Another SoCal Breakdown on the Horizon?

[Two4Two3]

As many people are, we too are coming to the end of our first two years in our 2/28 loan with First Franklin. We bought our house in January of 2004 for $360k. At that time we had a first with New Century and a second (don't recall with whom). We re-financed after two years as our payments increased significantly, however, our credit was not that great at the time, due to some late payments. Both loans were rolled into one with First Franklin, which will hit the two year mark at the end of June. The current loan is a 50/30 Balloon 2/28 ARM in the amount of $404k. The initial rate is at 6.999%, but will change based on the 6 month LIBOR. That new rate will be calculated by adding 5.4% to the LIBOR index.

Over the past 2 years we've worked to improve our credit scores which are now at 748 and 692 (for me and my wife respectively). My question, at this point, is are we going to be able to re-finance into something similar to what we now pay, or better yet less? With the home values having dropped so drastically I'm afraid we won't be able to re-fi at all. Is it possible for us to re-fi and save our home based on our credit scores?

There have been 9 foreclosures within a 1 mile radius of us since January 1. The homes, in the area, that have sold to date have gone for about $415k so I've been told. I'm sure this is dropping by the day though.

Having read through the forums, I am pretty sure we won't get through to First Franklin to modify our loan, especially since our payments have all been timely. Before I go searching bank to bank, I thought I'd ask here first and see if I can get some advice.

Thanks to all that have posted here as it has been a wonderful learning tool. Thank you in advance to any advice that might be posted.

Much appreciated!
James

Hi James, Welcome to LoanSafe,

You are right, this is a great place to learn about mortgages and to take control of your mortgage as best as you can.

The good news here is that the 6 month LIBOR has steadily been on the decrease the last year. This index is at 1.93% as of 5-2-2008. For the sake of these calculations, let's say the index will be the same when your loan resets at end of June. Let's also say that your loan balance at the time of reset is the $404,000. This isn't exact, but pretty close cuz I don't know the exact $$$ of your loan. Here is how your payment will work for the next 6 months.

6 Month LIBOR @1.93% + 5.4% Margin = 7.33%. Your contract probably says "rounded to the nearest .125%", so your new rate should be about 7.375%. If we take the $404,000 balance at 7.375% on a 50 year amortization, the payment would be $2,547.00.

This is probably an increase of +/- $150.00. Not too bad at all. This will remain constant for the following 6 months. The an additional downside to this mortgage is that you are paying down the principal based on a 50 year schedule. You are not getting anywhere on paying the note down.

For your own due diligence, you should check out the possibility of refinancing. However, your value is likely to be the deal breaker.

So, James, keep hanging around here and asking questions. We might stumble upon a solution together.

[Two4Two3]

Steve,

Thank you for the information regarding my situation, you have really explained a lot. We don't have much experience here, so trying to read through the loan documents can be a bit of a project! Your example is great and gives me an idea of where we MIGHT be once the change occurs, if indeed we cannot re-fi.

That 50 year schedule is definitely no good. I think our loan was "down" to $402k, so you are right - we won't be getting anywhere with that! I'm hoping we can make a change now, but do realize that the value is killing us, like so many others.

I will check into it and report back with any pertinent info. Once again, I appreciate your help and information on this matter.

Thank you!
James

A modification might be possible, but you have about 6 months before next adjustment.

[textocal]

Hello, I'm jumping in on this thread because my loan is also tied to the 6 month libor. I was told to use the libor as published in the wall street journal which is now around 2.8% if I am reading this correctly. Please help. I get different answers everytime I call my lender.
I have to say that this website is bringing me closer to peace of mind as I get this information. Thank you all so much.

You are absolutely correct textocal!

I stand corrected for sure. I sure don't know how I did that. Maybe the 0524 posting time has something to do with it.

At any rate, I am sorry Two4Two3 if caused some false hope of only a small adjustment. The rate when it adjusts should be somewhere around 8.2%

I now have to hide my head from embarrassment.

[textocal]

Please don't hang your head - this whole thing is so confusing. I really do appreciate all the great information that is out there to help. As they say, it takes a community.

[Two4Two3]

textocal,

Thank you for jumping in on this, and for the correction. You are right, it is confusing, to say the least! At the time we got into this loan, we felt it was all we could get, and we were pressing to get away from another climbing rate.

Steve,

No sweat on that, don't even worry. I'm just happy to get the information now with hopes of making a change within the near future. I'm trying to figure the formula you've used to get the monthly payment, but I might be a little off! Nonetheless, I know what I've got to "look forward" to, so at least we can brace for that if not stave it off.

Thank you all for the great info!
James