Settlement of 2nd Mortgage with Wells Fargo

[kjq10a]

I am at the +/- 160 past due point on my HELOC with Wells Fargo. My only viable option is to settle the debt using proceeds from an early 401k distribution. They say they need to deny a loan mod before they can accept a settlement offer. They are requesting documentation of my financial situation in order to apply for the mod of the HELOC.

Does anyone have any experience with this? At this stage of the game, should I submit the paperwork and get the mod denied and then make settlement offer to Wells? Or....should I wait 2 more weeks for the charge off to occur and deal with the 3rd party collection agency?

[DBarr13447]

Are you underwater on your home? Are you seeking a loan mod on your 1st? I would NEVER touch my 401(k) to settle!!!

Can you provide more details??

[Evan Bedard]

Yes can you please provide more info about your situation?

FYI you do NOT need to be denied a loan mod to be considered eligible for a settlement..

[TomEason]

I am at the +/- 160 past due point on my HELOC with Wells Fargo. My only viable option is to settle the debt using proceeds from an early 401k distribution. They say they need to deny a loan mod before they can accept a settlement offer. They are requesting documentation of my financial situation in order to apply for the mod of the HELOC.

Does anyone have any experience with this? At this stage of the game, should I submit the paperwork and get the mod denied and then make settlement offer to Wells? Or....should I wait 2 more weeks for the charge off to occur and deal with the 3rd party collection agency?

I agree with DBarr in that you should not access 401-k funds. I assume you're OK on your 1st? Your strategy might depend on the owner of your 1st and loan's status. In my experience, it never hurts to wait. In fact, it often strengthens your negotiating position. I wouldn't send WF any financial info.

[dantheman]

I agree with DBarr in that you should not access 401-k funds. I assume you're OK on your 1st? Your strategy might depend on the owner of your 1st and loan's status. In my experience, it never hurts to wait. In fact, it often strengthens your negotiating position. I wouldn't send WF any financial info.

I settled my HELOC with wf for 20% on $100k out of retirement funds. When people say you should not use that money, they must be ready to deal with a lawsuit, judgment and collection of same. I say, if you can erase a $100,000 mortgage for $20,000 it is a great deal--retirement funds or otherwise. After all, that is effectively a 400% return, right?

[TomEason]

I settled my HELOC with wf for 20% on $100k out of retirement funds. When people say you should not use that money, they must be ready to deal with a lawsuit, judgment and collection of same. I say, if you can erase a $100,000 mortgage for $20,000 it is a great deal--retirement funds or otherwise. After all, that is effectively a 400% return, right?

I think it all depends on the borrower's situation. If a borrower has no assets that can be seized or attached by a money judgment, then why settle? Of course, keep in mind that 401-k and other retirement and pension funds, are exempt from attachment by federal law.

[cahomeowner]

I settled my HELOC with wf for 20% on $100k out of retirement funds. When people say you should not use that money, they must be ready to deal with a lawsuit, judgment and collection of same. I say, if you can erase a $100,000 mortgage for $20,000 it is a great deal--retirement funds or otherwise. After all, that is effectively a 400% return, right?

How far behind were you on your loan? What were the original loan amounts on the 1st and 2nd and current market value? How was this reported on your credit report?

[dantheman]

I was just over 6 months late and wf had charged off. They are reporting it on cr as charged off. $300k first and $100k second.

[daneam]

I was just over 6 months late and wf had charged off. They are reporting it on cr as charged off. $300k first and $100k second.

But was your 2nd outside the value of the house?

[dantheman]

Yes, it was mostly or totally underwater depending what bpo is used.

[daneam]

Yes, it was mostly or totally underwater depending what bpo is used.

were you dealing with WF or you dealt with a collection agency since it was charged off already?

[cahomeowner]

were you dealing with WF or you dealt with a collection agency since it was charged off already?

do you have a better chance of settling for less with a collection agency after chargeoff versus the bank directly?

