Loan Modification Questions

[Anonymous]

I am not sure if this belonogs here, or under the BK section, but I'm hoping someone can help.  We filed Chpt 7 BK and were discharged 12/31/07; our mortgages (1st and 2nd - both interest only adjustable) were not reaffirmed as part of this and is "included" in our BK.  Currently, we are upside down in our mortgage and my husband is unemployed.  We contacted our mortgage lender to see if we were eligible to refinance and I was told yes and he should be able to do it under just my income with the new requirments now (which I didn't quite understand, I definitely don't make enough to qualify for a mtg on my own).  I made him aware of our BK, my income, what I believe our house is worth, that my husband was unemployed, etc.  After he ran my credit, he said everything was fine, gave me the terms (I think 5% at the time) and told me to get back to him after I talked to my husband.  When I had gotten back to him the following day, he told me since my husband was unemployed, we would now have to wait to refinance and to call him when he gets a job.  He didn't discuss any other options or why now we had to wait (he wasn't very willing to answer any of my questions - he was "very busy.")  Had I known that ahead of time, I wouldn't have let him run my credit to begin with.  Anyway, my question is this - are we better off trying to do a loan modification now, or waiting to see if my husband gets a job in the next couple months and then trying to refinance?  We are probably ok in making payments for a few more months, but we'll be cutting it close.  Thanks for any opinions on this - I can't seem to get any help from my mortgage lender at this point.

[Lel]

Hi McGruffs, I have a handful of questions to ask you.  Sorry 'bout this, but it will be easier to offer advice with the following information.  Don't divulge any identifying information. 

How far underwater is your home?

Is the amount owed on your first mortgage (not your mortgages combined) less than 105% of the estimated value of your home?

Do you know if your loan is backed by Fannie Mae or Freddie Mac?

Who are the lenders of your loans? 

When are your loans due to adjust? 

What are your monthly mortgage payments (on both mortgages separately)?

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

[Anonymous]

I appreciate your assistance - here are the answers you requested:

How far underwater is your home?  approx $15-20k (this is just an estimate based on recent sales; I have not had a recent appraisal done)

Is the amount owed on your first mortgage (not your mortgages combined) less than 105% of the estimated value of your home?  approx 85%

Do you know if your loan is backed by Fannie Mae or Freddie Mac?  Freddie Mac

Who are the lenders of your loans?  Wells Fargo/JMPC

When are your loans due to adjust?  Aug 2010, Aug 2015

What are your monthly mortgage payments (on both mortgages separately)?  $2015; approx $220 (this adj each month)

What is your current monthly gross (not net) income?  $4388/mo (not incl any unemployment payments)

[Lel]

That information helps.  I forgot to ask a few other questions:

1. What are your current interest rates on both loans?

2. Is there PMI (including lender-paid PMI) on your Wells Fargo mortgage?

Based on what you have already mentioned, you should be eligible - in theory - for a "Home Affordable Refinance" through the government's Making Home Affordable plan.  Since you are not upside down on your first loan alone, then modification is not an option under this plan.

Wells Fargo customers have recently reported that if they have PMI - I believe lender-paid PMI - their requests for modification and refinance have been rejected.  I'll have to double-check whether the rejections were for both modification and refinance.  The justification for this is presumably because WF knows that with PMI, they will get paid by either the borrower or their insurance company, so altering the terms of loans with PMI isn't their top priority.

Here's an important thing to know: since you would fall under the Refinance and the not the Modification portion of the Making Home Affordable plan, you should be able to go to any participating lender and refinance your loan with them.  So if WF won't help you out, then you take your business to B of A or Chase or Citi, for example.

You cannot get a Home Affordable Refinance if you are delinquent on your mortgage, so don't wait until you are late to explore your options.

One sticking point could be this: the MHA plan's goal is to reduce the borrowers' PITI (principal, interest, [property] tax, and [homeowners] insurance) to 31% of their gross household income.  Your current payments - not including taxes and insurance -  right now are over 50% of your gross, so it will take some extraordinary measures to bring your PITI down to 31%.  The lender can't cut your interest rate to 0%.  If you have a high interest rate now, then there will be room to move, but if your current interest rate is relatively low, then it might not be possible to cut your payments down to an affordable level.  This could quash the refinance.

http://www.makinghomeaffordable.gov/

[Anonymous]

No PMI; our interest rates are low (5.5%) and our original intent was to try to refinance while rates are still low and before it adjusts next August (according to my initial call with WF, they could do 30 yr fixed for 5%.); so it sounds like we don't have much in the way of options at this point - unless they are able to take UC into account (but that would only lower it to 40% of our gross)

[Lel]

I believe that unemployment income is factored into the calculations.  Based on what you have disclosed, it's highly unlikely that refinance is going to help you, because the rates for MHA refinance are based on prevailing market rates, so you wouldn't see much of an improvement.

Actually, I just re-read the MHA website, and you are still eligible for the modification plan.  Sorry about that confusion.  So you should contact your lender and ask specifically about the Home Affordable Modification.  You may the same answer that I gave previously - that you are not eligible - then you can point to the eligibility criteria on the MHA website.  Please understand that the loan analysts for WF and all other lenders are swamped with requests, and they are dealing with changing information and criteria that is difficult for them to keep straight.

Here's where your modification might get hung up: WF is going to apply a value test to determine whether it is in their best interest to modify your loan.  Since the balance of your first mortgage is less than the market value of the home, WF might decide that they would rather let you dangle and then ultimately foreclose, because they would get back their entire investment that they made in you.  That is, instead of accepting drastically lower interest payments from you, they might determine that they would do better to just take the house.  The lender of the second would lose money, but WF isn't going to think about their feelings if they choose to foreclose.

Still, you should speak to WF's home retention/loss mitigation team to see if they will consider a modification.  Don't worry about the inquiry - credit scores are not a factor (or at least not a major factor) in modification.  When I got a modification, no credit inquiry was done. 

[Anonymous]

Thanks so much for your assistance; our original plan to refinance was just to get out of our interest only adjustable before rates go back up and we end up not only paying principal, but higher interest as well...and we were doing that under the assumption we would both be employed.   I will contact WF and see what our options are with the loan modification.  Thanks again...

[LindaLu]

your story is almost identical to mine right down to having wells fargo as your mortage company..

as far as they are concerned about lowering your interest rate..forget it...the blew me right off..

the story about pmi and they will get paid regardless is true..the told me I didn't show affordability for the new rate reduction because I wouldn't have enough money left over...$450 about..and I was behind a little on the loan too and was told the investor said it was not in their best interest..I asked what I could do.

and you know what she told me????? call a realtor and put the house up for sale!!!!!!!!!!!

didn't really care to help me keep my home.

I think there should be a clause when trying to get the make home affordable plan...they can't just deny you based on the pmi and that they don't lose regardless because that isn't helping people keep their homes like the whole make home affordable plan is supposed to do if they tell you to put it up for sale!

[LindaLu]

that is very helpful info..but we shouldnt have to go to a lawyer because our mortgage company is not following the whole purpose of the Making Home Affordable Plan..Obama established it for a reason..to help people not lose their homes...and many people will simply because the mortgage companies are playing hardball..do they really expect people applying for this modification to have not had lates, not had another modification (which is a reason you might be denied) or have pmi because you aren't rich and couldn't afford a large or no down payment at all on your home..After all this is for people in unfortunate financial situations..and some are being penalized for it.