Downside to pursuing mortgage loan modification?

[HardDrive]

My sister and her husband are current on their mortgage, but they are getting eaten alive. Basically all their money goes to paying the mortgage. And I have a feeling they may not be able to keep their heads above water much longer.

As long as they are current on their mortgage, (other than damaged credit) is there any risk in pursuing a loan modification? They have had a huge drop in their income in the past few years.

They cannot refi because their home is not worth enough yet. I would say its at about the break even point, but the banks want the value to be %120 before they will talk to you.

Any thoughts or advice very welcome.

If nothing pans out, I'm quietly working on a plan B so that my sister could take an advance against her inheritance from my parents, and use that to pay down the principal so that she can refi. Long term, I do have confidence in their property value. The live in the Highland Park area of LA.

[MBAtarga]

I'm pretty certain that is the purpose for at least one of those programs - HARP.

[krystar]

going modification doesn't show hurt your credit. if they're seriously underwater, it sometimes makes sense to stop paying mortgage and just wait for the foreclosure and eviction notice.

i had a neighbor that lost his job and didn't pay for his mortgage for well over a year. it took the bank that long to get the foreclosure. yea sure he's screwed on his credit, but it all goes away after 7 years. he's just back to renting.

i have a property that's underwater too right now, but rental tentants are paying enough to make the payments.

[HardDrive]

They don't want to walk away. They have 2 little boys, and they are happy where they are. Again, long term, I think they will do ok in terms of home values. But it will be another 5 years, and their monthly payments are just insane. Like $5k a month!

[krystar]

are they on a ARM w/ balloon mortgage or something? even now ARMS will only adjust a bare minimum of points after the initial.

[look 171]

Something I have seen in Los Angeles for the past 25 years ( I noticed the change in the area near my old high school, even back then. Now the average home there are over 800k+. They were 250k then). In these working class, typically depressed areas, that's been turned around where the working professional are buying and driving up value will stay up for a long time they almost never come down. Highland park is one of those areas and will be fine over the next 20 years (my prediction and many others I have spoken to in the real estate business). They just have to hang on for a little longer. $5000 monthly is steep that for sure. It must be a big old house there. HP has come and gone. People can't afford homes there anymore and they are going to nearby areas. I might have mentioned something here a while back where we try to buy in HP, invest on a complete restoration, and sell for a profit. But people have driven it too high to make purchase difficult. Even today, a home priced right will have 15 offers and 10 will be over the asking.

Tell them to hang in there.

[RANDY P]

Originally Posted by HardDrive

My sister and her husband are current on their mortgage, but they are getting eaten alive. Basically all their money goes to paying the mortgage. And I have a feeling they may not be able to keep their heads above water much longer.

As long as they are current on their mortgage, (other than damaged credit) is there any risk in pursuing a loan modification? They have had a huge drop in their income in the past few years.

They cannot refi because their home is not worth enough yet. I would say its at about the break even point, but the banks want the value to be %120 before they will talk to you.

Any thoughts or advice very welcome.

If nothing pans out, I'm quietly working on a plan B so that my sister could take an advance against her inheritance from my parents, and use that to pay down the principal so that she can refi. Long term, I do have confidence in their property value. The live in the Highland Park area of LA.

No. The trick is getting one. You basically have to be next-to-dead to qualify- in other words, missing payments. They won't talk to you if you are current.

Hint, hint, but interpret and use at your own risk.

rjp

Clarification- be erratic in payments.... not at 90 days late and climbing.

[RANDY P]

Originally Posted by krystar

going modification doesn't show hurt your credit. if they're seriously underwater, it sometimes makes sense to stop paying mortgage and just wait for the foreclosure and eviction notice.

i had a neighbor that lost his job and didn't pay for his mortgage for well over a year. it took the bank that long to get the foreclosure. yea sure he's screwed on his credit, but it all goes away after 7 years. he's just back to renting.

i have a property that's underwater too right now, but rental tentants are paying enough to make the payments.

In lots of cases there is enough depreciation it makes more sense to just drop the house and buy another...It can be done.

