Like many of you, I’ve had to make some difficult choices in the past months about where to put my financial resources. Last year, I was staying current on my mortgage while negotiating settlements on my credit cards, and looking for work to start bringing in income and turn the whole picture around.
As you all know, I was successful in greatly reducing my credit card debt, but finding the income to maintain my mortgage has been more difficult. After the November Presidential election and hearing so much in the news about plans the new Administration is putting through to help home owners, I decided to see what help I could get on my mortgage.
Several months ago, while still current on my mortgage, I called my lender to tell them that I was foreseeing difficulty and ask for help. In not so many words I was told that there was no help available for me while I was current on my mortgage (just like the credit card lenders).
So I stopped paying my mortgage around November ‘08 and the phone calls began. They asked why I missed the payment. I told them that I had been keeping it current while dealing with my credit cards but that my financial troubles had continued and now it was difficult to make the mortgage payments. In addition, I own a duplex, my tenants had moved out and I hadn’t been able to rent the unit again. I told them that I had asked a month ago for help and received the indication that help might be available if I was behind on my payments.
Sure enough, now that I was behind on my payments I qualified for their “homeowners assistance plan,” which at this stage consisted of me answering questions about my income and expenses over the phone. They wanted to know all of my income and expenses to get an idea of what I could afford on my mortgage.
That was early December, ‘08. About a month later I called for an update and was told that I was declined a modification on my loan because my income and expenses left me with only $17 a month extra and they felt that I was too close to not being able to pay any mortgage, even with a reduction. This made little sense to me. With no extra income, a reduction seemed like just what I needed, but they disagreed.
At that time they told me that a Notice of Default was going out to me and I could be foreclosed on at anytime and they recommended I make the payments of the past few months to bring my account current. Of course, by this time I was about $12,000 behind and didn’t have it so I asked what I could do. They said I could re-apply for the modification if my financial situation changed.
About a six weeks later, the CBS News piece came out on “The Do-It-Yourself Bailout” and I sold a few books, so I called my lender to tell them I had a little extra income and they had me go through the financial questions again.
Just this week, I received a letter in the mail saying I had been approved for a loan modification. This is six months after I stopped paying my mortgage. I never received the Notice of Default, by the way. Basically, the “offer” was to tack on the past due payments to the principal and reduce my Adjustable Rate Mortgage from it’s current 4 point something percent interest to 2% for five years, and at the end of five years it would balloon again to Prime plus an index rate of something like 3.5%.
That made no sense to me. Most experts and pundits agree that a big portion of the financial trouble the world is in right now is due to balloon mortgages that all jumped at once and people couldn’t make the payments. I know that in my case, when I bought my house on an ARM the rate was around 4%, and over the next two years the Fed raised interest rates 25 basis points every month and my mortgage went up about $100 a month until I was paying nearly twice monthly in interest than when I bought the house (a big reason that my savings dwindled and financed turned down when tacked onto all the credit card interest I was paying).
So at this time, I called my lender. It took me nearly an hour and seven transfers to different departments before I got someone on the phone who said he was actually in the loan modification department that handled my loan and could discuss the modification offer. I said that I was pleased to see that they would reduce my interest rate to 2%, but rather than have it be a balloon loan, I’d like the 2% to be fixed. I also asked that they knock off my loan the additional interest that had been added on during the months I was making my minimum (less than interest only) payment on my ARM, and take me back to my original loan amount. Not even current market value, mind you, just my original loan amount.
He said that in five years, when the 2% rate expired, if I was current, they would at that time get me into a fixed loan at current interest rates and do a “short refi” to bring the loan value to the current market rate. All I could gather from this was that the bank is hoping that in five years my home value will go up again and they’d rather wait to adjust my loan until then, than to adjust it to current market rate now.
I said that the offer wouldn’t work for me. All it seemed to be doing was delaying my trouble with my loan, and I noted that if they were to make this kind of deal with all of their homeowners in need, that in five years the economy would be right back where it is right now. If they wanted to really change the economy and the housing crises, they should lock in loans and current market levels now and offer reduced rate fixed loans to their customers on ARM’s now, then most of us would become homeowners who wouldn’t get into trouble again down the line.
They said that their offer was “non negotiable,” that their investors were not opening up a conversation about my loan, but offering a take it or leave it deal. I left it, with the opening that if they would like to discuss terms that worked for both sides, I’d be willing to.
More to come.