Loan Modification Terms - Your Thoughts?

OWhatAThrill

LoanSafe Member
Apr 17, 2010
31
0
6
Hi all,
I am not sure who my lender is so I thought I'd post here first. I have sent in a written request, as required to find out who my lender is, but I have not received that information yet.

I have fallen, now 6 months behind in my mortgage and requested a loan modification to put what I owe on the back end and for a reduction in my interest rate. They have offered me a trial program with the following terms. I have first listed what my current mortgage terms are.

I am 11 years into a 30 yr adjustable rate mortgage and my interest is 9.45%. My current payment is about $880. I've been in the home for 23 years. I did a $20K cash out in 2007 and my current principle is about $70K.

The trial payment terms are as follows:

New payment of $570, interest rate change to 4.375%, terms will change to a 40 year mortgage with a balloon payment at the end of about $25K.

Old Trial
Payment: $880 $570
Interest Rate: 8.75% 4.375%
Terms: 30 yr 40 yr
Balloon: $0 $25K end of term
Type Adj Rate Fixed

I have requested the amount of what my reinstatement would be but I haven't received it yet. It's between $6-7K including legal fees attached. What confuses me is several years ago, I was in a 5 year program where my interest rate was 4%. My payment then was about the same, $560. My homeowner's insurance has about doubled to about $1500 a year so I know that makes a difference, but I can't figure out how this trial payment is about the same payment as when I was in a temporary 4% loan, but it now calls for a 40 year term AND a balloon payment of $25K at the end of the note.

Can someone help me understand that? And I would love your thoughts!

The interest on the amount I am behind on payments, about $5K, is going to be capitalized. I am not good with finances so I don't really understand that. I'm wondering if I could find anyone to finance the amount to reinstate my loan $6-7K, would that be in my best interest. Would appreciate your thoughts and suggestions!
 

OneHugeMess

LoanSafe Member
May 30, 2016
458
32
28
You're not going to be able to find anyone willing to lend you money to reinstate your loan (at least at a decent APR) with the tarnished late mortgage payments on your report.

Capitalized just means -- they are placing the delinquent interest payments into the loan balance.


By the way -- that payment, does it include things like Property Taxes, Insurance, Escrow or is it just Principle & Interest, because for $570/M over 40years @ 4.375, your loan amount would be $106,896, and not the $70,000 you originally borrowed. Also are you sure your original mod was a 30yr, and not a 40? Most were issued as 40yrs by BOA.

It sounds like you had a traditional B/C LIBOR ARM with a very high margin, otherwise, your interest rate would be in the Low 4's or 3's right now.

It sounds like you previously were in a HAMP Modification and the period just recently expired. That's why your Modification payments went away. It sounds like your just getting a new mod. However, I'm with you... that Balloon Payment sounds suspicious and I'd be curious to know what's in it. Did you have a bunch of delinquent property taxes or anything? It could be from Escrow, but I can't think of anything else.


Also - Home & Auto Insurance are mostly FICO Based, so that's something you should try to improve over the next year if you can. Get a secured credit card, anything to try to and raise your scores. CreditKarma is a big help with suggestions & ideas.

I'll try to come back, but hopefully other's will respond as well.
 

OWhatAThrill

LoanSafe Member
Apr 17, 2010
31
0
6
Thank you very much for your reply, and apologize for the time it's taken me to get back here. Because of your questions, I called my mortgage company back and she has explained it to me in more detail.

You are correct, I was in a previous modification, and was a 5 year modification. I did have back surgery in 2009 and was unemployed for most of that year, but I have not recollection of asking my mortgage company for any kind of relief. I do, however, remember getting a letter saying my interest rate would be reduced fro a 5 year period to 4%. I do have a bad memory, and medication may not have helped that, but I know what a modification is and I would think I would remember that, oh well.

Yes, my payment amount includes escrowed property taxes and homeowner's insurance. My escrow amount at this time is $228.00 a month. She verified that my existing term was a 28 year term from when that modification was done in 2009. To get my new trial payment, they added 248 months to my existing 232 months. She explained in doing the modifications, and in trying to get my mortgage payment lower, the balloon payment of $27K is just what what left after I paid the new payment of $561 for 480 months. She DID say this new trial interest rate of 4.37% is an ADJUSTABLE rate, however I was previously told, twice, it was a fixed rate. So let me recap, old and trial:

Old
Payment: $875.10
Bal: $69,733
Term: 232 months
Interest: 9.45% ADJ
Mat Date: 2037

Trial
Payment: $561.84
Bal: $75,112
Term: an additional 248 months = 480 months
Interest: 4.37% ADJ
Mat Date: 2058
Balloon: $27K (2058)

Thank you for the advice about getting my credit score up. I was fortunate to get a major credit card with a small limit but they say after 6 on time payments, the limit will be increased. I am going to call around to see if I can get a lower homeowners policy but with my credit score being what it probably is, I may be stuck right now, but my homeowner's insurance did about double about 3 years ago.