[dantheman]

To the 2 preceeding posts: Yes, it was charged off. But with WF it stays in house following charge off. So I was dealing with the post charge off department of wf and that is who I settled with.

[Us_vs_them]

I recently settled with WF for 20% of Second Mortgage. My case was actually a balloon payment that was due. I started to negotiate a mod with them Sept 1 - 60 days before it was due as they said that was earliest they could do. They told me the same that I must be denied for mod b4 they will negotiate a settlement. I sent them info and was actually accepted for mod. However the mod financially did not make sense. It was 50% higher payment then previous and it was @ 7.5% for 10 yrs. My home is 50% underwater, I owe 450 on the first and 100 on the 2nd.. So I actually declined the mod, and then started the settlement process. Which they kept questioning me on why I would do that if I wanted to stay in the home. WF did their BPO and came back at $400k, so there was no way they were getting anything on a foreclosure. They first denied my settlement offer at 15% and actually told me they would rather see me short sell and them get nothing than allow me to stay and settle. That really angered me but at the end of the conversation I offered 20% and told em final offer and i would actually need to borrow the remaining to get that. They told me they need to talk to "Sr. mgt" and would get back to ke in a month or so. A week later they called again asking more questions about my intentions and what I was planning on doing with the house. I was clear that I would either short sell or wait out a foreclosure, thus ensuring they get nothing as the value is about 10-20% below the first, which I am current on. So they said they would get back to me in a couple more weeks. Again a week later a different guy calls and asked a bunch of questions, tried to get me to offer more, was very aggressive and almost angry.. I matched his demeanor and was insist end that I did not care anymore.. Take the offer or get nothing. He gave me the same response as before.. Couple weeks "Sr. mgt" etc.. Then an hr later the person I had been dealing with gave me a call and said my offer was approved! After reading this forum I see I may have been able to settle for less but the deal works for me and even though I will still be underwater on my first in the long run I think it was worth it. So hang in there stick to what makes financial sense to you and they should come to there senses. This was a 5 mos ordeal for me.

[TomEason]

Us_vs_them
Thanks for this valuable post of your personal saga with WF! Congratulations, and good job.

[cahomeowner]

so you were able to settle your 2nd which is excellent. now if you can just get your 1st modded

[TerrinPhx]

I have to agree with dantheman....I used $8k in 401 funds to settle my $50k Heloc and it was a huge relief not to have to worry about any further legal action plus I settled for 16% of the balance. Maybe it makes more sense for those who plan on keeping their home. I had my 1st mtg modified and eliminated negative equity by settling. The return that I achieved on my 401 funds was much greater than any return I would obtain in interest on that $8k investment.

[bt1974]

I settled my HELOC with wf for 20% on $100k out of retirement funds. When people say you should not use that money, they must be ready to deal with a lawsuit, judgment and collection of same. I say, if you can erase a $100,000 mortgage for $20,000 it is a great deal--retirement funds or otherwise. After all, that is effectively a 400% return, right?

Whew... Just what I need to hear right now. We gave up hope on a realistic mod on our 2nd but have kept our 1st current. We bought in 2007 for 575K 80/20 loan (both by chase in so cal). We stopped paying our 2nd 8 months ago because we just couldn't keep up.

We received an unsolicited settlement offer from Chase today for 19% of our balance (21K of 114K) payable within 30 days. Our home is worth about $390K, our 1st is 455K, our 2nd 114K... we intend to stay here until our kids are grown (at least another 15 years) and CAN afford our 1st mortg.

Our initial reaction was relief, even knowing that we'll have to pull the money out of our Roth IRAs and traditional IRAs (so there will be penalties) BUT we'd love to have that peace of mind knowing we avoided BK & our 2nd will be a nightmarish memory. Then I started reading posts that recommend you do not accept the first offer, that you negotiate, and that you should not use your retirement money to settle & it just sent me into confusion and doubt. It really helps to know that you (dantheman) seem to have no regrets having done what we intend to do. Thanks for the reassurance.

