conforming 5/1 ARM not eligible for Dec. 1 program

[walkwithme]

Hello all,
I bought my house in Feb. of 2006, proved my income, laid out 10% down, and am paying 5.75% interest only on a "conforming" 5/1 ARM that is set to go variable (2.25% margin) + principal in 2011.

The purchase price of my house was 615K. Only 28 days ago the same floorplan house as mine on the next street sold for 335K. My guess is that, once the dust clears from this mortgage meltdown the true value of my house will be somewhere around 400K, tops. My house will not get to the overinflated price of 615K for probably another 10 years after the dust clearing.

So, what do I do? I have heard of this Dec. 1 settlement plan so I call my lender Countrywide who holds both my "first" mortgage of 500K and my "second" of 62K. The nice woman told me that I don't qualify for the settlement program because my loan is a conf. arm. Then I ask about a principal writedown and am told that the "investor" on my loan would have to approve that as if to say, "that isn't going to happen." The woman said that I would only be able for some sort of loan modification if I was having financial hardship.

I told her that at this point it isn't about financial hardship but it will be, among other issues like a seriously overinflated purchase price in 2011 when I will no longer be allowed to pay interest only on the "first" loan.

She suggested waiting until a time closer to Feb. of 2011 and pursuing a loan modification then as options may become available around that time.

My question is, are principal write downs and refinancing the house to a fixed 30 year loan a real possibility or are the banks going to refuse that option until they're dying day and force me to let the foreclosure process take it's course?

I will not continue with this loan past 2011. If Countrywide and my investor don't write down the principal as I mentioned above I am going to walk on this house and loan.

[The Professor]

You seem to have accepted the reality that your 10% investment in the home is lost for the foreseeable future. Based upon the information you've provided your current cost of borrowing (interest) is $2,652/mo. Your actual month cost of housing should be increased by the monthly cost of property taxes and HOA dues, and then reduced by the income tax benefits associated with paying interest and taxes. Comparing that number with the fair rental value of your property can give you a good idea if continuing until 2011 makes sense.

But the major factor here that controls the decision you make is determining whether you would be subject to a post-foreclosure deficiency for the lender's loss after they foreclose and sell the home. To suggest an answer to that issue the following questions need answers:

1. What state is the home located in?
2. Was the home purchased as your primary residence?

Daniel

[walkwithme]

Thank you for your thoughtful response, Daniel.
You know, this decision came on quickly, it just hit me the other day when the neighbor's house went for 335K. Upon thinking about it for a couple of days I'm pretty certain I will leave sooner than 2011, probably this spring. I'm chosing this summer because it will probably take 12-14 months for Countrywide to foreclose and I'd rather move in the summer.

I live in California and both loans are purchase loans. I have not refinanced anything. The house is my primary residence.

Also, I live on a decent sized disabilty benefit from a private policy I purchased. Because I do not pay any taxes on my benefit I do not receive any tax break from being a homeowner. I may not purchase another house ever and it could be argued that I shouldn't have bought this one.

I've also pretty much given up the notion that Countrywide and my "investor" will ever write down principal and give me a 30 year fixed loan.

I'm also thinking that I won't even bother with attempting any short sale and definately no deed in lieu of foreclosure. I'm just going to make them foreclose.

Thanks again for answering!

[The Professor]

You've pretty much answered your own question. Only real issue is how to prolong the foreclosure so you can live there "rent free" for as long as possible, extracting some of your 10% down via the "free rent" method. If you read some of my responses to posts, I suggest creating avenues of hope for your lender(s) so they will think holding up on a foreclosure will serve as a loss avoidance technique. Of course it won't but what the heck. If lenders were required to recognize their total losses today, we wouldn't see many of them survive. Truth is most of them won't anyway.

Take care,

Daniel

[cactus77727]

Welcome to the walkers club walkwithme.

I came to the realization you just did a couple months ago and am still in the thick of it. It's a long road, but I think you will find over time, your decision wil be confirmed, in ways you can't imagine at this point.

...the "free rent" method... ...creating avenues of hope for your lender(s) so they will think holding up on a foreclosure will serve as a loss avoidance technique...

And you need to master the "puppy dog eyes" phone voice technique when talking to the lenders. You get extra points when you coerce any human emotion from a hardcore zombie collections agent.

[walkwithme]

Daniel,
I guess I am answering my own questions but I needed a voice like yours to help me. I've been reading your other posts and saw the point you make about doing the short sale and thereby giving the bank some hope. I just didn't want to have to deal with people looking at the house but maybe I will. It doesn't take long for someone to take a look and I don't even have to clean the house (I have 2 labs who have access to the house all the time) as I don't care if the house sells.

I'm keeping the labs no matter what. And now I get to fantasize about finding a rental house with a nice big back yard. Something to look forward to.

My brother just went through a foreclosure. I think he got 12 months rent free. He went the short sale route, got a taker but the bank took so long to get to the deal that they foreclosed before closing with the buyer. Left hand, right hand thing.

And Cactus, thank you for the advice. My bro walked on his house after his wife left him and took her half of the house payment with her. He did get a lot of sympathy from the people who called.

Thanks to all who post here. It is reassuring to hear that there are so many of us walkers out there. I honestly think that the "ding" we get on our otherwise excellent credit ratings won't count for much in the near and not-so near future because the economy NEEDS buyers of all kinds.

HAPPY NEW YEAR TO ALL !!!