Negotiating from Position of Strength

[k_sacto]

I'm not in trouble, I want to renegotiate my mortgage from a position of strength, not weakness. I have a good-paying federal government job ($109K) that I've had for more than 16 years. FICO of 763. I purchased my beautiful home back in 2004 for $365K with $73K down. I've never taken out a 2nd. The balance on my home is $286K. The value is decreasing by the minute (Sacramento, CA). Last time I looked, it was worth only $268K. That is a staggering loss of nearly $100K, all of my $73K down payment and then some. I took out a 5-year interest-only loan at 5.5% with First Franklin which will adjust to an ARM in Nov. 2009. I have made ever-increasing payments on the principal and never late on any payments. It was necessary for me to take a subprime loan because of a previous bankruptcy and divorce in 2000. And since I got rid of my biggest financial liability, my ex-husband, I have successfully re-established financial responsibility (and steadfastly remained single). It was always my intention to refinance my home before the ARM kicks in. Now I am stuck because my house is worth so much less than what I owe. I can't refinance.

The ARM is based on six-month Libor plus 3.625%, but can never go below 5.5% or above 11.5%. If the rates were to adjust today, I would still be at 5.5% - plus the principal, taxes, etc. would be no problem for me. The rate adjusts every six months. The first jump cannot be more than 8.5%. which I could afford, but I don't want to. 11.5% would be devastating. Libor has been all over the place lately, but this time last year, it was very high. I don't trust the lender to not just pull a number of out the air and call it the six-month Libor. There is no documentation to indicate what point in time for what Libor rate they use.

I don't need to reduce the principal, I plan to retire in this home, so I believe my house will eventually come back and I can wait. After reading about First Franklin, boy - talk about bought and sold. First, it was a subsidiary of Bank of America, then it is sold to National City, then it is sold to Merrill Lynch, who lost their butts on the deal, closed First Franklin and it just became a loan servicer. Now Bank of America has purchased Merrill Lynch. I don't want to deal with the loan servicer because loan modifications are only done on the basis of hardship. I want a loan modification because it will be a good deal for the investor and for me. They have made more than $70K off of me in interest so far. They won't lose anything on the principal and they won't lose a good customer if they agree to modify my loan. If the interest rate goes sky-high, I will probably raid my 401(k) to refinance and they lose a good-paying customer. Everyone loses under that scenario. But quite honestly, I may not be able to get enough money out of my 401(k) to refinance if my house value keeps plummeting (even with an FHA 95% loan).

But I still want to negotiate from a position of strength. Should I sit tight and wait until I get a letter telling me my interest rate has actually sky-rocketed? Or, should I go for it now before the ARM kicks in? I talked to the "servicer" there is no premise for negotiation if I don't have a financial hardship. Who at Bank of America can I actually talk to?