Waaay Upside Down

[NorthCoast]

My situation has many similarities with several of the posts I’ve read but there are some key differences that I wanted to address. We live in a very desirable area of California, but there’s very little industry here so the major sources of income revolve around housing and tourism. County politics have made in nearly impossible to build, yet there’s a steady influx of money from out of the area, (low supply, high demand). When the “bubble burst” it looked as if we would be somewhat spared, but now it seems more that the wave just took longer to get to us. Several houses that were selling in the $800’s when we bought 3 years ago are now short selling in the low-mid $400s

I have a steady job, but like many Californians it’s not enough. The only way we were able to buy in this area is that we were also renovating spec homes (flipping). We had done several, and were comfortable pushing ourselves so that we could raise our kids here. But no longer can you come in with 5-10% down, claim rental income and get a stated income loan on a fixer. The prices now are great but the banks won’t touch you with a 10 foot pole, unless you’re a fully documented first time homebuyer. Without that second source of income we’re far from being able to make ends meet on my salary alone

We have a $588k 1^st with GMAC, int only 5.875% fixed until May 2013. Monthly Payment is $2878.75
I also have a $197k HELOC with Chase that’s currently at 6.75%. Monthly Payment is $1111.55
Property Tax is $634.38
Homeowners Insurance is $88.29
So PITI is $4712.97mo, problem is that’s pretty much my take home salary after taxes and medical and therefore doesn’t take into account things like food… We had some money put aside that we used to bankroll our side projects but with the lending rules changed, the only option was to use it to pay the mortgage. Its now all but gone.

I contacted GMAC. Their advice was to skip a payment and call them back in a month, and in the meantime call a realtor about a short sale.

I contacted a real estate attorney who advised I steer clear from a short sale as Chase would get nothing and possibly come after me. He advised I stay put, try to work it out with the banks, get behind with Chase first (if they foreclose first, they actually get something) then start saving what I would be paying in mortgage payments for a down-payment on a new house, and start over again.

I talked with a couple Loan Mod firms out there who want between $2,500 and $3,500 to handle it all for you, but when I started asking how many they’d been successful on, there’s deafening silence

I tried Hope which referred me to my local credit counselors (there a whopping 2). One of which was too busy to help me unless I was actively in foreclosure, the other came off initially as being very unprofessional, they have one person doing all the negotiations, who I’m not allowed to talk to, they couldn’t provide any success stories. I just wasn’t impressed

So I sent in all my docs on my own. Chase is said they get 500 application packets a day and not to expect to hear anything for 10 business days. I waited 5 and called back to confirm they’d gotten it, but was told to wait another 7 (don’t call us we’ll call you). And if I resubmit that my application will go to the bottom of the pile.


I called GMAC a week after faxing in my docs and did get confirmation that they had received my app. They took my info again and proceeded to tell me that my grocery and gas expenses are too high, (what does it matter what I spend a month for gas and food when my salary doesn’t even pay the mortgage. I commute 60 miles each day, and have 3 kids… come on). Ultimately she said that my only options are short sale or to call Hope. When I said I had talked to Hope and they advised me to talk with my lender first, the response was that “well we (GMAC) haven’t determined our guidelines for hope” and that I would need to call back in a “month or so"

• Over the last 3 years I’ve spent over $200k in interest and improvements on this house. I haven’t paid down any principle and now its upside down by about $340k. I’ll walk away if I need to. But is there a better way to get my lenders to use common sense and realize that if they don’t work with me they’ll end up losing hundreds of thousands of dollars?
• Do I need to start missing payments for the banks to take interest in me?
• Is there any Hope for Hope? It seems the banks are seeing it as a joke.
• There’s principle reductions and rate reductions, are either GMAC or Chase doing both or is it either/or? To get below 50% Debt/Income would require rates approaching 2% or a significant principle reduction. Maybe a bit of both could make it slightly more stomach-able to the banks.
• Do I have better luck with a HUD certified credit counselor handling my mod or is it better to go it alone?
• What about some of these modification companies? I could stomach $3,500 if it meant keeping the house. But if it didn’t get me anywhere, and blew my chance with the bank then its no good.
• Has anyone had success with a situation that’s this far out there?