She did say if I were to come up with the reinstatment amount needed to get my home out of foreclosure (no date and on hold because of trial payment), that I would have to turn down the offered modification and ask for a review, and nothing is guaranteed. I was fearful that there was something "hidden" somewhere, where I would owe more on my house than I do now, except for what I am behind on, and I understand how that has raised my principle. Thank you again for your previous reply, and I would love your opinion on this information that I've verified, and anyone else's if they will chime in. Thanks again!
 

OneHugeMess

LoanSafe Member
May 30, 2016
458
32
28
Was there previously a Balloon on the loan? You wouldn't owe any additional money on the $75k Balance, with your current purposed Principle, Interest, Tax & Insurance Payment. 40years @ 4.375 = $333/Month + Escrow $228 comes to a total of $561. I'm assuming the Balloon Payment takes into account previously delinquent payments from another modification or property taxes.

With that said...

$333/M for a $75k loan is not bad at all. If you send it an additional $38/m you'll incur an additional principle paydown and convert that from a 40yr to a 30yr Mortgage. Don't send in any additional funds during the trial period, I'd only send in any additional principle after the 3 month period if it sounds like something that'd interest you.

You also need to look over your purposed modification and figure out what they mean by Adjustable Rate. If it is truly an Adjustable Rate loan, you need to figure out the margin that is being used to calculate the rate. Your loan is LIBOR 6 Month and Previously your Margin was probably 5.500 to 7.00 percentage points. That means using the (Index) LIBOR 6-Month Rate of 2.515 + the margin of 6.00 you'd have an Interest Rate of 8.515%. http://www.wsj.com/mdc/public/page/2_3020-libor.html

Ideally, you'd want a margin between 2.250 to 3.00. Assuming the loan is going to adjust every six months or so, with this new modification. So... my advice would be to look over your purposed modification and figure out that margin rate.

Don't worry about a reinstatement. You want a modification. You do not want a high-interest, subprime loan @ 8 or 9%.

Also, continue doing what you're doing about raising your FICO Score. That'll help you a lot later on.

Just look over your Modification Papers and see what you can figure out. If it truly is an adjustable rate, you want to look at Margin used to Calculate it.
 

OWhatAThrill

LoanSafe Member
Apr 17, 2010
31
0
6
Thank you! There was no balloon payment on the current mortgage unless they were able to slip that past me when I signed, but I doubt it. I had a loan person, who I am sure, is part of the reason for the housing crisis in 2009. I kept asking for the papers of what the loan was to be, and he kept telling me he had sent it (twice), and that my kids must have gotten it out of the mail. My kids never have gotten the mail. He also said the new loan would be lower than my then 8.30% and that it would be fixed rate. My fault for putting myself in a position where I needed to refinance at that immediate time.

The balloon payment is what I really have a problem with but I'm thinking it's the price I pay, over the life of the loan for the $5-6K that they will put back on the mortgage, but I don't know. I do know that when I was in the previous 4% 5 year term, my payment was about the same, BUT my homeowners insurance went from $750 to $1500. So understanding without that additional $$ on escrow, that would make the current loan cheaper per month, than the previous 4%.

I did ask the rep about the specifics of the "adjustable rate", like was there a cap or any figures that might help me determine what my interest rate could go too, and she said she didn't have any. I do find it surprising, that they can only tell me over the phone, HOW they get to this trial payment, and when I asked if I could see all that in writing, they said they would send it at the end of the 3 month trial period. Just think it's odd although I understand some figures will change slightly.

I had also sent a letter to my servicer, inquiring as to who holds my mortgage and dang, if I didn't get a letter back today saying they had received my letter but I had sent it to the wrong address, and I needed to send it to another address, which is a different PO box. It aggravating they can't tell me this over the phone, but they say I had to submit a request, in writing, to get that information.

I will double check that there was no balloon payment on the current mortgage and see if I can find out more info about this ADJ, especially as I had been told TWICE, on two separate phone calls, that the modification was a fixed rate. Thank you VERY MUCH for your comments and advice! I will find out more!