Seeking your advice. Do we qualify for a loan mod?

[Marlo74]

First of all, I am so glad I found this forum. It has lots of helpful information for most home owners to benefit from.
I seek the reader’s advice and I appreciate everyone’s response in advance. God bless you.
Here is my situation,
My wife, our 2 kids and I live in a house in California that we purchased back in March 2006 for 700K . We have two mortgages on the house:
1^st mortgage: with Citi Mortgage
30 years fixed
Interest Rate: 6.25%
Principal Balance: ~$403K
Monthly Payment: $2567.54
2^nd mortgage: with Flagstar
30 years fixed (15 Baloon I think that means I have to refinance it after 15 years or something like that)
Interest Rate: 7.25%
Principal Balance: ~$206K
Monthly Payment: $1452.36
In Summary: loan amount of both mortgages is 609K and our monthly payment is $4020/month mortgage + Property tax (~$750/month) + insurance ($70/month) = $4790/month.
The house today will appraise for ~470K. We both employed and are current on our payments with excellent credit score status. Even though we currently have a steady combined gross income of ~130K/year (or $10800/month), we are currently struggling to make payments. Because after our payroll deductions (taxes, healthcare & Retirement) we are not left with enough money to pay for our mortgage and cover all these other expenses such as daily expenses, utilities, child daycare for our 2 boys, etc… We are running out of our savings and will not be able to continue paying. I am sure that lots of families nowadays are in our situation or worse.
Our Goal: My goal is to try to keep my home and not foreclose on the house. It would be good if we can refinance our both mortgages into a 1 fixed loan with a lower interest rate and of course a lower monthly payment. If we can get a loan amount reduction that would be great, but I doubt that will happen. The main problem is that no bank will refinance our home today because we are upside down on our mortgages. The house is worth $470K and we owe $609K.

The Question: What we need is an advice on if we should contact both mortgage companies and request a loan modification? Or is it because we are current and both employed, and there has been no change to our income status, we should not even bother? Is foreclosure the better option? Should we stop making mortgage payments and then contact our mortgage companies?
Also, is the Obama initiative that was announced on Wednesday going to help in our situation? Please advise me and help me understand.

Thank you again for helping.

[LHarveyMadman]

Since you have fixed rate loans and have not had a loss of income, it might be hard to make your case for a modification. After all, it would mean that you were never able to truly afford your loans from the very first day, unless you had some major unexpected expenses. Were your two kids born in the last 3 years? If so, then you could claim the added cost of childcare as a new financial burden.

Principal reductions have not been forthcoming for most people. My quick reading of our President's plan does not seem to provide for principal reductions.

Like you said, refinancing is out of the question because of insufficient equity. A loan modification would be your only solution.

Listen, it doesn't hurt to try to get a modification despite your circumstances. There's a possibility that your first loan is backed by Fannie or Freddie since it's a conforming loan. Assuming that Citimortgage participates in HASP (I'm going to start using that acronym), then you might meet their criteria for modification.

Your second loan wouldn't be eligible under the HASP guidelines, but you might still be able to get a modification of that loan as well. Others here have had some success in modifying seconds.

Oh, and as many others would say here, the decision to modify is given up to the investors.

[Moe Bedard]

Hi Marlo74,


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


The modifications given are up to the investors that are on the loans..........and investors have not been doing principal reductions.........we have seen some principal forbearances...........but all that does is create a balloon at the end of the loan term of the principal that was taken off of front end of the loan.............so the property would still be underwater. The investor on your first could be either FannieMae or FreddieMac...........but you can ask Citi that question...........if it is......they are looking at modifying the loans in their portfolio that are 90+ days in default...................and the program lowers the rate for the first 2-5 years and then raises it back to the current rate and may also extend terms from 30-40years.................

Call and see what the options are going to be and go from there.........
CitiMortgage for LoanSafe members
1-866-255-3901


Here is a thread I posted regarding the info from the President's speech..............if your investor is Fannie or Freddie...........you may be eligible for the refi............but the reduction amounts are not very significant for the hard hit areas...............

http://www.loansafe.org/forum/stop-f...html#post63591

[acl1974]

Hello. This is just my opinion, but according to the President's plan you are paying more than 31 percent of your income per month. That would mean that you would fit the bill for a modification. The problem is that you haven't had a change in circumstances. However, you can state that you've had a change in cost of living, which is true for most of us. Gas prices, while low now, pretty much killed me during the more than a year that they were astronomical. Food prices have gone up and other necessities started going up, but wages have remained stagnant. I'm not sure if that would work, but it's worth a shot. Good luck.

[Marlo74]

I thank everyone for their helpful replies, I wanted to clarify a couple of things that were asked or mentioned in the replies. Since we bought the house, we did have financial changes, a little to our income but mostly to our expenses. Beside the increased cost of living expenses, when we purchased the house, my 1st son was only a few months old and as I remember, my wife was still on maternity leave taking care of the child. My 2nd child was born a year and a half after purchase date. Both kids require lots of expenses including daycare. Also, during the same time we purchased the house three years ago, we invested our money in a retail business (owning 50%) the business did generate some income, not much (800-1000/month last year). Now the business is actually loosing money because of the bad economy. In fact we have to put money from our own pocket to cover the business expenses. Of course we cannot sell the business because of the bad sales, 2^nd we cannot close it because of the long term leasecomitment. Would the lenders take all the above as financial hardship?

[LHarveyMadman]

Certainly the increased childcare costs would be considered legitimate additional expenses that affect the ability to afford your loan payments. I don't know about the investment loss, though, but I can think of no reason why you shouldn't include this information in your letter.

[Marlo74]

Ok, so the recommendation is to go head and write a loan modification letter to both mortgages. Now, should I continue paying my mortgage payments? or should I stop? If I stop this is going to hurt our credit score, right?

[LHarveyMadman]

You don't necessarily have to be late on your mortgage to get a modification. If you are able to afford your payment for now without it causing an exceptional hardship, then I would recommend that you make it. Contact your lenders in the meantime and see whether they will modify while current.

Your first loan might qualify for President Obama's plan. There's a phrase in the text of the initial proposal that says that modifications will be given to "creditworthy" borrowers. No one knows what this means, but it might be prudent to make your payments and preserve your creditworthiness.

[loanmodwannabe]

I received a loan mod from Citimortgage back in Sept. Back then, they wouldn't work with our Fannie Mae backed loan unless we were behind in our payments. Mercifully, they agreed not to report the 4 months in late payments to the credit bureaus and the loan mod was finalized. True to their word (surprising, eh?) the lates were not reported. Their guidelines have probably changed by now, so do not assume you have to be late in order for them to work with you. Our change in income was small (-200/month) compared to the previous year, but we had taken on additional unforeseen expenses. We were seriously considering walking away and were very vocal about it w/ Citi since there was no way we could continue making our payments on our 10 year IO 6.25 fixed. They worked with us and in the end, our payment is $537 less /mo than it was before on a fixed 40 year. So, use this site with all of its free content and expertise. Do a lot of reading before you make that first call, then call/fax/email them just about everyday so they don't forget about you This site is gold, mine it.

[Marlo74]

SO,
I called CitiMortgage which is my 1st mortgage company and they did inform me that me that my investor was Fannie Mae. As loanmodwannabe said, They would not work with me unless I was behind on my payments. It's like they are encouraging us to be behind on the payments. I am wondering, in that case how do I let my Fannie Mae know that I want to modify my laon. I was reading about the Making Home Affordable Program
Refinancing and Modification Options at Homes and Communities - U.S. Department of Housing and Urban Development (HUD) and it seems like I would qualify for a loan mod under this program.