Need a loan mod and chapter 7

[2Bshinyandnew]

The NPV has me very confused as well. I mean, under what circumstances would the NPV be negative? If a loan is in imminent danger of default or is already in default, wouldn't a HAMP mod be more beneficial than foreclosure, even if there was equity in the home? I would think that 2% of principle is better than nothing, right? If the bank forecloses or the homeowner sells, even at a price high enough to cover the payoff, isn't that a loss of to the investor, compared to modifying and at least getting 2% of principle?

Any examples of a negative NPV?

[hereforinfo]

I'm not sure you understand exactly how NPV works. Besides, the bigger lenders are permitted to use their own rates to determine NPV so the outcome may vary between lenders.

Freddie Mac backs about half of all mortgages in the US, so if they back your loan then their policies apply.

As far as the liens are concerned, the second lien holder has to agree to resubordinate if the modification is such that would risk the position of the first lien. The second lien holder gains nothing by doing this and is under no obligation, plus they put themselves at risk of violating ambiguous terms of their PSA's and litigation from the investors. They often use it as a negotiating tool to try and get the first lien holder to pay them to extinguish, which is unlikely to happen because doing so would then probably cause the NPV to become negative, making the modification a no-go.

The bottom line is that legally the modification has to benefit the investor first, as that's where the servicer's duty lies.

[IBroke]

I'm confused, because in some of your posts you claim they offered you a principal reduction, in others you say principal forbearance. Which is it?

They offered us forgiveness of principal (about $200K) prior to the program. When asked about forgiveness WITHIN the program, they said it's negotiable.

Forbearance will be part of the modification anyway - no matter if they forgive or not. Without it, it will be impossible to reach the 31% - even over 40 years and/or 2%.

[IBroke]

The principal-reduction will be determined on a case-by-case situation and in general, was always considered an option, not the rule. It really seems that Freddie Mac is not allowing it while others are. I was a bit confused because I thought all of a sudden, it wasn't allowed any more in general. And yes, there is a difference between "may" and "mustn't".

However, I don't see a reason why the 2nd mortgage has to approve anything. A principal forgiveness is in the best interest of a second lien holder. A high first lien makes a second lien worthless for decades to come because it's virtually unsecured. The lower the principal on the first lien, the earlier the second lien might have a value again.

In addition, only the TERMS of the first lien are changed. The lender stays the same so I doubt the second lien holder has much to say.

The NPV-calculation actually favors the borrower if there is NO principal-forgiveness.

The NPV-calculation should determine if a lender is better off with or without a HAMP-modification. A high principal-balance makes it difficult to deny a modification. Sounds strange but here's why:

If a lender is not willing to reduce the principal balance and doesn't want to modify the mortgage, it will be very difficult for him to come up with a negative NPV-evaluation. The reason is that without a modification to lower payments, the likelyhood of foreclosure is much higher. And if they don't reduce principal, they will lose that money right away and for good at the foreclosure. After all, a property is only worth what it's worth RIGHT NOW. Foreclosure-costs and property-managment expenses (taxes, HOA-fees etc.) are also due in that case. These factors lead to a positive NPV-evaluation, meaning the lender would be better off under the modification.

Now if they keep the principal up, chances are they might get the money at the end of the loan or whenever the loan is paid off early.

This might be the reason why many lenders prefer to hold on to their principal - but on the other hand, coming to a negative NPV that would allow them to deny a modification is much more difficult in that case.

And when the NPV is positive, they MUST modify.

[hereforinfo]

Our lender already offered a substantial principal-reduction prior to the launch of the program. In 2007, a special act was put into effect to avoid taxes on those forgiven mortgages. I'm wondering why if these reductions don't occur?

That law was originally intended to help people who lose their homes to foreclosure or short sale and receive forgiveness on the deficiency balance. I suppose it would apply to principal reductions as well.

I'm confused, because in some of your posts you claim they offered you a principal reduction, in others you say principal forbearance. Which is it?

