Upside down with negative equity, what can I do?
March 30, 2011 6:12 PM   Subscribe

So when I bought my house it was worth around 280K. Its currently valued at around 155K. My mortgage is about 220K. So I have a lot of negative equity and I just got divorced which halved my income which makes making the payments harder.

Does anyone know about any of the federal "programs" for modifying mortgages or any federal program that could help change the terms of my current loan?

My bank is fine with me making the payments on the loan as it is.

I know I can stop making payments and from what I hear from ppl that makes them more interested in doing modifications but I would rather avoid the drawbacks involved in going into foreclosure, even a strategic foreclosure.

Is the only way to get the bank interested in modifications to go to foreclosure?

There are a lot of empty houses around where I live now, from ppl who have walked away.
posted by anonymous to Home & Garden (9 answers total) 4 users marked this as a favorite
There is the Making Home Affordable program if your loan is held by Fannie Mae or Freddie Mac. Look it up if you're not sure if one of them holds your loan. Then you talk to your bank's loan mod department for more details.

This program can be used to lower your payments or your interest rate if you have a hardship. A major downside is that even applying for the process can ding the crap out of your credit, so you only want to do this if absolutely necessary.
posted by dayintoday at 6:28 PM on March 30, 2011

The Making Home Affordable Program (HAMP) is coming to an end soon. It only dings your credit temporarily. If and when you are either approved or denied your credit is restored. Be aware this process can take over a year and is VERY tiresome and annoying. If you are approved however it can lower your interest rate down to around 2% so it's really worth it.

Answer to specific question: HAMP - You only qualify if you are current on your loan so...NO you don't need to go into foreclosure to get access to this program.

People are walking away that's true. It can be the right solution for many people. Friends of mine have done this and they aren't deadbeats or losers. It's a real option for many people. There are a ton of web resources that can help you make that decision. It really depends on whether you like your house and want to live there or it makes more financial sense to move on.
posted by yfatah at 6:51 PM on March 30, 2011

You may want to look into strategic default. In short, strategic default is when someone decides that staying in a massively underwater property makes less long-term financial sense than simply mailing the keys back to the lender and ruining their credit for the next seven years.

The calculations on whether doing that would make sense for you would involve a lot of variables we don't have here, but you may want to do some research on the subject to see if it's an option for you.
posted by deadmessenger at 7:14 PM on March 30, 2011 [1 favorite]

Can your ex take over the house? What about a relative? (By which I mean, take care of it, want to live there/take it off your hands, pay the mortgage, and/or is legally capable of doing so?)

If yes, and he/she can make the payments, you can sign a quitclaim deed.

Can you rent it out? Have roommates move in? I have been in your exact situation. I sold everything, borrowed against my 401k, etc. and I barely scraped by until I sold it finally.

Even if you can delay the foreclosure process a bit you can at least buy time to research your best options a bit better.
posted by Unicorn on the cob at 7:40 PM on March 30, 2011

Talk to a mortgage broker. Perhaps they can help you restructure the length of the mortgage. Also, if you could have roommates move in, rent the whole thing out, rent out the garage, rent the basement, rent the attic - any of those - it might make things easier. You are going to need to pay rent to live somewhere, so maybe you can find a way to eek out a few hundred a month from other people and you are no worse off than renting elsewhere. I know it is hard to see your equity go negative, but if you can just look at the monthly payment and think of it as rent for now, things might be more bearable.
posted by acoutu at 10:24 PM on March 30, 2011

Does anyone know about any of the federal "programs" for modifying mortgages or any federal program that could help change the terms of my current loan?

This depends on variables we don't know, like when you bought your house. My advice is that you start reading the websites of your bank and the federal programs to see what you qualify for.

Successfully making it through these programs appears difficult but not impossible. The best forum I've found for learning about people's experiences is (There is some ranting in there.)

You might also try contacting a housing counselor. HUD's counselors are at 1-888-995-HOPE. The counselor will take information on your finances (this takes about half an hour), then if the data shows that you are in financial hardship, they will help you understand your options and then negotiate with the bank. They know who to call and how to speak the bank's language.

Best of luck to you. From what I've heard, this will require a lot of persistence and resourcefulness.
posted by slidell at 11:56 PM on March 30, 2011 [1 favorite]

If you're going to walk away, make sure to consult a lawyer before you do *anything*.

Mish Shedlock has the same advice:
posted by pharm at 2:03 AM on March 31, 2011

Consult a lawyer. But why tf pay a bank for a house that's worth $65k less than the loan? It's not an ethical question, you have no moral responsibility. It's a question of common sense: do you want to let some financial institution (that made a mistake) f up your life for years to come?
posted by londongeezer at 6:30 AM on March 31, 2011

I'm in a similar situation, and my experience with HAMP was this:

1) Spend several hours putting together paperwork. Send it to bank.
2) Get rejected for a reason that is demonstrably false.
3) Spend several hours on the phone with 1-888-995-HOPE going over that paperwork and being assured that I meet all qualifications.
4) Re-apply (including a long conference call with the HOPE people and my bank, and another hour or so updating paperwork).
5) Get rejected again for a different (and equally false) reason.

Fact is, not many banks are interested in participating in HAMP, and there's nothing forcing them to.

But I'm keeping my house anyway. I need a large-ish space, and even though I'm paying roughly double what my house is worth in the long run, my mortgage payment -- because I rent a bedroom out -- is well under what I'd pay if I walked away from my house and rented something similar.

If I could rent cheaper than I could continue to pay the mortgage, I wouldn't hesitate to walk away (I'm in Las Vegas; there would be no repercussions other than destroyed credit).
posted by coolguymichael at 10:02 AM on March 31, 2011 [1 favorite]

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