Principle reduction question?

[Highway Man]

Hi folks just a quick question. I have a sister-in-law who is claiming they recieived a loan modification (by using a private company) that included a very large amount of principle reduction. Now, as I understand it no one is doing p reduction so I'm wondering if the company they hired is feeding them bs, or they are not telling us the whole story etc.? They live in CA. purchased their house in 2006 for + $500,000 with only 10% down and had a neg-am loan. They are claiming to now have a payment of only $1,600 which includes property tax, principle and interest?? My math just doesn't add up... any thoughts? Oh and they now have a 40 year loan. However, with property taxes around $400 - $500 per month that would make their mort on $450,000 only $1,100? what am I missing?

[LNLIBRA]

Highwayman: A friend of mine just got a loan mod thru Chase last week. I do not have all the details but is very similar to the ones you describe. Her payment including taxes and insurance are going from $2700 to $1700. They are on the 3 month trial period. Once they prove themselves there the documents will be finalized. I would imagine there is some kind of principal reduction and/or extention of terms to 40 years. Of course, they are ecstatic about this. They are upside down $200,000.
Hope this info helps.

[Moe Bedard]

They are not reducing principal with the MHA program.......they will only do a principal forbearance.................


These are the standard waterfall steps that the servicer will follow........

Step 1a: Request Monthly Gross Income as specified above.

Step 1b: Validate total first lien debt and monthly payments (PITIA).
For purposes of making a provisional modification offer during the trial modification period, the borrower’s unverified income and debt payments can be used. Provisional information and modification terms will be verified in a timely manner.

Step 2: Capitalize arrearage. Servicers may capitalize accrued interest, past due real estate taxes and insurance premiums, delinquency charges paid to third parties in the ordinary course of servicing and not retained by the servicer, any required escrow advances already paid by the servicer and any required escrow advances by the servicer that are currently due and will be paid by the servicer during the Trial Period. Late fees are not capitalized.

Step 3: Target a Front-End DTI of 31%. The lender/investor shall follow steps 4, 5, and 6 to reduce the borrower’s payment to the level corresponding to the Front-End DTI Target.

Step 4: Reduce the interest rate to reach the Front-End DTI Target (subject to a floor of 2%). The note rate should be reduced in increments of 0.125 %, and should bring the monthly payment as close as possible to the Front-End DTI Target without going below 31%. If the resulting modified interest rate is at or above the Interest Rate Cap, this modified interest rate will be the new note rate for the remaining loan term. If the resulting modified interest rate is below the Interest Rate Cap, this modified interest rate will be in effect for the first five years, followed by annual increases of 1% (100 basis points) per year or such lesser amount as may be needed until the interest rate reaches the Interest Rate Cap, at which time it will be fixed for the remaining loan term.

Step 5: If the Front-End DTI Target has not been reached, extend the term of the loan up to 40 years. If term extension is not permitted extend amortization. The 40-year term begins at the start of the modification (after the borrower successfully completes the Trial Period). Note that the servicer should only extend to a term that is necessary to reach the Front-End DTI Target; there is no requirement to extend to a 40-year term.

Step 6: If the Front-End DTI Target has not been reached, forbear principal. If there is a principal forbearance amount, a balloon payment of that forbearance amount is due on the maturity date, upon sale of the property, or upon payoff of the interest bearing balance.

[LNLIBRA]

***: thank you for the clarification. I will print it out and give it to my friends to review. She did not have docs when I spoke to her.

[Highway Man]

LNLIBRA and ***; thanks for the info. That is what I thought but just looking to confirm. They too have not received any docs yet and I suspect they are going to be in for a surprise when they do...

[fl13lane]

This is great first I felt lost prior to coming here. I have been offered a mod but the problem is my loan amount is 215 K and they will add 8 k for back monies. and the house accross the street just sold for 126k and the one down the street for 89k if they don't reduce principle i do not think it makes sense. please give your thoughts


Fred

[Moe Bedard]

Home Affordable Modifications are designed to prevent foreclosures by making mortgage payments affordable for working homeowners struggling to retain homeownership. The plan is not intended to replace equity lost by home price depreciation.