During the past two years homeowners across America have been affected negatively by the mortgage crisis we are currently facing. This crisis has caused foreclosure rates to skyrocket and has left many people unable to pay their mortgage or other debts they have acquired. Especially borrowers who have obtained a second mortgage loan on their home. Many homeowners have obtained this loan through a refinance while the market was excellent.
As we know now this is not the case. Many people are aware of loan modifications since they are indeed now the number one solution for borrowers who are struggling to pay their mortgage. But a loan modification seems much more easy to accomplish on your first loan than on the second. Since a second mortgage is usually a very small monthly payment, there is not always much the lender can do to help besides lowering the interest rate which may not help lower the payment much at all.
What you need to know is that the second mortgage holders more often than not are in a precarious position. With them being in 2nd position on a home loan and if that mortgage is under water, most likely the 2nd note holder may collect $0 in the event your home is foreclosed and sold at auction.
What this does for you as a homeowners, it places you in a “GREAT” negotiating stance to work out some type of settlement or short pay . Many homeowners are unaware that there is a possibility they may be able to get rid of the loan completely.
In order to do this you will have to negotiate with your lender on a fair settling price for the mortgage. If you are able to come up with a portion of the loan’s balance, your lender may agree to settle the debt and get it off your hands. By doing this you will no longer have to worry about the extra mortgage payment each month and you will have more money in your pocket as well.
The mortgage lender will not automatically offer you the option of settling the debt. You will need to call in and request this, just as you would with a modification.
It is wise of you to come up with an initial offer that is not too high to present to your lender. First start out by offering at least five percent of the loan and go from there. I have personally seen homeowners successfully settle their second mortgage anywhere from five to twenty percent of the remaining balance.
This request will not always be approved by your lender. By doing this the lender is losing quite of bit of money do to the large difference in amount. But with the housing market at its lowest the chances of accomplishing this are greater than ever. The reason why is because if your home goes into foreclosure, the second is unlikely to recieve a penny because the first lender will collect the foreclosure proceeds first. Usually leaving the second lender with nothing.
If you never ask, you’ll never know and this may be your only chance at getting a principle reduction.
About Evan Bedard
{ 12 comments… read them below or add one }
What if your second is held by the same bank as your first, in our case BoA. I’d love to see if BoA will mod our 1st and settle our 2nd for a 1/3 of the outstanding balance. Those two items would put our home back into an affordable scenerio for us since our income has dropped by 50% of what it was when we purchased in 2004. Have you any thoughts on whether this would be a proposition worth making. We are currently scheduled to hear from our mod analyst on or before 9/24. We’ve already submitted the requested documentation of our financial situation (7/14/09) and were just told an analyst actually posted the note to file about the 9/24 on or b4 call. Any suggestions would be appreciated.
Great question Cheryl. I got my 1st modified with B of A (investor Freddie Mac) and I want to learn how to settle my 2nd with B of A (investor B of A).
Any thoughts?
Settling also destroys your credit rating. While I agree if you are in danger of foreclosure it is a very good option, but a settlement is the only derogatory item on my credit report and it dropped my score 90 points, 740 to 650. It is also coded as a foreclosure on your FICO making it tough to impossible under todays rules to qualify for another mortgage. We took a settlement thinking it was the right thing to do, then my wife was able to land a great job, that needed a relocation, and now we can’t get qualified to purchase a new home because of that one item. Once settled there is no going back. We should not have settled, as a couple of late payments, would have been much easier to clear up in our case, than trying to explain to an underwriter who doesn’t care, that nothing was foreclosed on, here’s the documents that say that!
Will this work for a HELOC?
i bought a home in feb. “05″. the price was $94,900. i had a down pyt. i owe around 82,000 on the first loan and have never been late. i acquired a 2nd loan to pay off vehicles, credit cards, home improvements (other loans). i’ve never been late. my house was appraised at $156,500 in the spring of this yr. i owe 148,000. my monthly tab for the combined twosome is $1,330. it is awful high. the int. rate is extremely high on the 2nd one. it’s 10.90%. i read that balloon loans are low pyt., low int. loans. mine is the opposite. some people use their homes for a.t.m.’s. i needed a roof, a driveway, and a chimney to heat my home. it’s baseboard electric and there’s no way i could afford electric heat. my question is: ” in my situation–what would you do?” i have too much tied up in it to let it go. i have a balloon attached at the end of the 15 yrs. (now 13) that requires a lump sum pyt. for the total of the loan. that’s like 300% profit. they say it’s not mortgage fraud. what else is it?
Okay, Mr. Bedard. I see you hold great expertise concerning the mortgage industry and its issues, but how about my case? I have two mortgages, two different banks. The first one has recently approved me for a modification, while the second just told me that the loan was CHARGED OFF. I made an “agreement” with the second for $100/month, no interest. Too good to be true? Okay, I am ready for chapter 7 due to partial unemployment and excessive financial obligations, so here are my questions:
–Is this CHARGE OFF from the second going to mess up with my already approved modification on the first (it is approved but the first payment has not been made yet; it is due on Dec. 1st)?
