Q: I’m a single dad trying to raise three daughters. My income was greatly reduced last year, so I applied for a loan modification in August, 2010 from one of the big banks. I have an FHA loan.
I was approved to begin the process and was informed that I would need to pay $400 per month over the course of the next five months. I was told that after five months my situation would be re-evaluated. I jumped at the opportunity since my loan was crushing me.
Now, I’m informed that due to my payment delinquency (a delinquency that the bank created since I was current on my payments up until October) I have been rejected for Obama’s underwater mortgage program.
The program the bank is now directing me to will reduce my interest rates but the $7,000 I am behind on the loan will be added back into the loan basically wiping out all of the principle I was able to pay on the home over the last 2 1/2 years. In addition, the lender will get to reset the 30-year clock on me.
Is there anything I can do? This house means everything to us!
A: I’m sorry that you’re in this situation.
It’s unfortunate that you were not approved for the Obama underwater mortgage program for FHA, but it sounds as though this big bank didn’t do you any favors and didn’t direct you to the correct program from the outset. It also sounds as though you didn’t do enough investigating early on.
You can certainly file a complaint with the Office of Comptroller of the Currency, which regulates the big banks. The website you’ll want to go to is HelpWithMyBank.gov. Please use the complaint form and hold onto your complaint case number.
But let’s look at the option on the table: If the deal will wipe out any late payments and reset your credit history, then you should do it. While it feels as though you’re losing equity, the $7,000 is money you would have paid with your regular payments during the time you paid the lower amount. It includes interest and principal. You should check to make determine whether they also added on penalties and other fees to that amount.
What’s killing your home equity is the general state of the local real estate market, but that’s a separate issue. It doesn’t matter how much of the loan you’ve paid down if property prices have fallen by 25 percent in your neighborhood due to foreclosures.
If you can get the loan to reset and start again, that’s a pretty good deal as far as it goes. I don’t think you’ll get a better offer unless the OCC complaint gets the bank to unwind the original decision and make you eligible again for the Making Home Affordable (HAMP) program.
I know you’re a single dad trying to make this work, but remember this house is only four walls and a ceiling and floor. You and your family make the home, not the building. That’s what you bring to the table.
Good luck. Let me know what you decided to do.