Our story: lost job and loan modification

[Tom99]

Hi, all

First of all, thank you for creating such a great website and for such rich and helpful info from everyone. We have read this forum for quite a while and had contacted NACA following the suggestion from this forum. Now we are starting our process and have told our lender - a Federal Credit Union - of our desire to do a loan workout.

Here is our situation: I lost my full time job later last year, and was late on Dec 2008 and Jan 2009 mortgage. The lender’s collection department started to call me every week early this year and I have told then our hardship and our desire to modify the loan. After a number of conversations, the representative from collection department called me yesterday saying that he has talked to his boss, and they want to send an appraiser to our house for evaluation. Should I say yes or not?

There is special situation in our house. It was a poorly maintained house when we bought it in 2005, so we have been fixing the house one part after another since then. Unfortunately, we are currently still in the middle of 3 re-modeling projects: the two full-bathrooms and the wood deck, and therefore both bathrooms and deck are not functioning, and they still need a lot of work. I assume the appraiser will consider that this would affect the potential selling price significantly if they want to foreclose, and I assume we should agree to let their appraiser to come in. But we are nervous and unsure and wonder if there any problem or legal consequence when the appraiser sees our unfinished bathrooms, open wall, and there is no deck etc? Any suggestion?


Thanks in advance

[Dan Bailey]

Tom99
Glad you found the forum and thanks for posting.
I don't see that you have done anything wrong, as maintanance on a home is necessary. You are still living in it, so it is not as if you have abandoned it or were maliciously destroying it.

*** or Moe will be by as soon as they can to give you some direction. Hang in there and good luck!

[LHarveyMadman]

Do you have documentation of the state of the house when you purchased it? Maybe some "before" photos showing how things were before you undertook these projects?

Also, the appraisal at the time of purchase might indicate the condition of the house at that time.

In general, a state of disrepair or incomplete work is not good for an appraisal, because they can't assign a value based on what the finished product might look like. They might also factor in how much it would cost to bring the projects to completion (which would lower the appraisal). But if you can demonstrate that you have been actively enhancing the value of the home, then it should count as a positive factor.

[Tom99]

Thanks Dan. Yes, we are still living in the house, and want to keep it and want to finish the bathroom remodeling.

Here is my draft hardship letter, following the template posted in this forum. In the letter, we also mentioned those special situation - unfinished projects.
*******************
To Whom It May Concern:

I am writing this letter to explain my unfortunate set of circumstances that have caused us to become delinquent on our mortgage. We have done everything in our power to make ends meet but unfortunately we have fallen short and would like you to consider working with us to modify our loan. Our number one goal is to keep our home and we would really appreciate the opportunity to do that.

The main reason that caused us to be late is I lost my full-time job. Since then I have worked hard looking for a new job, but due to the current economic downturn, it seems will take me much longer than usual to find a new job even with reduced salary. With this big change, we can no longer afford our current first (5 yr ARM 30 yr term, 4.5 interest rate) mortgage and second mortgage (home equity loan, 15 yrs fixed, 6.49 interest rate) payment, both with your Federal Credit Union. Besides, the first mortgage is a 5 yr ARM, which will adjust the rate next year. In addition, my wife unexpectedly got pregnant and we have our second son born in 2007, for which our daily expense has been increased. It is our full intention to pay what we owe, but at this time we have exhausted all of our resources so we are turning to you for help for a mortgage workout.

Combined first and second mortgage, we owe over $500k in total. However the market has been going down and our house’s current market price is much less than $500k. In addition, this was a poorly maintained house when we bought in 2005, so we have been fixing the house one part after another since then. Unfortunately, we are currently still in the middle of 3 remodeling projects: the two full-bathrooms and the wood deck, and therefore both bathrooms and deck are not functioning, and they still need a lot of work. This further reduces its potential selling price. In addition, our house is the first house next to the highway. Even though the house value decreases dramatically, it is our full intention to keep the house for many reasons and to be responsible. We truly hope that you will consider working with us and we are anxious to get this settled so we all can move on.

Our situation has got better because as my wife, who was a full-time housewife taking care of our two kids before, has already started to get back to work, and I am keeping searching for a new job while taking care of our two kids. We feel that a loan modification would benefit both you and us. We would appreciate if you can work with us so we can keep our home and also afford to make amends with your firm.

Sincerely and Respectfully

*********************

I would appreciate any suggestion from this forum about our letter.

Thanks

[Tom99]

Originally Posted by LHarveyMadman

Do you have documentation of the state of the house when you purchased it?

Yes: we have the document and previous appraisal.
We can also demonstrate to the banker that we have been actively in a process to fix and upgrade the rooms with plans, actions and materials/fixtures purchased for the project, although the projects have been delayed by the unexpected birth of our second son and my recent loss of job.