And FYI: the tax avoidance on mortgage forgiveness only applies to the portion of the loan that was used to purchase or improve the property. So if you took cash out during a refi or HELOC, only the amount used for home improvements can be included. The rest of the forgiven amount could be subject to income tax.

[hereforinfo]

Of course the government is going to say principal reductions may be offered. "May" being the key word. Freddie Mac is not allowing it on the loans they back, which is outlined in the documentation I referenced. Other lenders/services/investors may allow it according to the government, but the PSA's, lien subordination, and mortgage backed securities would usually make it impossible.

The program encourages lenders to offer a trial period payment, and not calculate/submit documentation for final modification payments until after the second to last payment is made and the income/debt is verified. Even then, there is usually a statement such as: "the HAMP will not be implemented unless the servicer receives an acceptable title endorsement, or similar title insurance product, or subordination agreements from other existing lien holders, as necessary, to ensure that the modified mortgage loan retains its first lien position and is fully enforceable" in the final modification paperwork. They don't always have that confirmation when they offer the modification. The second lien holder can and often does refuse to give up their position. The mod is also subject to what is in the loan's PSAs. They can also pull the rug out from under you after they run an NPV calculation during the process. So it doesn't really matter what they've offered you, it's not final or enforceable until several things have happened.

[IBroke]

This is from the revised FAQ-secition (updated July 16, 2009):

18. I owe more than my house is worth. Will a modification under HAMP reduce what I owe?

"The primary objective of the Making Home Affordable Program is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford. Servicers may, but are not required to, offer principal reductions. It is more likely that your servicer will use interest rate reductions and term extensions in order to make your payment affordable."

http://makinghomeaffordable.gov/borrower-faqs.html

Or this form, from July 23. Check out page 15. There is a field for "Forgiveness", indicatet as "C" (conditional).

https://www.hmpadmin.com/portal/docs...quirements.pdf

Also from July 16: "Principal forgiveness may be applied at any time." (page 4):

http://banking.senate.gov/public/ind...6-497ddee97e92

Really strange..

[IBroke]

This is from the current website:

http://www.makinghomeaffordable.gov/...-answered.html

"The Home Affordable Modification Program is focused on getting as many families as possible who are struggling with their mortgages into a mortgage that they can afford over the long-term. It does this by reducing borrowers’ interest rates and monthly payments down to a level they can afford. In addition, the plan permits lenders to get to a level of affordability in a variety of ways, including reducing interest rates, extending terms, or writing down principal."

and

"The Home Affordable Modification Program gets the borrower's interest rates and monthly payments down to a level they can afford in a way that is most cost effective for taxpayers. That will keep millions from being foreclosed on. Our plan permits lenders to get to a level of affordability in a variety of ways, including reducing interest rates, extending terms, or writing down principal. In addition, we have incorporated principal write downs into our incentive structure in a productive way - success payments to homeowners are available to help pay down principal more quickly."

Our lender already offered a substantial principal-reduction prior to the launch of the program. In 2007, a special act was put into effect to avoid taxes on those forgiven mortgages. I'm wondering why if these reductions don't occur?

http://thomsonreuters.com/content/pr...taxacct/387742

I'll contact the HELP-Hotline tomorrow and see what's up. Now that would be a story if they would provide wrong information.

[hereforinfo]

Your link is dated March 2009, whereas the fact sheet I'm reading from is the updated version of July 2009.

http://wwwhrn.freddiemac.com/service/factsheets/pdf/mha_modification.pdf

There are just too many reasons why banks can't do principal write downs. Their hands are basically tied. A modification can cause the first lien to be demoted to a junior lien (second lien holders have to agree to resubordinate, and that could be costly or impossible to accomplish). Original pooling and service agreements limit the number of modifications. And of course principal reductions compromise the mortgage backed securities, which opens up the lenders to litigation. Many lenders prefer the safer route of foreclosure.

