my mortgage payment is about $2750 (minus our escrow), how does a forbearance work? About how much  (approximately) would my monthly mortgage payment increase after the forbearance is done? We are about 3 years into the mortgage.

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It's still not clear what makes your mortgage unaffordable at present.  Maybe some concrete numbers will help.

Your monthly principal and interest payment is $2750.  Correct?

What is your monthly property tax and homeowners insurance escrow payment?

You mentioned an escrow shortfall in the past - by how much did this increase your monthly payment?

What is your monthly homeowners association payment, if any?

What is your current monthly gross (not net) income?

Other questions:

Did you eventually make that missed mortgage payment?

When was the missed payment, and how late were you (30, 60, 90 days?)

Forbearance agreements may require you to make up the missed payments over a short period of time.  For example, if you're given a 3 month forbearance, you may be given 3 months to bring yourself current after the forbearance is over.   In addition, your credit score will likely tank because your lender will report you to the credit agencies as being in forbearance.  For many borrowers, it only delays the inevitable.

[Anonymous]

Here are my answers:

•Yes, the principal and interest is $2750.

•Our regular monthly property tax should be about $320. We pay homeowner's insurance and association privately (association is $700 per year; insurance about $1400 per year).

•Our gross monthly income is about $11,000 (net $8574, plus my husband earns about $6,000 per year (about $500 per month) as an adjunct professor (so about $11,500 gross).

•We have not made that missed payment; we only missed that one month though, so I think we are continuing to show as 30 days late each month (I think each month, we are actually paying for the month before).

• My student loan is about to come out of forbearance, although I'd like to put it back in for 6 months (pay the interest IF I can afford it) and get my house situation under control. We can't lose our home -we have two children, etc. and want to do what we can to get ourselves back on track. Which is why I so appreciate your advice).

Let's see if I can explain the shortage in more detail than before though - although I don't understand it completely. It's long but hopefully you can follow.

Our lender decided to pay our '08 taxes for us in March, when we were due to pay (we usually incur the little bit of extra fee to pay our taxes within the allowable window - instead of right away in Dec - because we have always used our income tax refund to pay. However, our income tax refund fell short in 2008; to top it off, when my husband lost his job we were trying to figure out a way to pay, which was why we didn't pay the lender right away for their advance of our property tax) We realize this wasn't smart, of course, but we're just trying to find a way to rectify our mistakes. 

Our lender then said that our taxes would now be escrowed going forward. So, in addition to having the regular '09 payment (based on our '09 tax bill that should have been about $311 per month - plus the additional amount per month to catch us up from Jan-March, before our taxes were escrowed), we had to start paying them in increments for the '08 taxes they paid for us in entirety. We were paying $600 per month from April through December (minus the one missed mortgage/escrow payment in October - which we still have not made up).

Our 2008 taxes that the bank paid for us were approximately $4300 (I don't have the bill right now but that's my recollection). Our 2009 taxes were $3750 or so. From April through December 2009, we paid $4800 (we paid $600 per month: $468 of that payment would have gone toward the 2009 taxes, as I understand it - since we were beginning the 2009 escrow payments 4 months late into the year - and $132 of that $600 would go toward the missed 2008 taxes). That would be a shortage, at this point, of $3250 (our payments into escrow for the 8 months would be enough to pay our 2009 taxes completely, and a portion of 2008 taxes). 

I mentioned we were paying $600 per month toward escrow. However, somewhere between July and October (I'm trying to find my statements from August and Sept), our escrow payment somehow was increased to $924 (I'm assuming to make the repayment of the advanced taxes faster; they had allowed us initially to make smaller payments). However, I don't know why the shortage itself would increase since we were paying enough to cover '09 taxes and some of '08 advanced taxes; we received a notice this week that we actually have an $11,000 shortage (give our take in the hundreds place - my husband has the bill with him so I'm writing from memory). I don't understand this (he is placing a call into the lender). We obviously need a breakdown for us.

So, what is making it unaffordable for us is - they are having us pay that $924 into escrow and then another $311 or so into escrow - making our total mortgage payment beginning in February about $4,000 (as opposed to the $3060 we would pay normally to cover our mortgage and regular escrow/tax payment). We could pay the $3200 or so to cover that shortage that WE THINK we should have at this point (we would still need to pay for that one missed mortgage payment...but we could pay all the missed escrow at least). But we don't understand that additional $8800 or so, or our increased escrow payment.

 

[Anonymous]

I was mistaken about one fact: I'm looking at my statement from January, and see that I began making this $600 escrow payment then. So, my lender must have paid my 2008 taxes in December (even though we had until March), and it would have been lower than the $4300 in taxes. I would think my shortage should be smaller than I originally thought. I am having trouble locating some of my statements, but will be looking this weekend; I can probably get them online too. But since I found the January 2009 bill, and I see many of my 2008 bills without an escrow payment, I now realize the bank must have paid for these taxes in December.

[Lel]

Okay, that's quite complicated, and quite an impressive effort at laying it all out.

For the purposes of whether you would qualify for a loan modification, I don't know whether your lender will add your tax obligations for 2008 to you current obligations.  That is, they may just look at what your ongoing monthly payments would be without factoring in your shortfall in tax payments for the previous year.  The additional payments for back taxes will eventually stop.  After that, your monthly obligation will revert back to your PITIA for the current loan.

Looking at the PITIA without considering your added escrow responsibilities, you have P&I $2750 + property tax $320 + insurance $117 + association fees $59 = $3246 per month.  I just divided your insurance and HOA fees by 12.  This represents less than 30% of your monthly gross income, even if you use the lower $11,000 figure.  So your mortgage, in the absence of the additional payments, is technically affordable, and thus it seems less likely that you will receive a modification.

I can see how your escrow would have gone up from $600 a month to $924 - if only $132 was going to pay your 2008 taxes, then it wouldn't be paid off for a couple years.  So perhaps your lender increased the escrow to make up for the shortfall.  But are you saying that they increased the amount further, by an additional $311?  I don't understand what that would be for.

The big question, as a I see it, is where all this escrow money is going, and why your shortfall is so large.  It doesn't make any sense if you only missed one mortgage payment and only have to pay back taxes for one year.  I think you definitely need to get an accounting of how they got this number.