1st / 2nd principal writedowns - question for Moe

[ccsint]

Hi Moe,

In your FAQ, you wrote -

Myth: Lenders and servicers are offering principle reductions on borrowers whose mortgage balances are in the red and owe more than the home is worth.

Fact: Yes, but this is very rare.

This is usually done when a borrower has a 1st and 2nd mortgage and the 2nd is negotiated down and settled for 10-20 cents on the dollar. The first is less likely to offer a reduction in principle unless they are facing litigation and or there are legal violations on the borrower’s loan.

I was wondering if you could provide any specific details on the circumstances of when this has happened? I haven't see much of this in the forums.

Take care,

ccsint

[cutlass]

I agree, I want to see more specific cases of modifications involving principal reductions to a 1st mortgage (not a 2nd).

[cwb124]

Specifically, I'd like to know how you go about getting something like this. Do you ask, or do they offer? What is you are not behind?

[janr12]

I am interested in this subject as well. We have a 1st & 2nd. 1st has an ARM that will be resetting in 02/09, so we will have to refi @ that time. However, we are upside on the house for about $100-130k (which happens to be the amount of the 2nd). Since we had a stated income loan that won't be available when we go to refi.
I have read that principle reductions have been a very small percentage in Ca. So even though many people beleive there are reductions going all the time, i don't believe that is the case.
My question, is how likely will a 2nd mortgage work with you to settle on 20 cents on the dollar, when you have never been late, but can show hardship.
Anyone have the answer to this question?

[janr12]

I'd also like to know what are the chances for principle reduction on a 2nd when equity is not there, never been late on payments but can show there is now a hardship. What steps should someone take?

[angel83]

I'd like to know that too - my second is with Citi? What does that do to credit?

[maricopaaz]

I read somewhere in the forum about someone who dealt with their second and got them to write the loan down. I was wondering about pulling money out of our retirement and asking the second to take say $8000.oo as payment in full one time cash pay and write off the bal of $72K as we are getting ready to file for chapter 7 and they will get nothing. We are now 1 payment behind on the 1st and 2nd as of 08/01 will be 2 months behind. How would one go about initiating this? Our second is with First Horizon. Also what is usually the time frame to get an answer on this as we are in a time crunch. thank you

[cutlass]

If you are really going to BK why pay them anything?

[Scott Hazlett]

Hi all,

Lots of questions on principle reduction as this is a hot topic lately. Essentially, I hear about it as well but do not see it happening on the firsts. On the seconds, yes to a small degree. Example: You owe 400K on the 1st and 50K on the 2nd on a home that is worth 370K. If you are requesting a mod due to hardship and behind on both loans then that is a good time to negotiate away the 2nd for the afore mentioned 10-20% of balance. They are more willing to talk as they know they are most likely toast anyway. If you can do this you are clearly in a better position once your equity starts to return, which it will, eventually.

1. I have not seen a 2nd negotiate when the customer is not behind or presenting substantial hardship.
2. I have not seen the 1st reduce at all.

Lenders are looking to fix the mortgage crisis on a short term basis as they know it will improve. They will offer short term (5yr) loans at good rates to allow the homeowner to adjust their life to their stated hardship and in some cases are offering 30yr fixed as well. A good proveable hardship and a thourough budget are the best way to get the bank to listen.

If you have an audit performed and federal violations are found (TIL, APR, RESPA) then the lenders become even more willing to listen and to move faster on your case as they wish to avoid possible future litigation. Still, the violations must be totally off the charts for them to consider principle reductions. At least that is my experience.

[Moe]

Sorry, I am late to the write down party

OK, seconds are what I would like to call the red headed step child in the foreclosure crisis. There they dude that gets picked last to dance or gets last dibs on the food at the party. In other words, they know they are in a position where they cant just do whatever they please like the all mighty 1ST trust deed that rules the land and your home.

So, what you do is take their weakness and use it to benefit you. Remember, much of what we do here and on the forum is poker, but with your mortgage and home. Yes, big stakes and risks at hand, but thats whats in the pot right now.

You need to bluff, fib and even lie if needed be, What??? They do. If anyone wants to be Mr. or Mrs. Saint, then these devils will eat you alive. So, the choice is yours and I am not saying commit fraud, NO! Just bend the truth into your favor.

The 2ND you treat different then your first.

You tell them what you are going to do. If that is a bluff or real, I don't care, but you tell them that you are going to bail on your home if you don't get them to work with you and write down the loan and come to some kind of settlement, but in a nice way

These guys know they will get NOTHING if the bank forecloses on you and may sell that debt to a collector who will buy it at pennies on the dollar and may never get nothing. You can settle it for a little more than the debt collector will buy it for, but the difference is you settled it your way and you don't have Guido calling every day for the rest of your life.

Maybe for 5-15 cents of the dollar and you can wipe the 2Nd's clean.

[cwb124]

I would assume settling the 2nd mortgage would have an negative impact on your credit?

Also, how do you even start that conversation with your loan servicer? Telling the 1st level CSRs that you want your 2nd knocked down will get you absolutely nowhere.

[Scott Hazlett]

A good thought for all of us to remember is that the lenders DO NOT HAVE TO do anything. A modification can actually be considered a favor. Clearly there is benefit to the investor as well but again, as of now, there is no requirement on their part to perform.
cwb124 - when starting the negotiation have your ducks in a row in relation to your hardship and your budget. If you can show the 2nd position investor that he stands to lose it all then his mind will open up to offers. Ex; house worth 400K, 1st is 450K and 2nd is 45K. If you show the 2nd investor your hardship and threaten BK or foreclosure then, if he's smart, he'll at least listen to an offer. When negotiating though be prepared to cough up 10 - 20 percent rather quickly. And yes, it will ding your credit

[cwb124]

Can you bypass the loan servicer and have a conversation with the investor personally to do this? Or does it all go through the servicer?

[Scott Hazlett]

Servicer. They represent the interests of the investor and act as their "shield." Investors frequently leave instructions for certain cases. How much rate reduction to offer, what cases to accept payoffs on and such. The servicer usually knows what the investor wants to accomplish.