–Since I WANT to keep the house and WILL reaffirm the first, can I reaffirm this second CHARGED OFF loan, since it will cost me only $100/month? Won’t they try to take advantage of my good faith and then try to charge me for the whole amount or under the original (horrible) terms? –9.875% A.P.R., $465/month.
–Can I TRUST the letter they sent me that shows the agreement for $100/month, and use it in court as an evidence that my loan is under an agreement and being PAID accordingly?
–If I decide NOT to reaffirm the second, will I have problems to keep my home???
Home current MSRP: $150K
Balance on first: $220K
Balance on second (charged off): $50K
First mortgage payment after modification: $1,460.00
Second mortgage payment under ‘charge off’ agreement: $100.
Thanks a lot,
I really appreciate your help. NOBODY is willing to help me with the matter and I could NOT find any case similar to mine on the net.
Best,
F
–Can
please,any proffesional can help me to settle a second loan with Chase.
thanks
Yes this will work for a HELOC as well.
My question is this:
My husband & I are currently going through a joint chapter 7 bancruptcy. We are also getting divorced. We will not finalize our divorce until after the bancruptcy debt is discharged which should be complete in four months.
We plan on re affirming on our first mortgage which we owe $149.000 on. We do not plan on re affirming on our second mortgage which we owe $53,000 on. Our residence appears to be worth about $178,000. This puts as at about $23,000 short. We want to stay in our house until next spring as room mates & continue to make our payments to both the lenders of the first & second mortgages. The second mortgage was a home equity line of credit & we live In Wisconsin.
We definately want out of our house by next April but want to avoid foreclosure due to the negative rating on our credit reports. We are already filing for bancruptcy & want to avoid this hit as well to our credit.
Can we sell our house next Spring on our own & pay off the first mortgage, give what equity remains to the second mortgage holder, & walk away from the deal avoiding foreclosure if we don’t reaffirm on our second mortgage during the bancruptcy?
One thing you did not mention in your article is that the Bank’s view the 2nd mortgage as a Home Line of Credit therefore it’s not treated as a conventional mortgage. It is more like a Credit Card, and like any other Credit Card, when borrowers settle their 2nd mortgages they end up receiving a 1099C for the forgiven amount. The 2nd mortgages are a major cause of borrowers claiming Chapter 13 which stays on their records for almost 10 years. The other option would be to incorporate the 1099C with the income taxes and the depending on the borrower’s tax percentile and the amount they will owe the IRS, they can then settle with the IRS and forgo the Bankruptcy.
Sorry for my Typos – First and foremost, this week I’ve learned that if the second is a Home Equity Line Of Credit (HELOC), filing Chapter 7 Bankruptcy will not affect getting rid of it. One thing the above article didn’t mention is that the Bank’s view the 2nd mortgage as a Home Equity Line of Credit (HELOC), at least that’s what’s happening in my case. Therefore the 2nd is not treated as a conventional mortgage, so none of the new Government rules don’t apply to it. The 2nd AKA (HELOC) is more like a Credit Card or a revolving line of credit, and like any other Credit Card, when the borrower settles his/her 2nd they end up receiving a 1099C for the forgiven amount. When the bank forgives a portion of what the borrower owes, they have to 1099C the borrower to show the IRS they have sustained a loss. In my opinion, these days the 2nd mortgages are a major cause of borrowers claiming Chapter 13 which stays on their records for almost 10 years. All the experts that I’ve talked with have all referred me to a bankruptcy attorney. I actually have an appointment with one this coming Tuesday June 15th just to see what he will say in regards to my case. The other option for the borrower in dealing with the 2nd would be to apply the 1099C to her/his income taxes at the end of the year. Depending on the borrower’s tax percentile and the amount he/she will owe the IRS, they can then settle/negotiate with the IRS using the help of a professional and hopefully forgo the Bankruptcy. Also, a Bankruptcy is not the end of the line.
I need direction as to what step my husband and I should take, so we can move forward; in hopes to relocate within a year from now.
We bought a house (2 mortgages 1st arm, 2nd fixed), while we were both in the military, in 2005. My husband seperated in 2006 and I was involuntarily medically retired in Aug 2007, and have had required surgeries; including this year. We kept our mortgage companies aware of our situation and tried to refinance but didn’t make enough to qualify. We also had a death in the family and had to empty our Thrift Savings Plan (TSP) and savings account. We were unable to make our mortgage payments beginning Dec 2007. The 1st mortgage finally foreclosed Sep 2008, but we are still concerned about our 2nd mortgage, because we can’t afford to make payments on it. We have been able to continue to make payments on our other non-mortgage expenses and rent (we’re roomating) using our disability compensation.
Thanks in advance for any and all information.