WF Loan Mod Denied + Current + $200 U/W + Stable Jobs/Income = ????

[ncalunderwater]

Hi -
We are new to this forum and, like so many others in our area (Northern California) and across the country are looking for advice on how to proceed. Thanks is advance for any comments/suggestions.

2005: Bought house $1.218M, $170K down

2006: Refinanced for lower interest rate

Summer 2009: My husband and I were both furloughed, resulting in a 14 % decrease in my income and 7.5% decrease in my husband's income

Nov 2010: request for loan modification of 1st denied - reason given in letter was that WF was unable to give us a "monthly payment amount that would be affordable"; reason given by phone was that we had a surplus of $1200 (our financials show a deficit of $400). We have 3 rentals that we cannot sell in North Carolina, which basically break even, and we are thinking that this could be impacting the surplus/deficit calculation. We drive older cars with no/small car payment, but could get new cars (we need them), which would of course affect our fixed expenses.

Current Loan: 1st $924K, 30 yr fixed, 6.375% (Wells Fargo); 2nd HELOC $64K, 30 yr fixed, 7.75% (Chase)
Current market value: $800-$825

Current loan payment including PITI $7500/month, which is 31% of gross income.

Rentals in our area for a skightky smaller house would be in the $3000-3500 range.

We have never missed a payment on the mortgage or anything else and have good credit. We do have $12K of credit card debt, including the $5K of property taxes we just put on the credit card. We have good income and are lucky to have stable jobs, but the furloughs have made it difficult for us to save money for property taxes. We like the house but feel like we are throwing money away while the house continues to depreciate and we really are having trouble affording the mortgage.

Thanks for taking the time to read this . . . we appreciate having an opportunity to get feedback from other people dealing with this issue.

[Maurice Bedard]

Hello and Welcome to LoanSafe!

My best guess is that there are a few things going against you here when applying for a loan modification.

1. You are not yet late. Hence, you are not a risk of default yet and they do not help people who pay on time.
2. You are so in debt that they feel that you are a default waiting to happen. Hence, you are a sinking mortgage ship with a hole that may not be able to be plugged.
3. A combination of 1 and 2

Please also keep in mind that most everyone's mortgage was insured by your lender or investor. That means if you default or do not pay, they still get paid via insurance at 100%. So, in essence, they cannot lose by denying you and will lose by helping. I want you to realize what you are up against and why even though it may seem in their best interests to help, in fact it may not be and this is your loan modification reality.

You are going to have to make some tough decisions here. What debt do you keep and what do you let go? Do you go late on your mortgage? Do you claim bankruptcy? and the list can go on and on. You have to do the Ben Franklin here and weigh your positives and negatives.

Please let me know if you have some more questions.

[ncalunderwater]

Thanks for your response. I understand that we are in a weaker position in seeking a modification because we are current on the loan (although that is very frustrating, because we have always paid our bills and would like to continue doing so).

I am a little confused by the bankruptcy idea . . . if we didn't have this mortgage payment, we would be in decent shape. It wouldn't take us an extraordinary amount of time to pay our credit card, depending on how much we pay for rent. The tax consequences of not being able to deduct mortgage interest are not good for us, of course, but if we rented, we would have $2000-$3000 per month additional that would go to the credit card. Our incomes have dropped due to furloughs but our jobs are very stable. We both work full time and have been with the same employers for approx. 15 and 8 years. The cost of living is very high in the Bay Area and I know we have gotten accustomed to living with a lot of debt due to that, but I don't think I am so off base in saying I can't imagine filing for BK in our situation unless there was a real concern that the lenders would come after us for the difference b/t the loan amount and sale price (if the house foreclosed), which I have read of this forum is basically not happening . . . pls reply back if you are able because we would appreciate any other thoughts you may have or clarification about the BK idea.

[Maurice Bedard]

My pleasure. I am not an attorney, but have been doing this for well over 3 years and have worked with numerous lawyers as a consultant and mortgage auditor. With that said, I have a tremendous amount of experience in online counseling as well as off. Based on the numbers your provided above and your debt, it appears that you may already be bankrupt but you just have not realized this because you are too busy plugging holes in the boat, when in fact you may just need a whole new boat.

This is very normal and you both are just trying to do the right thing. But the right thing is a habit that you have attained in your education, in acquiring your debt, your lifestyle and what you thought was the right moves. Yes, this was right before, but now we live in a new world and it appears that you both do also. This new world requires serious contemplation and adjustments to survive. The old ways will not work anymore.

You have had almost a 25% decrease in income and need to eliminate probably at a minimum 25% of your debt and I am almost sure that to live a good life where you are not a slave to debt, more like 40% of your debt needs to be eliminated or dealt with.

With that said, I see no other way to do this besides bankruptcy. But, BK should be the last thing you do if you do decide to strategically default on your mortgage.

[ncalunderwater]

Your comments are very thought-provoking . . . that certainly is not the way we have viewed our financial situation, and we truly welcome your perspective.

How do you get to a 25% decrease in income, though? If we each had 14% decrease due to furloughs and our salaries were equal, we would have an overall 14% decrease in pay, right? My furlough reduction is 14% and my husband's is 7.5% - although, as it happens, his income is higher than mine - so the overall reduction is between 7.5 and 14%, right? Does this change your assessment of the situation? We also expect that at some point in the next 12-18 months the furloughs will be lifted or lessened, restoring at least part of the lost income and making a HUGE difference in our monthly budget.

We also do have some assets that actually have held value - specifically, three out-of-state rentals that we have had for about 6 years, each valued in the $90K range which we put 20% down on. We have been unable to sell them, but property values have held steadier there than in California. We also have retirement accounts, albeit not as much as we would like. We are both 41 years old.

Any more thoughts?

[ncalunderwater]

Hi, Moe-
A couple of years ago, you responded to one of my posts on your forum. I have thought about your response from time to time and it has nagged at me, specifically because you said I had no option but bankruptcy and that my husband and are were bankrupt but just did not realize it. That was not the way I viewed our financial situation, and no one else we've talked to has ever suggested anything remotely similar, but I worry that I was/am missing something you might see that others don't. I hope you can take a minute to read this and see if you still have the same opinion.

Developments since my 2010 post: we short sold the house we lived in in Northern California (which we bought at the height of the market for $1.2M, with $170K down) in April 2011. Wells Fargo would not refinace our fixed interest rate loan and the house was $400K+ underwater. We had never missed a payment. The house sold for $750K. We are now renting a property nearby for $3500/month. As I mentioned in my original post, my husband and I have good, stable jobs - combined gross income $240,000. We have no car payments or student loan debt, but have credit card debt of $12,000. We had previously been maxing out our 401ks, but stopped so we can pay the credit card debt off at $2000/month. We have 3 rental properies in North Carolina (Carolina, not California, where we live), worth approximately $80K each (we put $20k down on each), which basically break even. We are in our early 40s. Prior to our short sale, we had perfect credit. We missed two months of payments for the short sale on the advice of our real estate agent, and now have scores in the low 700s.

Do you think, looking at our current financial situation, that there would be any basis for declaring bankruptcy or viewing ourselves as being virtually bankrupt? Through our short sale, we divested ourselves of our major debt, which was the large mortgage on an underwater property.

Thanks for your time and your maintenance of this website. I don't think our short sale experience would have been successful if I hadn't had the information available on this site.

NCalUnderwater