I'm a longtime lurker and wanted to share my story in case it will help anyone else out there.
My partner and I purchased our home in April 2007 for $612,500 with an 80/20 loan. Original Terms:
10/1 Interest-only ARM at 6.5%
Serviced by Countrywide then BofA
Investor unknown but I suspect Bank of New York
0 late payments at time modification requested
$122,500 initial balance
30-year fixed, fully amortized at 8.75% with balloon payment at 15 years
Owned by Countrywide, later BofA
Servicing recently transferred to Green Tree, although BofA still owns the loan
0 late payments
Current (post-modification terms):
26 years remaining at a fully amortized fixed rate of 5.5%
No late payments posted to credit report, to my knowledge
Second: no change, I'll address that later
When we purchased our home we had great credit and good incomes, but not quite enough for a fully amortized mortgage on the home we wanted (a modest, less than 1,500 sf 1950s ranch home in a nice LA suburb). At the time, home prices had dropped but seemed to have stabilized. We reasoned if housing prices fell a bit more, it would be better to be underwater in the home we wanted to be in for the long-term, rather than trapped in an underwater starter home. So we went for it, which in hindsight was a mistake but we didn't have a crystal ball and we aren't economists. If Alan Greenspan didn't see this coming, how could we?
It's hard to estimate the current value of the home, but it has probably gone as low as $400,000 over the years. I have been stressing the whole time about being underwater, and the large mortgage payments on the underwater house have put stress on our relationship. We've also had a lot of unanticipated expenses (collapsed sewer line under the house, major pet surgeries, etc.). It was of particular concern to me that housing prices would not recover by the time our first mortgage reset, and we would then lose the home after 10 years of of paying through the nose on the interest-only loan on the underwater home.
Several nearby homes that were purchased around the same time as ours have foreclosed. I suspect several were strategic defaults. We were (and maybe still are) pondering strategic default ourselves. But as long as we still have our jobs and like our home and neighborhood, and never having missed a payment on anything in our lives, it is hard to make that decision to default. I'm sure many people can relate to that.
I knew we'd have little luck getting a modification if we approached the banks directly, given that we hadn't missed any payments and had much less severe hardships than many folks. I decided it couldn't hurt to give NACA a try and attended their Save the Dream event in Los Angeles in early 2011. I registered ahead of time so I had a NACA ID already but had not had any documents uploaded yet or a counseling session. Getting the ID ahead of time turned out to be a good idea. Once I got through the lines and intro meeting, I handed in my paperwork to be scanned with my cover sheet printed from the website. I got my scanned materials back before anyone else in my group and got on the phone with a counselor right away.
I spent a long time on the phone with the counselor. The counselor looked at our info and didn't see a major problem. However, I was able to get him to confer with a supervisor who agreed that our loan, although not technically unaffordable right now, was definitely unsustainable in the long-term. NACA agreed to put forward a modification proposal to BofA. The counseling session was a critical juncture, and I'm pretty sure it was my persistence and the luck of the draw that enabled us to get NACA to put forward a modification request for us. While we're technically not the core group NACA was designed to serve, I am very appreciative that they helped us. In reality, however, all NACA did was get us in the door with BofA. After the counseling session, all my interactions were with BofA and I had no further communication or assistance (that I am aware of) from NACA.
By the time we got through our counseling session and signed the paperwork, it was the end of the day. I came back the next day and was able to meet with a Bank of America representative. It also took a lot of convincing for BofA rep to put forward a modification proposal to the investor. I was sweating bullets, but the bank representative was a reasonable person, and I was able to explain to him that all we were hoping for was to change the terms of the first mortgage from a 10/1 interest-only ARM at 6.5% to a fully-amortized 30-year loan at 5%. At that rate, the payments would be almost exactly the same, but we'd be paying down principal and not worrying for the next six years about what would happen when our loan reset. The BofA rep requested a BPO (I don't know what value the BPO came back at) and said the investor was not on-site and they'd have to send the proposal to the investor.
Within a week or so, a proposal to modify to a fixed rate of 5.5% over the remaining 26 years of the loan was put forward to the investor. The modification proposal included us skipping two payments prior to the modification going into affect. I suspect this may have been due to investor's rules requiring the loan to be in arrears, but I am not certain. To my surprise, the investor approved the modification within a few weeks.
All told, two loan payments were capitalized, along with some extra for the escrow account to cover a shortage. As a result of the mod, our loan balance went up about $7,500, and our monthly payment actually went up a couple hundred bucks. It wasn't quite what we had hoped for, but it would do. We weren't thrilled about the loan balance increasing, but we were able to pocket the two loan payments to cover our extra monthly first mortgage expenses for the time being.
Of course BofA screwed up when they input the modification and applied the various payments. It took a ridiculous amount of time on the phone with BofA to get everything correctly applied, but now our loan is back in normal servicing and all appears to be well with the modified loan. All in all, I think it is a really fair modification. We got a lower interest rate that is reasonable in the current market and given our credit history. Our first mortgage will be paid off in 26 years, which is about when we'll retire. Ideally we'd have gotten a principal reduction and an even lower rate, but the way I look at it, we're meeting the bank halfway. It took a lot of persistence, but frankly the process was relatively straightforward and I was amazed that everything came together.
Now for my preachy high horse - why can't all the banks do this? For all of us who still have our jobs and have these Alt-A loans, just lower the rates and recast as a fixed, fully-amortized mortgage with the same payment. We would have been in the same home for a lower cost with a fixed-rate fully amortized loan if the banks hadn't created the bubble with their shoddy lending practices. Clearly the investor realized it was mutually beneficial, since they approved the modification. This is not rocket science. There is absolutely no reason why we should get a mod relatively quickly and easily and others in the same financial situation end up getting nowhere and losing their homes. Banks - get it together and make it happen!
Now as for the second loan, I think it is probably wholly unsecured, although it is really hard to tell. I wish I knew what the BPO was when BofA did the modification on the first. Since the first mortgage is squared away, I would really like to do something about the second mortgage. I am pondering whether we should approach BofA or Green Tree to try to settle the second, or whether we should attempt a Chapter 13 lien strip. If anyone has read this far, do you have any suggestions?
Thanks and good luck to all,