[Moe Bedard]

Hi NorthCoast,

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

Principle reductions have not been happening as of yet from any investor that we can report here on the forum....we have seen two principle deferrments which takes a portion of the principle and adds it as a balloon due at the end of the loan term......the attorneys office may have seen a couple....you may want to contact them and discuss options and see what they can do to help if you need the extra help............

click on the link for the info

Safe Loan Modification Service | Home Mortgage | Protect Your Home & Mortgage With Loan Safe

[NorthCoast]

Thanks ***,

Have you seen rates go down in the 2-3% range. I'm wondering if all this is wishful thinking

[Moe Bedard]

Yes.........but not fixed for the life of the loan.......usually in a step rate modification scenario.......ie......
2% for first year
3% for second

going up to somewhere around 5-6% fixed for the remainder of the loan..........but again.....it would depend on what the investor is willing to do.

[NorthCoast]

***,

Thanks again for the referral to Law Office of Griswold & Agdeppa. I had a good chat with them, and they definitely came off as being more on it than the credit couselors in my local area.

Their service is a bit more pricy than the some of the others I've talked to, so I'm wondering has anyone else out there used them, and would they reccomend them?

[Moe Bedard]

They are not new to what they do, but they are new to our forum.........
here is a member that is using them.........there are also a few others...

Join Me in My Journey Using an Attorney for Loan Modification

[The Professor]

Yours is certainly a challenge. Of the suggestions made, I'd side with your real estate attorney who advised:

"steer clear from a short sale as Chase would get nothing and possibly come after me. He advised I stay put, try to work it out with the banks, get behind with Chase first (if they foreclose first, they actually get something) then start saving what I would be paying in mortgage payments for a down-payment on a new house, and start over again."

The downside to this suggestion is that Chase would be foolish to foreclose first, since the property is actually worth less than the amount owed GMAC. So, while it would be wonderful for you if Chase foreclosed, it probably isn't going to happen.

I take it given the lawyers advice that the HELOC wasn't a purchase money loan (created at the time you bought the home and its entire amount was used to buy the home). If I'm incorrect, please let me know.

This is not an easy situation you face, and one that may suggest talking to a bankruptcy attorney.

Daniel

[NorthCoast]

Thanks Daniel,

Yes you are correct about the Chase HELOC. We started with a GMAC 2nd (also HELOC) when we purchased the home becaue there were 2 properties that we sold to get into this one. The dates didn't coincide so we did a Heloc that we could pay down.

The market was still rising at the time so we did what we'd been doing with other properties, fixing up the place so that once we passed the 1year mark (and you can refi for more than the purchase price) we'd have gained equity. We purchased for $735, 1 year later it appraised for $815, we took out the Chase heloc for $200k, paying off the GMAC 2nd.

The Chase heloc was not fully drawn until about a year ago when we were in the middle of a renovation project and got word through the grapevine that Chase was freezing the lines on HELOCs. We fully drew it then so that we had the funds to close out the project. Once the side project closed escrow and I paid off all the home depot bills and such, the lending rules had already changed, so we couldn't roll it into another property.

We were holding out for a while, early on people were saying that the markets would recover as quickly as they crashed, but now that seems unlikely

[The Professor]

You said, "We were holding out for a while, early on people were saying that the markets would recover as quickly as they crashed, but now that seems unlikely." People who said that simply ignored history. Crashes historically continue until homes become affordable. We still are not there yet and unfortunately, due to an overall economic collapse, it is gong to be a year or two before we come anywhere near the bottom. Once we reach the bottom, history tells us that things remain flat for quite a while. I've been telling anyone willing to listen since 2005 that we won't reach bottom, based upon history, until around 2011, and we will remain at bottom for 4 to 5 years after that.

Good news is on occasion former students will contact me and say how right I appear to have been in my analysis. It really wasn't a difficult call I tell them. It was simply looking at fundamentals and applying the economic principles associated with supply and demand.

Daniel

[NorthCoast]

I agree,

its seems that there's so much information overload out there, its easy to find someone saying something you want to hear. We've definitely made mistakes and hopefully learned from them. I'm just hoping we can pull it off without losing everything

[HopingtoFind]

Originally Posted by Professor Shays

You said, "We were holding out for a while, early on people were saying that the markets would recover as quickly as they crashed, but now that seems unlikely." People who said that simply ignored history. Crashes historically continue until homes become affordable. We still are not there yet and unfortunately, due to an overall economic collapse, it is gong to be a year or two before we come anywhere near the bottom. Once we reach the bottom, history tells us that things remain flat for quite a while. I've been telling anyone willing to listen since 2005 that we won't reach bottom, based upon history, until around 2011, and we will remain at bottom for 4 to 5 years after that.

Good news is on occasion former students will contact me and say how right I appear to have been in my analysis. It really wasn't a difficult call I tell them. It was simply looking at fundamentals and applying the economic principles associated with supply and demand.

