I posted this a couple days ago on a thread started by Stillhoping. He and many others offered some really great advice. I wanted to post it in a more general area to see if anyone else is in a similar situation and find out what on earth I can do to avoid disaster. I'm a year out from losing the shirt off my back. Please read the following and feel free to offer any suggestions. I want to be proactive, but I have no illusions about how much trouble my wife and I are in.
My wife and I bought a two-bedroom condo for $357,000 in Virginia in March 2006 at the height of the market. We have excellent credit, never miss a payment, have zero credit card debt (pay the balance off each month), a small student loan with very low interest, and we own the title on our single car (old ’97 Honda). We are pretty frugal people. We were more than excited to buy our first home. Unfortunately, the bottom fell out on the housing market a few months later and the value of our condo dropped to an estimated $215,000 -$240,000.
We have an “80/20” interest-only Wells Fargo loan with a five year ARM that resets in March 2011. When the ARM resets, we also have a $70k balloon payment that comes due all at once. Looking back, I’m not sure how this seemed like a good idea when we signed the papers. Even if we had equity in our home, this is a shady loan and there is no excuse for this huge mistake. We did not know what we were getting ourselves into, and no one predicted the crippling collapse of the housing market. Currently we have about $30k saved up for a rainy day, but nowhere near the amount to cover the balloon payment or the overall $142k - $117k loss in value.
I am writing you because I am at my wits end. I am so scared about our financial future that sometimes I think it would be better for me to crash into a bridge abutment so my wife can use my life insurance to get out from under this horrible burden. And it’s not because I haven’t tried to find a solution. Though I am glad we learned this lesson in our younger years, I would not wish it on my worst enemy. A once wise investment in our first home has now become a source of anguish and regret. I’m scared to death. I apologize for the great detail, but I want to be as clear as possible so we can receive some advice.
In spring of 2009, my wife and I found out she was pregnant with quintuplets (4 girls and 1 boy). It was a whirlwind finding out we were going from two to seven in a matter of months. As we geared up to raise these kids, we were faced with some major decisions about finances, logistics, and location. One of the first people we contacted was Wells Fargo to see if we could find a way to alter the loan on our condo. Even with the prospect of my wife not working and having five extra mouths to feed, the bank didn’t budge. I suppose it didn’t really matter though because in June 2009 she went into early labor and sadly we lost each of them. My wife recovered soon after and we had a small funeral out west. I only mention this story to illustrate how frustrating it has been to work with Wells Fargo.
Over the last three years I have called Wells Fargo dozens of times to see if there is anything we can do to avoid the approaching train wreck in March 2011. For years I have clearly expressed to the bank my concern about the ARM resetting our interest rates and how we do not have the ability to cover the $70k balloon payment when it comes due. Their answer is always the same, “I’m sorry sir, but you’re making your payments, there’s nothing we can do.” Essentially, they have told me that they will not work with me until I am deficient on my payments. It’s baffling how they can ignore customers that proactively seek a solution that will be in everyone’s best interest. My wife’s pregnancy in 2009 opened my eyes to how precarious our situation could be next year if we aren’t wise in our decisions.
- Our loan is a Wells Fargo product called a Smartfit Home Equity Account
- The Smartfit product is basically a hybrid ARM 80/20 interest-only loan
- The 80% and the 20% are with the same lender: Wells Fargo
- I found the following article with a more detailed description: http://www.bankrate.com/brm/news/loan/20041223a1.asp
- 80% - Current balance: $286,000 (6.5% fixed-rate through 03/11)
- At the end of the fixed-rate period, the balance automatically becomes a home equity line of credit, or HELOC and the interest rate resets and adjusts annually
- 20% - Current balance: $69,000 (7.75% fixed- rate through 03/11)
- This is a fixed-rate option that lasts for the term of the ARM but comes due as a lump sum $70k balloon payment at the end of five years
Our loan with Wells Fargo is not a traditional mortgage, meaning it is actually considered an equity line of credit on both the 80% and the 20%. Traditionally a line of credit is only applied to the 20% in an “80/20” loan. This means that our “mortgage” is not owned by Freddie Mac or Fanny Mae, and is therefore not eligible for government programs. Unfortunately we did not do our homework and I think we landed in the middle of what seems to be a predatory loan from the boom-days of the housing market. From what I understand, our equity line of credit home loan is owned by a private investor and it is at their discretion to modify it based on how it will affect their bottom line. This also makes me a prime candidate for a “deficiency judgment” where the bank has several years to come after me and my wife for the balance of the loan should we short-sell or foreclose on our home. Even if I work with a lawyer, I might not be guaranteed a “no-recourse” agreement with Wells Fargo and/or the private investor.
Out of desperation I called 888-995-HOPE, a non-profit group linked to the federal government on 2/4/10. I spoke with a very nice lady and explained the situation and my concern about the approaching disaster. She had never even heard of my type of 80/20 home equity line of credit loan and decided to get Wells Fargo on the line. Eventually we were able to speak with a representative from the home equity department who, unfortunately, gave the standard response, “I’m sorry sir, there just isn’t anything you can do at this time…you’ll have to wait until March 2011 for us to help you.” Wells Fargo encouraged me to refinance my loan, to which I asked, “How can I refinance a loan on a house with $150k in negative equity?” They had no response, nor did she offer to help put me in touch with anyone who could answer my questions. All the while, the lady from the HOPE-line attempted to make sense of the mess I was in. After we realized no good was coming from our conversation with Wells Fargo, the HOPE-line representative could only offer the following advice, “You need to write a letter to your senator/congressman about this. I have never heard of anything like it, and I think you need to be the person to lead the charge on a predatory loan practice.”
To top it all off, my wife was laid off in November 2009 shortly after returning from maternity leave after losing the babies. She has been on unemployment benefits while she looks for a new job. We were planning to raise 5 kids and pay our bills on my salary alone, so we are holding on for the time being. We have no children yet, but we hope and pray we can have a baby soon (just one for now). While we are just able to pay our loan on my salary alone, when the loan resets/balloon comes due in a year, we will not be able to make the payments.
Where do we start?
Who can I talk to?
How do we short-sell/foreclose without Wells Fargo wiping us out years down the road?