Home Loan Modification

Anonymous · ‎07-05-2009

Hello,

I had applied for a Home Loan Mod through Wells 2 months ago.They have comeback to me now with a partial payment plan. I would have to make 50% payment for the first three months and the fourth month payment is pending 50% for the first three months plus regular payment of the fourth month. They will evaluate at the end of the fourth month for a term change or decrease in interest rate.

They want me to sign a forbearance agreement. For the first four months, the due date of my loan will continue to be reported to the CB on a montly basis.While this forbearance plan is in effect, there will be a special notation: "Paying under a partial agreement,".

I have not decided if I have to sign the forbearance plan since I do not know how it would effect my credit score. Also, I am not sure if I will get a reduced interest loan mod. The term change loan mod will not really help me since I will end up paying more interest.

Let me what you think how forbearance effects credit rating. Its reported as Paying under a partial agreement?

Thanks.

Lel · ‎07-05-2009

brownbear wrote:

Hello,
I had applied for a Home Loan Mod through Wells 2 months ago.They have comeback to me now with a partial payment plan. I would have to make 50% payment for the first three months and the fourth month payment is pending 50% for the first three months plus regular payment of the fourth month. They will evaluate at the end of the fourth month for a term change or decrease in interest rate.

They want me to sign a forbearance agreement. For the first four months, the due date of my loan will continue to be reported to the CB on a montly basis.While this forbearance plan is in effect, there will be a special notation: "Paying under a partial agreement,".

I have not decided if I have to sign the forbearance plan since I do not know how it would effect my credit score. Also, I am not sure if I will get a reduced interest loan mod. The term change loan mod will not really help me since I will end up paying more interest.

Let me what you think how forbearance effects credit rating. Its reported as Paying under a partial agreement?

Thanks.

If this is being modified under the terms of the Making Home Affordable plan, it is possible that this 50% reduction in payment represents the 3 month trial period that is part of the guidelines of this plan. If you agree to the plan, then it would important for you to make each payment on time in order for the modificaiton to become permanent.

I don't know how the different reporting will affect your score, but at the very least it sounds like you won't be reported late.

The goal of modification is to lower one's monthly payments in order to make a loan more affordable. These commonly come in the form of a lower interest rate, an extended term, or both. If you are having trouble affording your loan payments, then I think you should worry less about what effect it will have on your score and more about whether the plan makes your loan affordable. Passing up a reasonable modification in the face of financial hardship puts you at risk of default and foreclosure, which have more severe and long-lasting effects on your score and your ability to buy another home in the future. Yes, extending the term of the loan will increase your interest payments, but if it keeps you in your home, then it's not such a horrible option. If your financial fortunes improve in the future, you can always add a little more to your payments, to pay down the principal faster and reduce your interest payments.

Anonymous · ‎07-06-2009

Yes, this is modified through Making home affordable plan.

In my current scenario, I am spending more than I earn. This amount is roughly around $500. I can reduce this amount to Zero $, by sending my kid to preschool parttime or something instead of fulltime.

I want to evaluate which option is the best for me. If it hurts my credit score, I rather cut corners and do the above. If it does not hurtmy credit score, I can go for the mod. But I am not sure how bad it would effect my credit score.

Let me know what you think.

Thanks.

Lel · ‎07-06-2009

brownbear wrote:

Yes, this is modified through Making home affordable plan.

In my current scenario, I am spending more than I earn. This amount is roughly around $500. I can reduce this amount to Zero $, by sending my kid to preschool parttime or something instead of fulltime.

I want to evaluate which option is the best for me. If it hurts my credit score, I rather cut corners and do the above. If it does not hurtmy credit score, I can go for the mod. But I am not sure how bad it would effect my credit score.

Let me know what you think.
Thanks.

Are you going to need to apply for credit sometime in the near future? If not, I don't think I'd make a decision based on what might happen to your credit score.

I'd rather have a roof over my head and money in my pocket than an extra 25 or 50 points on my credit score.

For the record, I have received a loan modification. There was no trial period and during the modification process, which lasted 6 months, no payments were reported to the credit reporting agencies. Until April, my last recorded payment was November. However, I was not reported as late - to the CRAs, it just appeared as if the bank was not updating my credit file at all. My score didn't change.

Anonymous · ‎07-28-2009

I lost my job in January and we burned through all our 6 months of savings. We started the Making Home Affordable program's Two Step process last April. We qualified, proving financial hardship and completed Step Two by making three trial payments on the modified amount. We signed documents agreeing to everything stipulated by the program in early June.
Two weeks ago, we were told that our modification had been declined because of the fact that we had equity in our home.
Now we are stuck. We are several months behind on payments and have been discriminated against due to the amount of equity we may have in our home.

Curious to know if anyone else has had this experience.