On the other hand, my understanding is: As those unfinished projects will impact the potential selling price of the house negatively, the banker would realize there could be more loss if go to foreclosure. That will help them to realize a loan modification may be more favorable to them compared to foreclosure. Is my logic correct here?

[tanja53]

Originally Posted by Tom99

Yes: we have the document and previous appraisal.
We can also demonstrate to the banker that we have been actively in a process to fix and upgrade the rooms with plans, actions and materials/fixtures purchased for the project, although the projects have been delayed by the unexpected birth of our second son and my recent loss of job.

On the other hand, my understanding is: As those unfinished projects will impact the potential selling price of the house negatively, the banker would realize there could be more loss if go to foreclosure. That will help them to realize a loan modification may be more favorable to them compared to foreclosure. Is my logic correct here?

Hi

No the banks dont care. They dont believe what you are saying about remodeling. Plus they always think that their house is the best house around.

Have the same problem here. And they think my house is worth 160.000 more than it is.
They are in for a big reality check.

Good luck Margo

[LHarveyMadman]

Tom99, I think the biggest obstacle you face in getting a modification is that there may not be a solution that you would be able to afford in with your current household income. The interest rate on your first loan is already very low, and if you're unable to make those payments then there might be little that can be done by the lender to make the payments affordable. The interest rate on your second loan could come down a bit, but this probably only represents a small percentage of your total debt.

With regard to the unfinished work being a reason for your lender to avoid foreclosure, I unfortunately don't think this is going to be a factor. Owners of foreclosed homes have been known to trash the place before moving out - taking appliances, fixtures, even the copper wires in the walls. So, the lender probably assumes that there is going to be some work that needs to be done before the house is habitable. Your lender might view your home's current state essentially the same as the homes that have been gutted by disgruntled former owners.

[Tom99]

Thanks for all your kind and helpful response.

Here is our update:

NACA has helped us to work out a budget by really cutting back our daily expense, significantly, and based on that work out a loan modification proposal: reducing the loan balance (combining both first and second loans) from $500k to $410k, and fixing the combined loan to an interest rate of 4.5%. The proposal is being sent to our lender now.

On the other hand, the lender asked us to go to meet them face-to-face after they get the house appraisal. They ask us to bring all our asset document, including 401k account balance, IRA, bank saving/checking accounts. We are not sure what will happen and if we can handle the meeting and discussion. So we are asking if NACA member can come to help us for the meeting. Any suggestion?

Another key question, we were running out of saving, thus we had recently borrowed about $30k cash from several credit cards who offers 0% APR for several months, so that we can have some cash to bridge the gap. We are currently working hard to earn income in order to avoid using too much of those borrowed money from credit cards. Now, as our lender asked to show them our saving/checking account balance, how can we explain this situation to our lender so that they won't consider those cash as our available cash for additional mortgage payment ?

Any suggestion is highly appreciated.

[LHarveyMadman]

With regard to the cash borrowed from credit cards, when the you submit your bank statements that shows the deposits from the cash advances, you should also show where that money came from. Submit the credit card statements that indicate the cash advances.

[Tom99]

Thanks LHarveyMadman.

I talked to NACA, and they said that I should not bring 401k and bank account docu to the lender, since using 401k money to pay mortgage is a bad idea - which I know. That was actually what our lender had talked to us in the past, they tried to ask us to use 401k money and any money we can borrow to pay mortgage.

We certainly don't want to do that, and we don't have much 401k anyway. On the other hand, from all the readings, I know it is important to be nice to the lender. My question is: Is it better for us to follow what the lender asked for (showing them 401k and saving account), or ask lender to talk to our NACA respresentative instead of meeting with us?
Any thought?

Thanks

[LHarveyMadman]

The fact that the lender is asking for that information sounds like they are trying to figure out whether refinancing would be an option, as opposed to modification. Bank statements and 401(k)s are typically looked at when writing a new mortgage, so the lender can determine whether you have the reserves to pay your loan in case of temporary financial hardship. They can't require you to drain your assets in order to get a mortgage. They're just trying to gauge the risk of giving you a new loan.

Having said that, it could all be a moot point if your house doesn't appraise at a sufficiently high value. If you don't have enough equity, then you can't refinance.

I can't answer your question about whether to follow NACA's advice, since I have zero experience with them.

[Tom99]

We think our house is underwater. The current 1st plus 2nd loan (a home equity loan) balance total $500k. On the other hand, the lender rep have tried to talk to us to take cash out of 401k or from family to pay mortgage every time he called. That make us worry what the lender want to do.

[HopingtoFind]

I would listen to Naca, they sound like they know what they doing and the right way of dealing with lenders... I think it is a good idea to bring Naca rep with you when you go to meet with your lender.