Daniel

Daniel... I think you mentioned at some point that you're located in Sacramento area. We own two investment properties that we are currently trying to modify in Sacramento area. From what I have seen prices there have experienced a decline of 50% to 60%. Sales have picked up in the last year and inventories have decreased. Do you think prices in Sacramento area are going to keep falling until 2011? If that is the case they will be down possibly 90%? Even now with current mortgage rates, with what the prices currently are, mortgage payment can be less in some areas then rent for compatible property.

[The Professor]

The 50% to 60% decline isn't realistic for the region as a whole. Go to areas like Natomas and Elk Grove, where there is a substantial of amount of foreclosed inventory and you might be seeing that. But it certainly isn't uniform across the region.

I do however believe that we are in for a continuing downward trend until 2011. This in part results from the area's heavy dependence on the State of California's payroll. The Governor is attempting to impose a 10% across the board reduction in payroll costs for State employees. Think about what effect that will have on this area. By the way, rents are also trending downward.

Daniel

[chooch]

***,

There is a rumor I am hearing around the office that the first thing Obama is going to do after taking office is impose a freeze on all foreclosures and order all banks that received fed funds to work with customers. You heard anything similar?

[The Professor]

The problem with these sort of rumors is that there is an assumption out there that the banks own most of these mortgage loans that are in trouble. Truth is that in lots of cases they are owned by "investors" with the so-called banks providing a loan servicing function.

Think for a moment the downside risk associated with such action. If you were a lender, would you be willing to loan borrowers money knowing that you might be halted in your collection efforts in the event a borrower quits making payments? Want financing to dry up even worse than it is? That's easy. Just make it impossible to collect in the event the borrower doesn't want to repay.

That's why when I loan money to my kids, in my mind I assume it is a gift. Why? Well if I do that upfront, I don't have to face the question of whether or not I'll have to sue to collect if they don't pay me back.

Daniel

[chooch]

Daniel,

Good point. My thinking was the economy will never stabilize until they first fix the housing market. Bush hasn't done much to help consumers thats for sure.

[HopingtoFind]

When I say 50% to 60% I am referring to what lower end REOs are selling for, because that is pretty much what is selling right not in most areas. We have seen some areas decline as much as 70%, of course this is looking at what REOs are selling for. Some areas are at 1985 prices, correct me if I'am wrong. In other words affordability is not an issue at this point..

I do however believe that lenders are going to be a lot more aggressive as far as loan modifications in the coming year, as there will be huge push from the new government to modify, but this is for loans made from 2005 to 2008. The new loans are a lot more stringent and the prices are a lot lower so I don't think this push to modify would affect lenders/servicers on the new loans IMO. I guess we'll wait and see..

[NorthCoast]

Trouble is how to read the comps. There's always 2 sides to every story. Back in the day foreclosures were either purposely excluded from comps, or if they were considered their numbers were few enough that they didn't skew the averages. In todays market foreclosures are a reality and a big chunk of the "Sales" in the market. So they are driving the prices down. Your house is only worth what someone will pay for it, and what they'll pay for it is based on comps (foreclosures and conventional sales).

on November 17th in a study conducted by the NAHB and Wells Fargo, San Luis Obispo County was the second least affordable area in the nation behind White Plains New York. It was actually number 1 as far as "small metropolitan areas" There are still people people paying allot for properties here, but those are the ocean front properties that were $2mil+ a few years back and now they're a steal at $1mil. Any appraisor, assessor, or real estate agent generating a CMA should be able to differentiate between ocean front and not. Same thing goes in non-coastal areas, your country clubs and such will command a premium and shouldn't be lumped in with your comps. If they are you've got amo to fight it.

Bottom line, the stats will catch up. If they don't completely show a 50% drop yet they will in the near future. I believe Prof. Shay's comments about the length of this thing. Hopefully Obama will make a positive dent but its politics. He may be driving the bus but everyone on that bus is trying to lean it in their own direction. I agree it'll get better as time goes on but I'm not going to hold my breath for the government.

[cactus77727]

Also, keep in mind the huge scale of the economic situation. You don't turn a giant cargo ship as quickly as you turn a small power boat. My opinion is, this will be painfully long, slow, and difficult. Not to be doom and gloom, but rather to be prepared and to temper your decision making. One consolation for those who's credit is damaged/destroyed, this whole thing won't be over much before your credit is back to normal.

[Tom H]

I love the title of this thread, story of my life in 2008. And no, this thing isn't much over.

[The Professor]

Cactus77727 said, "one consolation for those who's credit is damaged/destroyed, this whole thing won't be over much before your credit is back to normal."

