Should I settle with my Mortgage Company???

[bpriest]

I would appreciate any suggestions or guidance on my unique situation.  My wife and I have decent credit scores (700+) with a long credit history and we have never been late on our mortgages.

We bought a house in 2006 and at that time the mortgage broker convinced us to put 0% down, split the mortgage into 2 to avoid paying PMI.  The first mortgage was for $175,000 and per his guidance was an Interest Only loan.  This loan was immediately sold to a Fannie / Freddie backed company.  The second mortgage was for $43,000 at 9.25% fixed rate, and is still with the original company - it was not sold to a larger company.

In 2011 I reached out to the original company and asked if I qualified for any assistance.  I was told No, but the mortgage broker could help me re-finance to replace the interest only loan with a normal fixed rate loan at 5.25%.  My wife and I took this because we no longer wanted the Interest Only.

Last year I found out I would have qualified for HARP if we did not refinance.  So the broker misled me again. 

Now, after some legal advice and discussions it looks like I can settle with the mortgage company on the 2nd loan.  I currently owe about $40k and can settle for $10k.  I assume this will hurt my credit, but how much?  Is this settlement worth it?  How hard would it to buy a new home in the next year if we do settle?

Thank You

[coterotie]

Get your legal beagle involved.  Negotiate the fraud as the reason for the settlement and get it in writing that it will not be reported as anything but paid as agreed to credit reporting agencies. 

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@bpriest wrote:

I would appreciate any suggestions or guidance on my unique situation.  My wife and I have decent credit scores (700+) with a long credit history and we have never been late on our mortgages.

We bought a house in 2006 and at that time the mortgage broker convinced us to put 0% down, split the mortgage into 2 to avoid paying PMI.  The first mortgage was for $175,000 and per his guidance was an Interest Only loan.  This loan was immediately sold to a Fannie / Freddie backed company.  The second mortgage was for $43,000 at 9.25% fixed rate, and is still with the original company - it was not sold to a larger company.

In 2011 I reached out to the original company and asked if I qualified for any assistance.  I was told No, but the mortgage broker could help me re-finance to replace the interest only loan with a normal fixed rate loan at 5.25%.  My wife and I took this because we no longer wanted the Interest Only.

Last year I found out I would have qualified for HARP if we did not refinance.  So the broker misled me again. 

Now, after some legal advice and discussions it looks like I can settle with the mortgage company on the 2nd loan.  I currently owe about $40k and can settle for $10k.  I assume this will hurt my credit, but how much?  Is this settlement worth it?  How hard would it to buy a new home in the next year if we do settle?

Thank You

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[ojefferyo]

Talk to a real estate attorney