Now we'll sleep on it & consult with out tax man this week before we make any final decisions. From what I've been reading, 19% as an initial settlement offer seems to be a great deal. Maybe we don't want to push our luck by trying to negotiate.

[TomEason]

Whew... Just what I need to hear right now. We gave up hope on a realistic mod on our 2nd but have kept our 1st current. We bought in 2007 for 575K 80/20 loan (both by chase in so cal). We stopped paying our 2nd 8 months ago because we just couldn't keep up.

We received an unsolicited settlement offer from Chase today for 19% of our balance (21K of 114K) payable within 30 days. Our home is worth about $390K, our 1st is 455K, our 2nd 114K... we intend to stay here until our kids are grown (at least another 15 years) and CAN afford our 1st mortg.

Our initial reaction was relief, even knowing that we'll have to pull the money out of our Roth IRAs and traditional IRAs (so there will be penalties) BUT we'd love to have that peace of mind knowing we avoided BK & our 2nd will be a nightmarish memory. Then I started reading posts that recommend you do not accept the first offer, that you negotiate, and that you should not use your retirement money to settle & it just sent me into confusion and doubt. It really helps to know that you (dantheman) seem to have no regrets having done what we intend to do. Thanks for the reassurance.

Now we'll sleep on it & consult with out tax man this week before we make any final decisions. From what I've been reading, 19% as an initial settlement offer seems to be a great deal. Maybe we don't want to push our luck by trying to negotiate.

bt1974
I recommend you consult some other threads and posts on this topic prior to your anticipated action. You can go here to read my strategy guidelines on settling your 2nd. Strategy for Settling Your 2nd

[LoanSafeSubscriber]

This thread is of significant interest to me. In Mar of 2007 I purchased a home with an 80/20 type mortgage (actual was either 75/25 or 79/21) where the 2nd mortgage is a 5 year ballon mortgage. The intent was to sell a home my fiance (now wife) had at that point and use the proceeds (she had lots of equity in the home) to pay down the ballon. We all know what happened in the market next. We never sold that house and in fact it is now renting...hoping for the market to at least improve a reasonable amount.

...Fast forward almost 4 1/2 years. I now need to start preparing how to resolve that impending balloon payment...which I absolutely cannot pay. I've never been late or missed or mortgage payment on either 1st or 2nd mortgage. The whole issue is the balloon payment coming up in Feb/March 2012. The lender is WF who purchase the loan immediately after I first bought the house. They have been the lender since and the payments have been set up almost since day 1 to be automatically taken out of my WF checking.
From reading these other posts it looks like this is not going to be that easy. My definition of easy would be to refinance the 2nd loan at a lower rate for longer term OR bundle them into one loan at a lower (although I'd probably have to take on a PMI)...it would probably still be lower than my current monthly total payment. The loans at this point are approx 370 on the first and 129 on the 2nd.
I have not talked to WF yet but is it really the case that they won't don ANYTHING until we get inside of 60 days? Are they that difficult if I'm willing to continue making payment but just need the 2nd loan to either be reset or converted into some sort fo 15-20 year 2nd mortgage??
Your responses are GREATLY appreciated.

[HopingtoFind]

LoanSafeSubscriber Welcome,

One important fact you did not mention is the current value of the house, because everything else you're asking will depend on that. But in general it is very hard to modify or restructure 2 loans... 2nd loans are resistant to any change because they know they are most at risk and want to be compensated accordingly with higher interest rates.

So, once you provide the current value of the house we'll have better advise for you.

[LoanSafeSubscriber]

Honestly I don't know the current value and have not had it appraised. I would need to do a little research to see what the avg value drop is in my area...or just get it appraised at some point. The loan was 100% and I would "guess" the value currently is in the low to mid 400's (compared to 500k currently owed)...for now lets assume 425k is current value..

