DTI too low for modification, home value to low for refi, advice needed

[johnaney]

I hope someone on this great site can be of assistance, as I am stumped as to how to proceed.

I purchased our home in the Bay Area in 2005 with a mortgage for $468k. We also took out a 2nd mortgage and a HELOC to pay for some expenses and renovations on the house.

The loan was an Adjustable Rate loan that I think was a negative amortization loan - any unpaid principle went back into the principle. For the first few years, while interest rates remained somewhat higher, our principle increased, and now it is about $509k. In the last year or so, as interest rates have dropped, we're actually starting to pay on the principle, but the payment amount is set to be readjusted in December 2010, and we won't be able to afford an upward adjustment.

I have applied for a modification, but it was denied because our DTI was too low. They were using gross income, and didn't figure in the 2nd or the HELOC, so our DTI was about 19%. However, my wife and I have student loans, and we have one child in fulltime daycare and one in half-day daycare, so our monthly expenses exceed our income.

After having the mod denied, I filed for a refi. However, Chase informed me that the value on my house was only $368k. Apparently, in August a house in our neighborhood sold for $68k, and that is dragging the home values down (Zillow, which I know is notoriously inaccurate, lists a value of $530k).

I am now refiling my modification with the new home value, but I expect that it will be denied again due to the low DTI ratio. I really need to get out of this neg am loan (which will be illegal in CA in January), and hopefully roll my 2nd and my HELOC together.

Any advice would be welcome - but walk a mile in my shoes before you say "buck up and pay your damn mortgage."

jta

[rachel_p]

"Any advice would be welcome - but walk a mile in my shoes before you say "buck up and pay your damn mortgage.""

I don't think you have to worry about that here

[Evan Bedard]

Hi johnaney welcome and thank you for joining.

After having the mod denied, I filed for a refi. However, Chase informed me that the value on my house was only $368k. Apparently, in August a house in our neighborhood sold for $68k, and that is dragging the home values down (Zillow, which I know is notoriously inaccurate, lists a value of $530k).

I am now refiling my modification with the new home value, but I expect that it will be denied again due to the low DTI ratio. I really need to get out of this neg am loan (which will be illegal in CA in January), and hopefully roll my 2nd and my HELOC together.

It is going to be very difficult to get a loan modification with such a low DTI. Your lender is going to expect you to stop paying your student loans before your mortgage.

They will also not combine your 2nd and HELOC. Your best bet would be to try and settle your 2nd mortgage. Many lenders are willing to settle 2nds for about 5-20% of what you owe..

[darlyj]

First of all, if anyone were to tell you to "buck up and pay your damn mortgage" you'd probably find that said person would find themselves on the receiving end of some pretty scathing remarks. Everyone has different situations, and something like that would certainly fall into the category of ignorant remarks, especially with other debts to try and pay, plus having small kids. You will find more far support here than criticism on that front.

As for options, there are a number of things you could try including:
1. Keep banging your head against the wall trying to get a mod through Chase. However from our experience, you're more likely to see a moose grow wings and fly than to get any mod paperwork out of them.
2. Try to refigure expenses to come out without a monthly deficit, then proceed with option 1
3. Get in touch with NACA and let them proceed with option 1 for you...although that does not necessarily mean you won't have to do the same with them (notice a pattern here?)
4. Get a good attorney who actually knows the ins and outs of how all of this works and let he or she take care of the BS for you.
5. Walk away from your house. Stop paying on the 1st, 2nd, and HELOC. Start a "mattress fund" for future moving and rental expenses, and try to settle the recourse loans at a later date.
6. Bankruptcy. 'Nuff said.

I would suggest at least consulting with an attorney, whatever you decide, just so that you know what your legal options are and what the consequences of those will be. There are probably many more options out there...those are just the ones that came to mind first of all. I am by no means an expert on all of this, but you will have to do some serious calculations and soul searching and determine what is best for you and your family in the long run.