Even if you modified the loan and did zero interest a lot of times it still doesn't make sense since the house has lost so much in value.

rjp

[look 171]

^ Can she sell and break even or take a little hit and buy another?

[krystar]

Originally Posted by look 171

^ Can she sell and break even or take a little hit and buy another?

typically underwater are hard to sell. if i sold at market rate, i'd have to pay the bank 20-30grand at closing. before i found a tenant, i was paying mortgage out of pocket on empty property. i'd rather bleed 1000 a month than cut a check for 20 grand.

yea you could short sale it, but that requires the bank to agree to a short sale. and since if u still have a job and "are able" to make the payment, they wouldn't be readily agreeable to lose out on money.

[look 171]

Originally Posted by krystar

typically underwater are hard to sell. if i sold at market rate, i'd have to pay the bank 20-30grand at closing. before i found a tenant, i was paying mortgage out of pocket on empty property. i'd rather bleed 1000 a month than cut a check for 20 grand.

yea you could short sale it, but that requires the bank to agree to a short sale. and since if u still have a job and "are able" to make the payment, they wouldn't be readily agreeable to lose out on money.

depending how much is owe on it. Things have gone up 100k in the past 8 months in that area. Its not uncommon to see homes at 50k

[HardDrive]

Originally Posted by look 171

^ Can she sell and break even or take a little hit and buy another?

Yes, thats possible. I think she could sell if for enough to pay off her loans. But we are not dealing with rational actors her. She and my brother in law make decisions based on criteria I will never understand. Everything is drama.

[MBAtarga]

I guess no-one has heard of HARP as I recommended in the first reply?

From the official .gov site: Home Affordable Refinance Program (HARP)

If you're not behind on your mortgage payments but have been unable to get traditional refinancing because the value of your home has declined, you may be eligible to refinance through the Home Affordable Refinance Program (HARP). HARP is designed to help you get a new, more affordable, more stable mortgage. HARP refinance loans require a loan application and underwriting process, and refinance fees will apply.

[look 171]

Originally Posted by HardDrive

Yes, thats possible. I think she could sell if for enough to pay off her loans. But we are not dealing with rational actors her. She and my brother in law make decisions based on criteria I will never understand. Everything is drama.

I need to take a long walk down the hill and smack some sense into them. I know, I have clients like that. I have to knock slap some sense into em' and tell them not to pay me to do this or that to their home. They were shock and often ask why wouldn't I just take their money and do as they say or want.

[look 171]

Originally Posted by HardDrive

Yes, thats possible. I think she could sell if for enough to pay off her loans. But we are not dealing with rational actors her. She and my brother in law make decisions based on criteria I will never understand. Everything is drama.

I don't know where in HP are they, but some of the larger homes, 3 bed, 2 baths (it was a typ working class area back), up in the hilly sections have been pretty stable and bought up by the new faces in the past 5-7 years. I have to drive through Highland Park when I get on and off the fwy daily to get to my house.

[RANDY P]

Originally Posted by MBAtarga

I guess no-one has heard of HARP as I recommended in the first reply?

From the official .gov site: Home Affordable Refinance Program (HARP)

If you're not behind on your mortgage payments but have been unable to get traditional refinancing because the value of your home has declined, you may be eligible to refinance through the Home Affordable Refinance Program (HARP). HARP is designed to help you get a new, more affordable, more stable mortgage. HARP refinance loans require a loan application and underwriting process, and refinance fees will apply.

1)- loan has to be held by FNMA / FHLMC. If it's anything else, forget it.

2)- reduction of income- they'll never qualify if virtually all their income goes to the payment. Even if you cut the payment in 1/2 still wouldn't ratio.

rjp

[sc_rufctr]

How viable is Plan B?

The best thing to do would be to get their debt level down to a manageable level. Anyway they can. AND there's no room for pride here.
The house is supposedly in a good area ("Highland Park area of LA" As if I'd know...) so hanging onto to it would also be best bet.

Houses are great way to build wealth but you have to be in it for the long term. (minimum 7 years IMO)
So often I heard of people "flipping houses" for profit. It may happen sometimes but I've only ever witnessed it first hand on one occasion and the initial buy price was very low.