Q: Your recent column gave me the idea that you might be able to help me with my mortgage problem.
I am thinking of applying for a mortgage modification through Home Affordable Mortgage Program (HAMP). We bought our home for $740,000 in 2006, with a $592,000 mortgage. The house is now worth about $400,000 due to general market conditions and flaws in the application of the Dryvit exterior by the previous owner, which an outside engineer has estimated will cost about $240,000 to repair.
Our housing costs (principal, interest, taxes, insurance, and association dues) currently exceed 60 percent of our income. I am 58 my wife is 55, we are both retired. She has a brain tumor, which makes her uninsurable, so we have to get insurance from our state’s high-risk pool. Our deductible medical expenses have been over $24,000 over the last 2 years.
We have not yet missed a payment and have heard that the banks only really take action after a payment is missed. What is the chance of getting a principle reduction through HAMP? Will they refuse to modify since we are not employed (but do have verifiable and stable income)?
Should I hire a lawyer or loan modification company to take care of my HAMP application or can I do it myself? Any other thoughts or suggestions you might have would be appreciated. Thank you.
A: For HAMP, your loan must be under $729,750. But to refinance the loan, it must be serviced by either Fannie Mae or Freddie Mac. If you are looking for a loan modification, you may still be entitled to get one through your lender, but must still qualify in other ways.
If you can’t get a loan modification under HAMP, you can try to talk to your lender about doing a custom loan modification, but I have no idea if they’ll be willing or able to do anything. You’re essentially asking them to cut off a huge hunk of principal and they might just say no. In that case, your best option would be to simply hand over the house to the lender, or do a deed-in-lieu of foreclosure if you can no longer afford the payments.
You’re right – until you miss a payment your lender will likely be unwilling to do anything. So you’ll be stuck with a destroyed credit history and credit score no matter what.
While it shouldn’t be that way, and lenders should be willing to modify loans that are not delinquent but might become delinquent in the future, lenders are busy working on loans that are delinquent and may not see a need to work with a borrower that is current on his or her loan.
When it comes to HAMP modifications, the success rate has been rather dismal. From what I have heard, only about 5 percent of all temporary loan applications have gone on to become permanent and only about 10 percent of all applications have been approved as trial loan modifications. With those numbers, it may not make sense to pay someone to help you with the loan modification.
The paperwork involved for a loan modification is similar to the paperwork you would deliver to a lender if you were refinancing your loan. You would, however, also need to present a hardship letter outlining why you believe the lender should give you the loan modification based on your circumstances.
Most trial loan modifications reduce the amount of interest that the borrower is paying, thus lowering the interest rate. Generally, principal reductions are not being done, but lenders will do forbearance agreements, where you simply don’t make payments for a period of time.
In your circumstances, you should definitely talk to your lender about a loan modification. But if you can’t get a loan modification, you must assess your finances and determine what is best for you and your family given what you are going through.
You might wish to consult with a real estate attorney in advance of calling the lender. But you should do your own negotiating. I haven’t yet met a lender who says that hiring an attorney for $5,000 to negotiate your foreclosure will help you beyond what you can do yourself.
Good luck, and let me know what happens.