question for professor shays

[frank55]

I am trying to qualify for the home affordability modification program that Obama just announced. I have never been late on my mortgage payment which is $3800 interest only payment. My balance is $725,000 and it is about 60% of my gross monthly payment. Problem is I pay my taxes separately and am late with the December payment and will be late in the april payment. I have called WFB telling them that I don't want to lose my house but they are not responding. If I keep making the payment and don't pay my taxes they will then advance the past due taxes and set up an impound account. This will cause my payments to jump to close to $5,000. At this point I will be late because I could not afford the payment. My question is if they pay the property taxes that are past due, will they add the $10,000 to my loan balance and making it go over the $729,000 maximum to get help through this obama program? This is important because I am trying to get them to help before this happens.

PS I can't get help from NACA because technically I still own an investment property which is going through foreclosure right now. This loan is also through WFB. I received the notice of default on FEB 10, 2009 and am just waiting for them to take the house so I can try to save my primary residence through NACA.

Any suggestions? I am in california

[ProfessorShays]

My initial questions are what is the home worth, and was the loan on your residence created at the time you bought the home?

Daniel

[tryingtostay]

Can you call your county Assessor's office and see if you can get an extension on your taxes? I think our yearly taxes are not completely late until June. The 3month+21 day mark is May 31st for your other house, right? So if you could delay paying the taxes until June then the other house would not be an issue.

Does your county take credit card payments? This may be an idea for you....

Also, have you filled out a Prop 8 form (Decline in Value) form? This will reassess your property taxes based on FMV from January. This is Riverside County's form Information &#149 Assessment & Property Tax • Riverside County Assessor-County Clerk-Recorder California. This won't help with the large tax bill this year but will help for next years taxes. Make sure you have a homeowners exemption, too; I'm always surprised how many people do not have that filled out on their properties.

[frank55]

Professor my home is a refinance (recourse loan). I purchased this house for $900,000 in March 2005 and by loan balance was $675,000 with Wamu on an option arm. After seeing my balance growing each month, I refinanced in May 2006 to $725,000 on a 10/1 fixed interest only at 6.25%. The extra money was used to pay the negative amortization that was being added to loan balance and I put in a new pool(bad investment now that I think about it).

The current value on my home is probably $650,000 to $675,000. I pay $3800 interest only every month and pay my taxes and insurance separately(taxes are $8500 a year plus 10% late payment and insurance is $550 a year)

Due to loss of tutoring job after school and summer school job due to state budget here in california I am not able to pay my taxes. My current interest only payment is about 70% of my take home income. If the bank added the impound account an additional $760 a month I would not be able to make the payment.

I know I need to think of this as a business decision but I also have to stay in this area because I share custody of my son and If I rent a house comparable to mine it would cost about $3000 a month in my neighborhood. Therefore I was hoping I could qualify for the obama plan where they would modify my home loan to about 38% of my home income and include the taxes and insurance. This is the only way I will be able to stay

If WFB doesn't do this then I will lose all the money I put down and walk away at this point. It is my last stand.

As I mentioned before I am going trough foreclosure on my rentals because it is the best business decision for me and I WILL Just take the tax consequences and move on. I am in no position to be an investor as I am just trying to save my primary residence at this point. Like I said before if WFB doesn't put me on the obama plan then they are forcing me to walk away and it won't matter to me since I will already have a foreclosure on my record from my investment properties which went into default on 2/12/08.

[ProfessorShays]

The Obama plan as I understand it also mandates a maximum 105% loan to value. Given the high side of your valuation, my sense is the maximum loan amount would be $708.75K, leaving a potential short fall of $11.25K. I would be willing to bet, given market declines here in California that your estimated 25% decline in value since the 2005 purchase is optimistic. If that is the case, your actual situation would be worse.

As a fellow teacher, I would suggest that you need to be realistic in your assessment of the situation. Attempting to meet the rigid requirements associated with the program may not be possible.

Daniel

[kent302]

Hi, Frank,
You are talking about the Loan Modification plan under the Home Affordable Plan, right? I don't think there is a LTV limit for modification. Since you refered to the 38% PITIA to income ratio goal, which if approved, government would chip in to make it to 31%. The Refinance option has a 105% LTV plus other conditions. Here is a site that has straigt-forward explaination:
Making Home Affordable Q & As

Or go to US Treasury site:

http://www.ustreas.gov/press/release...es_summary.pdf

I called CountryWide Monday and they told me it will be a couple of weeks for them to work out the details of the plan. Whatever that means. Said a loan officer will call me back. I don't have a lot of hope in this plan, but if it doesn't cost me anything to apply, why not? I can always turn it down.

It is frustrating, as the plan is only two pages long. There is a lot of leeway in the intepretation. They left out too much implementation details.

-kent

[frank55]

Thanks for answering. Yes I am talking about the modification through the obama plan and not the refinance. I know my loan is not through Freddie Mac. If my investor agreed to take my payment to the 38% PITI then I would be able to keep my house. Unfortunately, when I called WFB they said I need to go through their loan modification first and if I don't qualify then they would try the Obama plan. This just sounds like they don't want to try to save my home. I won't be able to make future payments and spend all 70% of my take home if they don't put me on the obama plan. I am a numbers guy and the only way I will stay will be to put me at the 38% PITI which would mean to lower the interest to 2% and extend the terms of my loan. What WFB is saying is let's try a modification first which even if I get approved will only be for about 5 years and a lower interest payment for a while. This will not help in the long run and I refuse to give them almost all my take home pay just to stay in this property which is nowhere near what I paid for it just 4 yeARS AGO. Like I said I am the one who is losing big time more than the bank since I put down about $250,000 down payment.

[kent302]

"What WFB is saying is let's try a modification first which even if I get approved will only be for about 5 years and a lower interest payment for a while. This will not help in the long run..."

I may be mistaken here, but the program is only aimed at modifying the 1st loan. There is the NPV test which is like a black box to me. If your case does not pass the NPV positive test, then you are shown the door.

There is also a vague point about "sufficient liquid assets to make mortgage payments".

If taken literally, that means you must be at the verge of BK to qualify. This is open wide for interpretation. It would be unthinkable to let our liquid assets to be completely burned up to pay for a depreciating property.
If I did this to keep a luxury car I'd be nuts, but is a house all that different?

To get back to your situation. Well this program is voluntary for the servicer. Who knows how much leverage the government has to nudge the servicers to participate more than lip service. Keep pushing until a wheel falls off. Maybe WFC is not in a position to need TARP money this month, then wait til next month when they will. (kidding)

My plan is to gently remind my loan officer that it may be better for me to walk away. Simple business decision. May not work for others in different circumstances.

-kent

[ProfessorShays]

The unfortunate reality in the case of a purchaser of real property is you are always the first to take the losses just as shareholders in corporations take the losses before the burden falls upon bond holders. Facts are as they exist. At this stage your home is underwater, effectively meaning you have no equity ownership in the home. If you read my posts, I repeatedly try to get forum participants to look at this as a business decision. Perhaps you can make a favorable modification that reduces the payments to a level that is close to the fair rental value of the property so you can "hold on" until values rise to a level where equity reappears. When that will be is left to those who have a clearer crystal ball than you or I.

Daniel