Lel · ‎07-28-2009

Highlander123 wrote:

I lost my job in January and we burned through all our 6 months of savings. We started the Making Home Affordable program's Two Step process last April. We qualified, proving financial hardship and completed Step Two by making three trial payments on the modified amount. We signed documents agreeing to everything stipulated by the program in early June.
Two weeks ago, we were told that our modification had been declined because of the fact that we had equity in our home.
Now we are stuck. We are several months behind on payments and have been discriminated against due to the amount of equity we may have in our home.

Curious to know if anyone else has had this experience.

I'm sorry to hear about your situation. Now that the Making Home Affordable plan has been in place for a few months, there are probably going to be a lot more borrowers that report similar stories.

If you were not late at the time that you initially sought relief, then you probably should have been directed to the Home Affordable Refinance (not Modification) program, since you have equity in your home. The refinance program allows borrowers whose mortgage balances do not exceeed 105% of the home's value.

If you were late at the time you applied, or if you owed more than 105% of your home's value, then the refinance program would not apply.

The problem that you face - having equity in your home - stems from the fact that the lender applies what is called a "Net Present Value" test to your loan to see which is the most advantageous option to the lender. Basically, the lender determines whether it would be better for them to modify your loan or leave your loan unchanged, leaving open the possibility of foreclosure.

Here's a couple illustrations:

1) Let's say a borrower owes $500,000 on a home worth $300,000. The borrower needs a modification because of a decline in income. If the bank lowers the interest rate from 6% to 3%, the loan will become affordable to the borrower and the bank continues to collect principal and interest payments. If the loan is not modified, the borrower defaults and the bank recovers only $300,000 of what it is owed. The bank's better option is to modify the loan, accepting the lower interest payments, because they won't lose as much money as they would in a foreclosure. The NPV test is positive, in favor of modification.

2) A borrower owes $500,000 on a home worth $750,000. The borrower needs a modification because of a decline in income. The bank could lower the interest rate to 3% to make the loan more affordable. But, if the bank were to leave the loan unmodified and if the borrower goes into foreclosure, the bank could conceivably sell the home at auction for the balance owed, since the market value exceeds the loan balance. The bank could recover every penny that is owed, and re-lend it to someone else at prevailing market rates. The NPV test is negative, not in favor of modification.

I don't know how much equity you actually have in your home, but it's quite possible that your NPV test was similarly negative, hence the denial of your modification.

Anonymous · ‎07-28-2009

Thanks for the reply. We are situation # 2. $350,000 home and we owe $230,000. Fanny Mae holds the loan and from what you are telling me, their attitude is that they can forclose and not lose money. That seems awfully cynical. Our bank that services the loan, has worked very hard, as far as we can see, to help us. At present they are trying to get Fanny Mae to modify under one of their programs.

It is not pleasant being unemployed and in this situation, something I have never experienced before. Any ideas you may have would be appreciated.

Bernie.

Lel · ‎07-28-2009

Highlander123 wrote:

Thanks for the reply. We are situation # 2. $350,000 home and we owe $230,000. Fanny Mae holds the loan and from what you are telling me, their attitude is that they can forclose and not lose money. That seems awfully cynical. Our bank that services the loan, has worked very hard, as far as we can see, to help us. At present they are trying to get Fanny Mae to modify under one of their programs.
It is not pleasant being unemployed and in this situation, something I have never experienced before. Any ideas you may have would be appreciated.
Bernie.

With that amount of equity, a lot of borrowers would be steered away from the Making Home Affordable plan. MHA is intended for people who have almost zero or even negative equity, and are unable to refinance into more favorable terms. With nearly 35% equity, most lenders would have told your from the start to pursue a conventional refinance. Having multiple late payments at this point, with their negative effects on your FICO score, refinancing might be very difficult and you may not qualify for the best rates.

Of course, if your current income is insufficient to pay the mortgage even with a reduced interest rate, then you probably would not have been approved for a refinance. Even if you were theoretically eligibile for a Home Affordable Modification, if your income fell short you would have been denied a modification as well.

What is your current interest rate? Who is your lender?

You have one option that is not available to those who are upside down: you can sell your home. You won't have to deal with the headaches of a short sale, and could come away (after commissions and so forth) with nearly $100,000. That should hopefully get you through these difficult economic times until you find a new job.

Anonymous · ‎07-28-2009

MHA is not for people with equity and you should have never been sent there. A refi would be an option but...

one key thing here is the unemployment.

All of the programs still require the owner to be able to show ability to pay. If there is no income, they willnot qaulify for the help. Neither the banks or the gov't is willing to help out if people do not have income to justify the house payment.

Anonymous · ‎07-28-2009

You will always come out better having an attorney negotiate with the lender on your behalf. Do some research. Its becoming more affordable, and most will review your situation for free, letting you know up front if a mod can be done. I've heard some good testimonials of foreclosures stopped, interest rates lowered five points, arrears put on the back of loans, even principle reduction. Don't go on what others have received, but find out what they can do for you before you retain them. If you add up what it will cost you to loose your home, paying the fee is better than trying to get something free from the banks. They really don't like to give anything back.

[Edited - please avoid posting personally identifying information.]

Message Edited by Lel on 07-28-2009 09:42 PM