That statement should be a driving force in those making the decision to walk. The downside to walking is its effects on your creditworthiness. The timeline for its disappearance is seven (7) years. I suggest that 2009 + 7 = 2016. I also suggest that 2016 pretty much defines the end of the bottoming of the flat lined bottom. Goal for those of you interested in home ownership again is to buy low and sell high. Best time to buy is at the end of the down cycle, just before values start to head North.

Take care,

Daniel

[HopingtoFind]

I am sure that people that have decided to walk away have made the best decision for themselves at this point in time... the reason I am even responding here is because this is a loan modification thread and I feel that people who are fighting to hold on are making the best decision for their situation at this point in time. I do belive that things will be changing very fast in the coming years and I would not be at all surprised that most of the lenders will be doing principle write downs, so maybe there is a hope at the end of people who have decided to fight, we will wait and see...

[NorthCoast]

After doing all the investigation I could on the lawyers recomended by this site, and making sure they're legit, I've decided to go ahead and hire them. I'm not getting anywhere with the banks, and to some extent I can understand why. As far as they're concerned they've been sold on the fact that I'm a solid investment. I have great credit, according to the mortgage brokers I had all sorts of income, and I have yet to miss a payment. I'm sure I come off like someone trying to cheat the system.

In the process so far, I spent a great deal of time trying to get somewhere them, and I'm not anywhere near the nasy bits yet. So in anticipation of what's ahead if I continue to "go it alone" my greatest concern is that I don't have the time outside of work to be effective. I gotta at least keep the job I've got. Therefore my decision is to secure legal council to do it for me.

There's a $5k price tag attached to it, and no guantee. But in weighing the pros and cons they seem to be the best bet for my particular situation. I'm also hoping that as lawyers, they will be able to sink their teeth into some of the "creative loan application process", and use it in my favor.

Everything is set to arrive at Griswold and Agdeppa by noon today. Keeping fingers crossed on a positive outcome.

[Tom H]

Best of luck, please do let us know how it shakes out!

[NorthCoast]

I thought I'd post an update for those considering using an attorney. I still have confidence in the the attorney recomended by this site, but I am a bit disapointed in how slow it is to just get started.

To get started the people at the attorney's office needed all my docs. There ended up being a tremendous amount of documentation that I needed to provide, and they offered that if I sent them in they would copy and send them back. I trust them, but at the same time these are my only copies, and I saw a post on this site from someone else who did the same thing (different attorney) and didn't get his docs back. Seeing that it would probably cost a hundred bucks to get all the copies made, and that I have a sheet feed large format scanner, I opted to send the docs electronically instead. The docs ended up being way too large to email, so I put them on a flash drive and sent them in instead. My last post on December 9th was that that the flash drive was scheduled to arrive Friday Dec 10th.

I would have thought it was an advatage having electronic docs as they could search the PDFs for key words and such. For some reason it turned out to be a nightmare for them. I got a call on the 16th while I was travelling for work, that they were missing some docs. When I looked into it, the docs were part of the package I sent they were just in another folder (the title folks had them organized with some other info), but the docs were there, and I brought it to their attention.

Not much has happened since, its gone from intake to processing, but still hasn't gone to the attorney. In the meantime my Chase HELOC payment came due. I did not pay it, I'm saving my money for the first (due tomorrow to GMAC). I requested of my processing agent that she contact the attorney and ask if its better to get current with chase or let it lapse and keep GMAC going. I have not yet gotten a response.

Tonight Chase collections called requesting to use my bank account on file to make a payment and come current. I told them absolutely not. He was unaware that I made requested a loan mod back on Dec. 22nd he had no records that I had retained an attorney, he read me a statement that if I needed help making payments to call 866 566 3785. I asked if this was a more direct line to modification and he said it was HOPE. I told him that I had contacted hope and it required the bank does their part,and I'm waiting for that to happen. A few other things he said were that I still have 15 days to come current and if I did it would improve my chances of a mod. But in seeing how uninformed he was with everything else, there's no way I can take that at face value.

Please note, I'm not comming down on ***ging on attorney recomended. I can understand they're busy, I gave em a boatload of docs, they had some technical dificulties, etc. I've requested they get this thing going and the've got an opportunity to do so. I also (at this stage) still believe I made the right call in hiring them, as my job doesn't allow the time to spend hours everyday on the phone with the banks. But I wanted to update this post for those also considering an attorney that this process can be slow no matter how you go about it. So be prepared.

[NorthCoast]

Typo in above
last paragraph should read
I'm not comming down on or disrespecting the attorney recomended