Loan mod for customers who are current?

[valerie2800]

We are current on our mortgage, but with debt that grew while trying to sell our last home in this rapidly declining market, credit card interest rates that keep growing and growing, and bonus income that didn't come to fruition in this economy, paying monthly bills is tight. I've tried to reduce credit card interest rates, but the bank (same bank as our mortgage) won't budge on that.

So then I called our bank to inquire about a refi since rates are now quite a bit lower than our loan rate. The refi dept said our loan to value ratio won't support that & transferred me to their "regular" loan modification dept, established for those who are current with payments but could benefit from a current lower interest rate. I didn't realize that existed. Here, they said high debt could work to our advantage.... but I'm skeptical. Could this solution be too good to be true? Here are things that make me wonder if I should pursue this modification request:

1. could too much debt possibly hurt in this instance? With all loans, car payment, etc in my name alone, would debt from increasing revolving credit and household expenses for 2 (my husband and I) outweighing my income seem too overwhelming? My husband's income goes towards all these bills, but wouldn't be taken into account in the modification of this loan. Even though we're current and have never been late in payments, could the bank rescind the loan if it seemed like my current debt is just too high and future payments -- current or modified -- would be at risk? Or could that not occur because we're holding up our end of the bargain being current and on time?

2. if current income is much lower than on the loan docs because bonus income didn't come to fruition in this economy, would that be an issue that poses more problems than good?

Are banks looking for excuses to get out of loans these days, even the loans that are current but could be perceived as causing future problems in order to get out of their financial fix? Could there be red flags that would hurt us instead of help us? Maybe all the terrible financial news is just making me overly cautious.

Since we can't refinance at this point, a modification to current lower rates would really help us control debt that has grown in this crazy economy and become more financially solid. Could this potentially be a good solution for us and many others like us out there who are just getting by each month with growing debts and may not realize this exists? Hoping you can provide some insight. Thank you.

[Moe Bedard]

Hi Valerie,

Welcome to the forum and thank you for joining.............

While many of your questions would need to be answered by going through the process of a loan modification because the criteria from each investor is different from one loan to the next as far as expenses being more than the income...............they will not want to see a very large deficit because in a case like that..........they will not be able to modifiy an interest rate low enough to help............small surpluses, and small deficits have been approved for modifications............

Who is the servicer?
What is the interest rate at?
Is it fixed or adjustable?
If adjustable when is it adjusting?
Are you paying interest only?
What is the loan amount?
Do you have one loan or two?

[valerie2800]

It's an interest only ARM readjusting in about 3.5 years, so there is time for that. Looking at debt & income plus taxes/insurance, to come out even, the rate would need to be about 2.5 - 3% and I don't think they're going to want to lose that much revenue (about half). That doesn't take into account household/living expenses if they factor that in. Since they don't consider my husband's income, I am fearful about throwing up a red flag about my current debt to income and income being lower.

Even though we've always been current and on time, could there be ramifications? Could they rescind the loan if they don't like how things look? If that were to happen, with the banking crisis, not many banks would be attracted to our business right now.

Am I crazy to worry about that? Is the worst case scenario just that the modification is denied and we keep plugging away each month with the current factors? Just fearful of creating an even bigger problem. I'm uncertain how to know for sure before starting the process. And likely won't start the process unless we're in trouble because of the fear of doing more harm than good. Thanks for your insight.

[Dan Bailey]

Valerie,
Thet cannot rescind the loan, worst case scenario is they say "no" to doing a modification.

[valerie2800]

That's good to hear. My husband feels very cautious about this as well. Is there any reference or standards information you know of regarding this? Thanks again.

[Dan Bailey]

The mortgage is a contract, they cannot just end/break the contract, just as you cannot. They, as well as you, signed this contract with the information available at that time and are bound to it unless both parties agree.

I'm no lawyer, but encountered a similar situation with my scenario. If it were the case that they could rescind due to "new information" They would rescind everyone who asked for/started a mod process.

[valerie2800]

Makes sense. Thank you.

[Moe Bedard]

Valerie,


You still have not mentioned who the servicer is on the loan..........
and also for a modification they will use all household income and all household expenses............so you can submit your husbands income.