[LoanSafeSubscriber]

Also, its not eligible for Loan Mod program...its not a Fannie Mae, etc type loan. It was transferred from Bank of America to WF almost at the inception of the loan. I want to emphasize that the issue is not an ability to pay the current 1st and 2nd mortgage (although it would be nice to take advantage of lower rates to lower it), but dealing with the balloon payment in Feb/Mar 2012.

[HopingtoFind]

Honestly I don't know the current value and have not had it appraised. I would need to do a little research to see what the avg value drop is in my area...or just get it appraised at some point. The loan was 100% and I would "guess" the value currently is in the low to mid 400's (compared to 500k currently owed)...for now lets assume 425k is current value..

If the value is about $425k there is no chance that they will re-fi the loan, as you need to have equity in order to re-fi. You might try to have them extend the loan but frankly I haven't seen anyone reporting success in doing something like that.

That said you seem to be good candidate for settling your loan for small percent of the balance, although for that option you would need to default on the loan for at least 6 months... which you might end up doing anyway if you are not able to come up with full balance or have it extended.

[HopingtoFind]

Also, its not eligible for Loan Mod program...its not a Fannie Mae, etc type loan. It was transferred from Bank of America to WF almost at the inception of the loan. I want to emphasize that the issue is not an ability to pay the current 1st and 2nd mortgage (although it would be nice to take advantage of lower rates to lower it), but dealing with the balloon payment in Feb/Mar 2012.

FYI you don't have to have Fannie or Freddie loan in order to receive a Loan Mod, you'll have to provide your financial info and show hardship. But that said, as I mentioned previously you'll probably have hard time modifying your 2nd because lenders are generally resistant to reduce interest on their 2nds

[LoanSafeSubscriber]

If they extended it....that would be ok...Refinance would be better...but from what I've read everywhere chances of that aren't good or as you said "not happening"...I guess I'll start having conversations with them and if nothing changes or no progress until Feb...I'll have two choices...either continue paying monthly amount or stop paying on 2nd...not trying to get out of loan but just trying extend or change the terms for the 2nd (longer term essentially)...do you know of any other 3rd party lenders who take on that 2nd loan in some shape or form? Even if I settled I don't have the cash to really settle for any reasonable amount...other than 401k...which I have no intention of touching. They don't have to make it this hard...I''ve never missed a payment, etc...but I guess they've got internal policies/checks/balances.

[HopingtoFind]

If they extended it....that would be ok...Refinance would be better...but from what I've read everywhere chances of that aren't good or as you said "not happening"...I guess I'll start having conversations with them and if nothing changes or no progress until Feb...I'll have two choices...either continue paying monthly amount or stop paying on 2nd...not trying to get out of loan but just trying extend or change the terms for the 2nd (longer term essentially)...do you know of any other 3rd party lenders who take on that 2nd loan in some shape or form? Even if I settled I don't have the cash to really settle for any reasonable amount...other than 401k...which I have no intention of touching. They don't have to make it this hard...I''ve never missed a payment, etc...but I guess they've got internal policies/checks/balances.

I completely understand where you're coming from.. most posters on this forum have tried to work with the lenders before defaulting... present company included. Generally people have good intentions until their hand is forced by the lenders and they have no choice but to default.

As far as 3rd party lender, I can tell you will absolute certainty that there is no lender who would take on an underwater 2nd. Most would want at least 20% equity in the home in order to re-fi.

Once you default and are not paying for 6 months or longer they'll be chasing you arrange any type of re-payment plan, probably no interest, maybe reducing principle, etc.... unfortunately at that point most do not see the value in doing that anymore, most just want to get rid of it by settling for 5% to 10%...

You didn't mention what state you were in, because you have a purchase money loan and if you're in CA for example it is considered non-recourse, which means they wouldn't be able to do anything with it other then foreclose if you default. And they would not foreclose if your 2nd is underwater as you have described. Just make sure the value is what you said it might be.

