Can we negotiate on Mortgage Modification?
October 18, 2013 4:56 PM Subscribe
Good news: after months of fun, our mortgage provider has presented a mortgage modification trial agreement. Bad news: the payments are just $150 less than they are on the original mortgage. Can we negotiate with them? Do we run the risk of losing even this concession?
Unemployment is the pits, guys!! Okay, rant over. So I got laid off, last day of work was 12/31/2013. Had a really good job. Husband is still working, his job is not as good but okay enough. Our credit is solid finally. Have owned our house for like 5 years, unfortunately bought like a lot of people at the top of the market. It's a little underwater still, but getting better. Had never been late on a payment until I lost my job. We don't have kids.
Just not sure what to expect from this modification deal. Is it a "this is your offer, take it?" kind of deal?" FWIW, we'll probably have to sell if they can't do more and that'll mean short sale. It's close but we just can't quite swing everything on one salary, and I just got a no on the zillionth job interview. So, rambling. Any advice for folks that have been in this situation is greatly appreciated. TY.
Unemployment is the pits, guys!! Okay, rant over. So I got laid off, last day of work was 12/31/2013. Had a really good job. Husband is still working, his job is not as good but okay enough. Our credit is solid finally. Have owned our house for like 5 years, unfortunately bought like a lot of people at the top of the market. It's a little underwater still, but getting better. Had never been late on a payment until I lost my job. We don't have kids.
Just not sure what to expect from this modification deal. Is it a "this is your offer, take it?" kind of deal?" FWIW, we'll probably have to sell if they can't do more and that'll mean short sale. It's close but we just can't quite swing everything on one salary, and I just got a no on the zillionth job interview. So, rambling. Any advice for folks that have been in this situation is greatly appreciated. TY.
Are you able to shop around? When I got a mortgage I got a mediocre offer from my bank, and then asked a couple of mortgage brokers what they could offer, and got the brokers and the bank to bid against each other, so to speak, and ended up with the bank, with a far, far better deal than their initial offerings. If your current lender can't do a great job with (2) and (3) as per above, maybe you can find another institution willing to do better.
Also, my bank has a 'miss a payment' thing one can take advantage of a few times throughout the life of the mortgage; if there's a chance missing a couple of payments would make the numbers work for the full year, maybe worth inquiring after?
posted by kmennie at 5:59 PM on October 18, 2013 [1 favorite]
Also, my bank has a 'miss a payment' thing one can take advantage of a few times throughout the life of the mortgage; if there's a chance missing a couple of payments would make the numbers work for the full year, maybe worth inquiring after?
posted by kmennie at 5:59 PM on October 18, 2013 [1 favorite]
Have you applied for HAMP, or is this just a private modification? If private, try the HAMP route.
posted by Wordwoman at 6:40 PM on October 18, 2013
posted by Wordwoman at 6:40 PM on October 18, 2013
Best answer: No. You cannot negotiate, UNLESS (and this is a big unless) you have solid reason to believe they used incorrect income in calclulating their figures.
I do mortgage modifications for a living and explain this to borrowers all day long. We cannot just make up numbers. For HAMP, which is far and away the most common modification we do, we are required - by federal law - to get your mortgage payment + escrow to 31% of your gross monthly income. It will not go less. Regardless of your expenses, your tax bracket, the current value of your house - you agreed to your original terms, and a modification is in itself already a negotiation. If $150 less than your original payment is 31% of your income, then the modification did it's job. Period. This is done by (1) lowering your interest to as low as 2%; (2) extending the life of your loan up to 40 years; (3) forbearing (setting aside as a balloon, to potentially drop off if you remain in good standing) up to a certain percentage of your upb (principle). Everyone who asks for a mod wants their principle reduced - 90% of them don't get it. The investor (not the mortgage servicer: the INVESTOR who lent you the money through them) doesn't want to lose any more money than they have to - it's a business.
