Do principle reductions really happen? Is a short sale my only hope?

[Hottwater]

I've been researching loan modifications for a while now and all the talk seems to be about rate changes and term extensions (with a whole lot of hassle and heartache, not to mention scams and unhappy borrowers).

My situation is this:
1st - $310k - 30yr ARM, Interest Only for 10yrs at 5.4% with Aurora Loan
2nd (HELOC) - $118k - Interest Only (fully adjustable) now at 3.5% with CitiMortgage (recourse loan)

In total, we owe $430k. (The purchase price was $389k and we spent about $25k making improvements like new windows, central a/c, etc.)

NOW, the house is worth $200k! The payments weren't really too high for us, but I just lost my job in December. I was thinking about trying to get a principle reduction from Aurora and then just settling with Citi. From what I've read, it really isn't happening even after all the legwork involved.

I have a realtor that came to talk to me about putting my house up for a short sale and she bought a buyer back the same day! AND the buyer wants to bring her husband and father back on Saturday!

My question is this: Would I be wasting my time trying to get a loan mod for principle reduction if I'm confident I will probably be employed again by the time the banks made a decision?

Should I just take the short sale opportunity and run since I have 3 kids and my husband living in a 990/sqft. house? We need to move anyway, but it makes me sad to think that we'll have nothing to show for the $100k plus that we've paid in interest in the last 4 years.

Thoughts??

Thanks!
Hottwater!

[Moe Bedard]

Hi Hottwater,


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

The investors are not willing to take an immediate write down in the form of a principal reduction..........they are only willing to make very small changes...........by lowering a rate and extending a term out the concession is not that great on the investors part.

If you have only paid interest and no principal over the last four years ........you have basically only been renting the house from the investor.

If the short sale works for you............it will also need to get approved by the investor on your loan...........so you will need to ask what ALS will require that you need to do to be considered for a short sale.

[LHarveyMadman]

You can't just decide to do a short sale without first consulting with your lenders.

The real estate broker who came to see you is deluded if she thinks that she can just show up with a buyer and make the short sale happen. Short sales often take several months to close, and sometimes the deal can be yanked suddenly by the lender. Also, the short sale would need to be negotiated with both lenders; as it stands the second lienholder would get nothing out of a sale. If something isn't worked out with Citi before such a sale goes through, Citi can file a lawsuit to recover its losses.

Lastly, short sales will require a waiting period before you are able to obtain a new mortgage. These also appear as foreclosures or preforeclosures on your credit reports, which can really damage your FICO score and make it hard to obtain new credit in general.

Tread carefully....

[Hottwater]

I appreciate what you are saying here about this really being in the Lender's court on the decision.

I just don't want to be $200k down and can't live here for 15 years waiting for the value to come back, you know? My kids will be adult size soon and we just can't fit here. And I can't rent it out with such a large deficit between the mortgage and any potential rent price.

I'm going to contact Aurora today about the short sale and see what they say...

[MUCHO]

Principle reductions do happen but not often. You have to put yourself in the shoes of the lender to understand why.

If they reduce your rate temporarily they lose money temporarily. If they reduce your principle it is gone forever.

I recently got an offer from GMAC to reduce my priciple on my second lein by $100K but I am also in the final stages of foreclosure. If the foreclosure completes they will get nothing. Their first offer was to reduce my rate from 9% to 7%. This is when I was 90 days late.

Goodluck.

[Ambling]

Mucho, can you tell us more about this principal reduction offer from GMAC? It's so rare to hear about these I'd like to know more.

What's the balance of your second? Are you currently employed? Any advice on how I can get the same offer on my 2nd?

[MUCHO]

Originally Posted by Ambling

Mucho, can you tell us more about this principal reduction offer from GMAC? It's so rare to hear about these I'd like to know more.

What's the balance of your second? Are you currently employed? Any advice on how I can get the same offer on my 2nd?

I have a thread here you can read everything in detail

[Hottwater]

I just spoke to Aurora and they are not offering principle reductions at this time. Who knows if Obama will require something of that nature when he gets in office. I'm going to call Citibank to see what they say about the 2nd now...

Mucho, can you send a link to your thread? I'll try to find it using your name