[LoanSafeSubscriber]

Thanks for the responses. I'm in FL. I'm certain the value is lower than the amt owed...by how much I'm not sure...I guess I wouldn't be completely surprised if the value dipped into the high 300's...at some point it will need to get appraised and I'm expecting low 400's. I'll be talking with WF in the coming week to get their thoughts. If what you say is true, it looks like my credit is going to get tanked in about 7 or 8 months. Heading to worst case...assuming I could still easily pay first mortgage (and 2nd as well...but CANNOT pay the balloon payment), under what circumstances would I lose my home?

[HopingtoFind]

You're in danger only if you don't pay your 1st... other then that you're fine.

[LoanSafeSubscriber]

Paying first or 2nd mortgage is not a problem. However, from what I've been reading around the internet, if you default on the 2nd, the lender can foreclose on the home. Whether they ever do this or if its practical is a whole other story...but the fact that I have to "default" on the 2nd loan to begin with to even get them to work with me is absolute lunacy so nothing would surprise me.

[HopingtoFind]

LoanSafe,

Most of what you'll find on the internet is theory. Here, on this forum is were you'll get more practical advice. Yes, theoretically 2nd will foreclose if you default, buy I would suggest that you find someone posting that their 2nd actually foreclosed while being completely or even partially underwater.

You say that the fact that you would have to default is a complete lunacy.. but what about this whole crisis that was caused by the banks and then them being bailed out while people are still struggling mired in foreclosures and BKs... is it not a lunacy? I would suggest you start calling your lender about your loan, then you'll quickly find out what real lunacy is. You might be one of the lucky ones and get mod/extension on your 2nd, I really hope so.

[LoanSafeSubscriber]

Oh don't get me wrong...when I say complete lunacy, I mean these banks are absolulely incredible in their practices. My point was "don't expect what makes sense to actually occur. What I like about this site is the very real and "current" scenarios. I did a pulse check today with WF and talked to their loan dept....it was like a robot..."we can have you apply for a new loan but we can't modify the current one" after I described the scenario and she indicated they'll do up to 80 percent loan to value. I replied "do you realize how unrealistic your offer to apply for a new loan is??" She then also indicated they don't usually do modifications unless there is a hardship...I'm thinking "so if I actually default on my loan...I'll get your best customer service"...that is what I call lunacy.
Yeah...they screwed up and got bailed out.

[LoanSafeSubscriber]

I guess there is always this option to pull out of the back pocket:
Removal of a 2nd Mortgage Through Chapter 13 Bankruptcy

[HopingtoFind]

I guess there is always this option to pull out of the back pocket:
Removal of a 2nd Mortgage Through Chapter 13 Bankruptcy

That is like using a hammer to kill a fly... completely unnecessary in your case.

[HopingtoFind]

Oh don't get me wrong...when I say complete lunacy, I mean these banks are absolulely incredible in their practices. My point was "don't expect what makes sense to actually occur. What I like about this site is the very real and "current" scenarios. I did a pulse check today with WF and talked to their loan dept....it was like a robot..."we can have you apply for a new loan but we can't modify the current one" after I described the scenario and she indicated they'll do up to 80 percent loan to value. I replied "do you realize how unrealistic your offer to apply for a new loan is??" She then also indicated they don't usually do modifications unless there is a hardship...I'm thinking "so if I actually default on my loan...I'll get your best customer service"...that is what I call lunacy.
Yeah...they screwed up and got bailed out.

We are completely in agreement on a lunacy part. I would recommend that you do not even bother with low level reps. Contact WF's executive team, they are easy to deal from what I recall... that was about couple years ago. Take a look at WF forum, they'll probably have current contact for them.

[LoanSafeSubscriber]

This may seem like a dumb question...but how do you bypass the the low levels for the execs? Just keep insisting..."can I talk to your manager?" I did a brief look around the WF forum but didn't see any contact info...I doubt in this market they're going to be there unless someone posted a number from their dealings. The thought of killing my credit 6 mos out and (defaulting so I can get their attention)...is an interesting feeling.

[HopingtoFind]

Here you go, hope it helps.

Wells Fargo Contact Information List