Now, if you have already had HAMP, or if the property being modified is not your primary residence, then you may have gotten HAMP 2. HAMP 2 can keep your mortgage as high as half your income, as long as the P&I (principle and interest) is less than it was before - by any amount. I have seen accounts which, due to a large delinquent balance and a large escrow shortage (meaning, you weren't paying your mortgage so we paid your taxes for you and now we are adding them back into your payment, usually spread out over the course of a year) have actually wound up with a HIGHER total payment after modification. - the benefit to accepting this offer, to the borrower, is that it's either that or foreclosure, because often by this time they haven't made a loan payment in literally years. Many, many people have unrealistic, even dare I say delusional ideas about what a modification is or can do. It is not: getting the principle on your home down to it's current value. Getting you the same deal as your neighbor/friend/cousin/grandma (another thing people don't realize - different investors have different guidelines and standards: rules on modifying an FHA loan are different from a Fannie Mae, and different from private investor, etc etc - the mortgage company is required to follow both (a) federal law and (b) highly specific investor guidelines in approving any sort of modification. Doing something "wrong" on an FHA loan, for example, may violate the lender's ability to later cash out on their insurance against the loan via federal funds if it eventually does go to foreclosure.)
posted by celtalitha at 7:43 PM on October 18, 2013 [4 favorites]
I do mortgage modifications for a living and explain this to borrowers all day long. We cannot just make up numbers. For HAMP, which is far and away the most common modification we do, we are required - by federal law - to get your mortgage payment + escrow to 31% of your gross monthly income. It will not go less. Regardless of your expenses, your tax bracket, the current value of your house - you agreed to your original terms, and a modification is in itself already a negotiation. If $150 less than your original payment is 31% of your income, then the modification did it's job. Period. This is done by (1) lowering your interest to as low as 2%; (2) extending the life of your loan up to 40 years; (3) forbearing (setting aside as a balloon, to potentially drop off if you remain in good standing) up to a certain percentage of your upb (principle). Everyone who asks for a mod wants their principle reduced - 90% of them don't get it. The investor (not the mortgage servicer: the INVESTOR who lent you the money through them) doesn't want to lose any more money than they have to - it's a business.
Now, if you have already had HAMP, or if the property being modified is not your primary residence, then you may have gotten HAMP 2. HAMP 2 can keep your mortgage as high as half your income, as long as the P&I (principle and interest) is less than it was before - by any amount. I have seen accounts which, due to a large delinquent balance and a large escrow shortage (meaning, you weren't paying your mortgage so we paid your taxes for you and now we are adding them back into your payment, usually spread out over the course of a year) have actually wound up with a HIGHER total payment after modification. - the benefit to accepting this offer, to the borrower, is that it's either that or foreclosure, because often by this time they haven't made a loan payment in literally years. Many, many people have unrealistic, even dare I say delusional ideas about what a modification is or can do. It is not: getting the principle on your home down to it's current value. Getting you the same deal as your neighbor/friend/cousin/grandma (another thing people don't realize - different investors have different guidelines and standards: rules on modifying an FHA loan are different from a Fannie Mae, and different from private investor, etc etc - the mortgage company is required to follow both (a) federal law and (b) highly specific investor guidelines in approving any sort of modification. Doing something "wrong" on an FHA loan, for example, may violate the lender's ability to later cash out on their insurance against the loan via federal funds if it eventually does go to foreclosure.)
posted by celtalitha at 7:43 PM on October 18, 2013 [4 favorites]
Response by poster: Threadsitting: Thanks for everyone's comments so far. We got a letter a few weeks back saying we did not qualify for HAMP because our mortgage was too new. (We refinanced 2 1/2 years ago. Interest rate is 5.56%.)
posted by Kalatraz at 9:23 PM on October 18, 2013
posted by Kalatraz at 9:23 PM on October 18, 2013
Response by poster: Yes, the loan reset to 30 years.
posted by Kalatraz at 12:12 PM on October 23, 2013
posted by Kalatraz at 12:12 PM on October 23, 2013
This thread is closed to new comments.
There are basically three factors which go into determining what a mortgage payment is going to be: (1) the size of the mortgage, (2) the interest rate, and (3) the repayment period.
Most mortgage modifications only wind up modifying (2) and (3), plus some other things like accrued penalties, etc. There are some programs and lenders that will negotiate about (1), but not many.
Unfortunately, mucking about with (2) and (3) and various other miscellaneous criteria generally doesn't make as much of a difference as (1) does. Especially if you aren't that far into the mortgage and/or your interest rate was pretty low to begin with.
Basically, you need to figure out what they're actually agreeing to modify and see if you can either get them to modify those things more, or modify other things too.
posted by valkyryn at 5:32 PM on October 18, 2013 [1 favorite]