Predatory broker + First Franklin = ???

[octagondd]

Hello all, and thank you so much for this forum. I look forward to learning as much as I can on here, and hope I can also be of help to others. Here's my story. If you just want the raw data, it is at the bottom.

I am a first time home owner and was searching for a house in 2006. The market was still hot. I found a place in November which had the right location, size, etc. It was $535k but my broker assured me he could get me in and in a couple years he would "be there for me" to refi. I was a bit iffy on it because the market just started to cool off in the past months and if it crashed I thought I could be in trouble. I only had about $10k saved, so that would not help me as far as a down payment. So I went with an 80/20 first and second, Interest only and asked my broker for a fixed rate loan if possible. When the loan docs arrived, I found out he got me an ARM at 7.45%. I was not too happy, but it was one of those moments where its either the house, or starting over. Unfortunatlely, I chose the house. Don't get me wrong, I like the house and am glad to be in it, but I knew 2-3 months in I was going to find trouble eventually. I have been using my savings to help pay the mortgage and the taxes, as well as purchase some basic home items. I am very close to exhausting my savings at this point, and have been tracking the interst rates because I knew I had a reset soon. The LIBOR has been dropping like mad, so I contacted my lender to see if the dropping LIBOR rate was going to help me with my ARM reset in February only to find out there is a floor on my rate that it can't go under. Wow, I couldn't believe it. I emailed my broker, even though I knew I wouldn't use him, just to see what he says, and he wrote back "I have a solution and I can get this done for you. As a banker, I know the secret behind it all. If you want me to help you, I can open a law suit and get your property free from lien against the current bank." I coudn't believe what I was reading. I just want to be able to find a solution that will allow me to purchase this home, not hire an attourney and sue the bank to get it all for free. I don't want it for free, I am willing to pay for it, just not with the terms of the loan which seems to be a no win scenario for me.

I have called First Franklin to ask about Hope for Homeowners, since it seems I qualify, and they said they can not write loans and I would have to talk to an FHA approved lender. I spoke to a few of them and they either just want my info so they can add me to their mailing/email list, or one actually said noone really wants to participate in the program because of tracking equity.

So here I sit, and although I am not in foreclosure at the moment, I am staring at the coming months wondering how this is going to playout for me. I have read a few people's stories, and some have success but others seem to be stuck in a bad situation. I wonder if a short sale to get out of a bad investment is the way to go at this point. Should I just wait and see if the govt. makes more progress with pushing the lenders to help out more? Should I start the mod process with First Franklin? What about the Calfornia civil code 2923.6? Does this only apply to lenders in California, or does it apply at all as far as negotiating modifications? So many questions.

Data:

1st: $428k @ 7.45% I/O ARM LIBOR(7.45%floor - cap at 13%)
Resets in Feb 2009
2nd: $107k @ 10.3% I/O 15 yr balloon
According to Zillow I am about $100k under water
I am current with my payments, but savings is dwindling fast.

I also work in the entertainment industry, and we got bad news over the weekend that the actors may be looking at striking in the next 60- 90 days. This is not good for me.

Thanks again everyone,
Dave

[octagondd]

How did this get moved from the Stop Foreclosure Tell Us your Story Forum?

[schwefls]

Hi Dave welcome to our forum:

I wanted to stop in say hello, and assure you, you are not alone. Someone will be reaching out to you with some sound advice/suggestions, In the interim please hang in there and know that we are here for you.

[Moe Bedard]

because the Professor will be able to answer your question in this section regarding the California codes that you mentioned in regard to your situation.................

As far as the question with the H4H FHA program..............your second lien would need to release and extinguish in order for you to be able to qualify along with the first participating..............
click on the link below for the information and also to find participating FHA approved lenders in your area.............
List of Lenders Who Are Participating in the HOPE for Homeowners (H4H) Program

HOPE for Homeowners

[The Professor]

I find is amusing, and rather telling that the broker who put you in this situation says, "I have a solution and I can get this done for you. As a banker, I know the secret behind it all. If you want me to help you, I can open a law suit and get your property free from lien against the current bank."

I think the primary reason *** moved your posting over to this forum is that, as a California borrower, your focus should be developing an understanding of the benefits that California Code of Civil Procedure Section 580b may have for you. Since your residence is here in California, and it appears that the two loans you purchased the property with are likely characterized as "purchase money," this Code section may serve to insulate you from personal liability. In other words, chances are the two loans are what is called "non-recourse." That means your lenders' sole choice is foreclose on the home and you are not personally liable for repayment of the loans. If that is the case it is exceptionally good news for you.

Dave, I think you need to adopt a business like approach in analyzing your situation. You have indicated that it is approximately $100K underwater. Given market conditions here in California that is certainly possible. I view someone in your position as being in a third position (behind the first and second loans). We are in for an extended market downturn. My guess is that the market may hit bottom sometime in 2011 and the market will remain flat for an extended period (5 years wouldn't surprise me. That puts us out to 2016. A foreclosure only reports out on your credit report for 7 years from the foreclosure date.

I guess what I'm saying is given your situation, I'd consider all alternatives including letting the house go into foreclosure.

