Underwater...Loan Mod won't work

[LenderNoHelp]

Today has been an eye opener between my husband and I. My house is underwater by 200K or more in CA and going through CW/Select Portfolio Servicing for a loan mod is basically pointless. I have 1st and 2nd both purchase money loans. We realized a basic rate reduction will not work unless there is a huge principal reduction. Considering all the frustrations with lenders "trying" to help those facing foreclosure, chances of a principal reduction are very slim to dream on. Reality has hit and its time to walk away. Next month will be our first missed payment, since we are getting no attention. What happens to 401K is it protected? Is short sell an option (seems more like a headache)? or Foreclosure would be the best option? Please advise.

[The Professor]

Hi Jenny. No doubt you've already read some of my posts relating to CCP Section 580b. Please answer the following questions.

1. Is the property you are talking about your California residence?
2. What is your estimate of the fair market value of the property?
3. With regard to your loans, were they created at the same time as when you purchased the property? Also provide the name of the lender and the current balance.
4. Do you have a homeowners association?

As you will find when reading my posts, if your situation is such that your loans are "non-recourse" you are provided greater flexibility, which includes considering simply living in the home for as long as possible, allowing it to ultimately go through the foreclosure process while remaining in the property during this period to (1) safeguard it against potential vandalism, and (2) live there and not have to make rent payments at another location.

Daniel

[LenderNoHelp]

Prof,

1. Is the property you are talking about your California residence? YES, Bay Area
2. What is your estimate of the fair market value of the property? 500K on zillow
3. With regard to your loans, were they created at the same time as when you purchased the property? Also provide the name of the lender and the current balance. Yes, two loans at the time of purchase. Purchase house 730K, 30K down, CW 6.75% I/O Fixed = 585K, Select Portfolio Servicing 9.975% I/O =110K, balloon note in 15 yrs must pay entire loan. (was suppose to refi 2nd after a year)
4. Do you have a homeowners association? No, I just have the home insurance w/ Farmers. Do I keep paying that during the foreclosure process?

I hate to say it, but walking away may be my only solution. "Cash for keys", as you say it and hope to recoup money I put down initially. My mortgage is about $4300 a month. Prices for renting a house is only around 1800 -2000 a month. I would love to pay this a month! Reading all the posts, I will not be suckered in tapping my 401K, borrowing money to save the house because its not worth it. I will stop while I'm ahead and before all the laws start to change. I don't have time for games dealing w/ lenders to help lower my rate, calling them 3 - 4 times a week, just to add to my frustration, but don't get me wrong. I praise those homeowners who endure and are persistent with the lenders because there is success for a few. What I want is to wipe out the 2nd loan, and give me fair market value of my home, 30 years fixed principal and interest at 5.5%(or less ). My take the lenders would just laugh their butts off, right? When they start calling and asking for my missed payments, what's the best thing to say?? Take my proposal or shove it?

[The Professor]

The questions I asked were designed to determine whether California Code of Civil Procedure Section 580b was applicable to your situation. I sense that you have already spent time on this site and viewed other posts where I talk about this law. The bottom line is that it provides other courses of action you can take including living in the home during the foreclosure period without paying and then ultimately vacating the premises once the lender completes the foreclosure.

Your options are limited because the home is so underwater. The interests of the first lender and second lender are not aligned. The likely conclusion is the first lender will proceed to foreclosure and wipe out your interest along with the interest the second lender has in the property.

Daniel

[LenderNoHelp]

Prof,

What would happen if I go the short sale route?

[The Professor]

A realistic view of your chances of closing on a short sale have them closer to slim than none. I say that because of an earlier statement I wrote, "The interests of the first lender and second lender are not aligned." To recognize the problem all you need to do is ask the simple question, who would get the proceeds of sale if the home sold for $500K (your estimate of its fair market value). The first lender would want the entire amount. The second lender would refuse to cooperate in the sale if it got nothing. Both lenders want to be sure you get nothing.

Recent posts relating to the effect of a foreclosure vs. short sale on your credit report have brought into question earlier statements that your credit score would not drop as badly with a short sale. So if there isn't a significant difference, what is in it for you to follow the short sale alternative? Not much that I can see. Yet there is a significant downside in that you eliminate the benefit of living in the home during the foreclosure period at little or no cost (perhaps only HOA dues). Additionally you miss the opportunity to exchange "keys for cash" once the lender has completed the foreclosure.

Since interest on your two loans totals more than $4K/mo, seems to me an approach that makes sense is save this amount each month (by not making payments) and continue living in the property as long as possible. Within a relatively short amount of time you will have extracted $30K in benefit that you put towards the home as a downpayment.

Take care,

Daniel

[925girl]

Professor Shays,

Please go to Anything Goes, you don't want to miss this.....see loan bailout also Great American Swindle.

Cristina

[The Professor]

Cristina:

I have responded to the thread you referenced in the other forum. My guess is this poster will not be happy with my concluding sentence. Sadly he fails to understand the nature of the varied circumstances and the fact that many borrowers like you were steered into rough waters by the very experts you trusted who were more concerned about obtaining their sizable commissions than fully advising you of the potential risks that existed.

Take care and know that in my eyes you are not to blame for your circumstances. Where I assess blame is on the so-called experts who put you and other borrowers at risk.

Daniel

[LenderNoHelp]

Prof,

How does short sale eliminate the opportunity for "keys for cash?"

[The Professor]

A key concern for lenders in a short sale is that the borrower receive absolutely nothing as a result of their agreeing to take less than is owed. With a foreclosure, they have eliminated your interest in the home, and viewing your potential non-cooperative attitude as a problem, they are willing to buy your cooperation with cash in exchange for you volunteering to leave the property in good condition and will pay you to do so rather than pay the costs associated with an eviction action as well as face the potential that you might damage their home on the way out.

Daniel

[LenderNoHelp]

Prof,

Considering my credit will take a huge hit once I start missing my payments, what do you think about purchasing a car before that happens?

[The Professor]

Good question and one that depends upon your situation. I'm practical in nature, as evidenced by the fact that on Tuesday $1,500 disappeared from my account to pay for a new timing belt and other suggested maintenance items at 105K miles for my Honda Accord. I did so, recognizing that with seven (7) years until my planned retirement date, it should last until just before I retire (another 100K miles) and I can purchase a my "last car" at that time. In conjunction with this I've established a new savings account and made arrangements to automatically deposit $300/mo into it with the hope that in seven (7) years there will be sufficient money in that account to buy a similar practical car.

In your position, I'd do much the same thing in making a buy or no-buy decision. That is carefully define the benefits/burdens and treat the outcome's result as though it were strictly a business decision. The obvious key that supports a buy decision is the fact that it will be much easier to get a loan at a reasonable rate while your credit is in good shape. I recommend looking at the "total cost of ownership" that is provided at the "edmunds dot com" site as providing practical information relative to a purchase.

Take care,

Daniel

[LenderNoHelp]

Prof,

Thanks for your insight... I changed my username btw. Anyways, back to purchasing a new car. I just received a BofA American Express 0% for until 2010, however I was thinking of using it to put money down. Since I am with CW, once I start to miss my payments on the house, more than likely they can take away that intro rate, right?? Just wondering...