Daniel

[octagondd]

Thank you schwefls, ***, and Daniel. It is so great to get responses quickly.

Daniel, I will look into the 580b. This was one of the questions I didn't ask in my OP. Whether the bank could go after me for the second mortgage. I do see this situation as an investment, which is why I am seeking the best way out without hurting my hi 700s credit score too much. So the alternatives are foreclosure, short sale and deed in lieu. Anything else? Could you suggest a good starting place for me as far as research. Obviously I am here, so I will search these boards, but are there some other resources I can look into?

Thanks again,
Dave

[octagondd]

Also, is it normal for an ARM to have a minimum interest rate? How is it considered adjustable if it can only go up? It is clearly only in the banks interest to give out such a product as the consumer can not take advantage of lower interest rates, which is what I was hoping for all year long until I found out I couldn't go any lower than my current rate.

[The Professor]

ARM loans typically have both a floor rate (the lowest it can go) and a ceiling rate (the highest it can go). As to your question on alternatives, beyond a short sale or a deed-in-lieu, there isn't really any other way to go. Problem for you is the simple fact that you have two loans, complicating the chances of either a short sale or deed-in-lieu to a point where, in my humble opinion, they are probably unlikely in terms of succeeding.

Take care,

Daniel

[octagondd]

Both my loans are with First Franklin, will that still complicate things? I was hoping to try for a short sale, but I realize it is still completely up to the lender to agree to it.

Do you think I should start the loan workout process with them, or is it a waste of time until I am actually late on a payment? Since my savings is dwindling, I can project I will have a problem in the near future, but they don't see that, so if I am current they probably won't help me, at this point, I am guessing.

Thanks,
Dave

[Moe Bedard]

Dave,

Because the investors could be different on the two loans being serviced by First Franklin you would need to ask them if a Short Sale is an option for you.
With the modifications they are treated like an emergency room.......the homeowners that are in default and foreclosure and at immediate risk of losing their homes are being looked at first for the help.

[octagondd]

Great, Thanks ***. I will start making contact and document everything, as I have been reading that is what is needed to cover oneself.

Thanks again for the info and thanks to Moe and all those who spend time here helping out.

[HappyHome]

I've read this .. and in yr firs t post I just wanted to say My Crook Broker ..made the exact same "Offer" to me from the beginning that "she would be here fo rme .. to Re-Fi and assured me to get into this Loan Now and that I Most certainly Could do a Re-Fi with my Job @ AMTRAK and Real Estate Never goes Down.. and Whole PLAN she had all mapped out for me! Yeah Right.. she's Never followed thru .. Never returned my Phone calls and did the exact same thing to my Best Friends.. Honestly How do these People Sleep at night..?? Guess when you don't have a care in the world .. it doesn't matter The damage they've all done to so many people/family's .. sad so sad..

[octagondd]

HappyHome,
Thanks for the note. Its good to know I am not the only one who went for this, but also sad to know there are probably thousands of others like us. Good credit, good job, and just wanting to get into a house. The housing boom made everyone a bit crazy I guess.

Here's to hoping we can all find a way out of it without harming ourselves or too many others in the process.

[HappyHome]

Sure and Yr Welcome.. I Want to Know if there is statue of Limitation placed on the pursuit of my QWR investagation? I thought I had heard within 7 years?? or? don't Know ..But Need too. I do Plan on getting that resolved.. and Also using every available tax resouce of all my monies Lost ..I just hired an Atty. ($1,100 , so far another $450 after Court..) to do my BR .. Guess when I get time to do it I can just pick up phone and mY yellow pages and call all over Richmond area for Lawyers.

[octagondd]

A Couple more questions for *** and/or Prof.

What are the implications of not making a payment even if I have the ability to do so? I can forecast that my savings will be gone by April 09 and will not be able to make a full payment at the current interest rate from that point on, let alone a higher payment due to my rate resetting. If I try to cut my losses now, does the lender have recourse?

Thanks,
Dave

[925girl]

I thought the actors just had a strike....

[octagondd]

Not yet, but that weighs on my mind as well.

[The Professor]

Octagondd asked:

"What are the implications of not making a payment even if I have the ability to do so? I can forecast that my savings will be gone by April 09 and will not be able to make a full payment at the current interest rate from that point on, let alone a higher payment due to my rate resetting. If I try to cut my losses now, does the lender have recourse?"

I would refer to my earlier post of 11-25-2008 - 06:55 AM above that explains your situation relative to recourse. As usual I recommend that you have your purchase and loan documents reviewed by a lawyer skilled in real estate law and debt collection practice to help you determine the non-recourse nature of your loans. Bottom line is a decision to follow the path of walking won't impact the potential non-recourse nature of your loans.

Take care,

Daniel

[octagondd]

I just wanted to update my thread here.

I stopped paying in August 09 and just received an intent to accelerate letter from First Franklin. I am also in the process of submitting my Home insurance documents to the Loss mitigation dept so they can look at qualifying me for the HAMP. Even if I qualify, I don't think it will help out enough. It seems from earlier replies that a short sale will be very tough in my situation as well, so it looks as if I am going down the foreclosure route. I am hoping to not get the NOD until around December which will give me until March to find a new place to rent.

Good Luck all,
Dave