Servicers are denying mods left and right, and they can get away with it based on something called NPV.

[IBroke]

Principal write-down not permitted.

Huh. No principal write downs allowed, only forbearance which is really just a balloon payment. Interesting.

That's news to me.

Page 8 says something else.

http://www.ustreas.gov/press/release...guidelines.pdf

I'll investigate on that.

[hereforinfo]

Here is the required income and debt documentation for HAMP:

For all borrowers obligated on the loan:
• Completed Form Form 4506-T, Request for Transcript of Tax Return. (Available at the IRS Web site: http://www.irs.gov/.)
• The most recently signed and dated tax return, complete with all schedules. If the previous year’s return is not available, the previous year’s Form W-2 for salaried borrowers must be provided. In addition, in all cases where the previous year's tax return is not provided, the Servicer must obtain a tax transcript by processing IRS Form 4506-T.
• Completed page two of Form 1126, Borrower Financial Information, if the borrower is current or less than 31 days delinquent. (Available on our Guide Forms Web page: http://www.freddiemac.com/sell/forms/.)
• The two most recent pay stubs or salary vouchers, along with most recent complete signed federal tax returns and other acceptable income verification documents.
• For a self-employed borrower, complete signed and dated federal income tax return for the previous year; year-to-date profit and loss statement that at a minimum reflects the last full quarter’s information; and other reliable third-party documentation the borrower voluntarily provides.
• Documentation must not be more than 90 days old as of the date the Servicer first determines borrower eligibility.
• Verified monthly gross income and determination of continued eligibility is required for all borrowers prior to the Servicer’s signing and return of the Trial Period Plan.
• If only net income is available, multiply the net income by 1.25 to obtain an estimated gross income for qualification of the borrower for the trial payment period.



They will need a copy of your most recent tax return, as well as the latest 2 pay stubs. I'm sure the current income is most important, but they want to see the tax return just to see the overall picture.


This is also listed in the fact sheet:

• Calculate the total monthly debt payment-to-income ratio (include non-housing debt, payments on junior liens, or mortgage insurance premium payments). Borrowers with ratios equal to or greater than 55 percent must agree to enter a free HUD-approved credit-counseling program.


And this is interesting:

May capitalize accrued interest, amounts advanced and paid to third parties for past due real estate taxes and or insurance premiums (and payments of taxes and or insurance premiums that fall due during the Trial Period), and delinquency charges.
• Unpaid late fees waived.
• No negative amortization.
• Principal write-down not permitted.
• A modified loan cannot be assumed.
• The UPB may exceed Freddie Mac’s conforming loan limit as a result of the modification.
• Any prepayment fee associated with the original mortgage is null and void by the modification.


Huh. No principal write downs allowed, only forbearance which is really just a balloon payment. Interesting.

[IBroke]

From what I gather from a BOA employee HAMP is the refiance, HARP is the one where they based your new mortgage payment on 31% of the person's income on the mortgage (just the husband).

HAMP= Home Affordable Modification Program (with the 31%)
HARP= Home Affordable Refinance Program

Your bank was wrong on that one. Trust me, I know because we are already in the trial-period under HAMP.

BOA shouldn't adjust your new mortgage-payment under HAMP based on your past tax-returns. They should use the income he's CURRENTLY receiving. That's the whole idea behind the program. You can't spend income you're not getting any more. That's your hardship and the reason why you're asking for HAMP.

How are you going to make sure they are doing it right? Well, simply take 31% of your husband's CURRENT gross income - that's what the payment under HAMP will be. The trial-payment might be slightly higher. In our case, it's about 10% more.

Forget about the credit-cards. Simply save the money and don't pay them any more. Any additional payment is a waste of money.

2Bshinyandnew's explaination about the credit-cards is accurate. If you don't pay them, it's a plus for you when being considered for HAMP. We have a bunch of CCs we haven't paid for years - so they weren't considered as monthly expense.

Concentrate on the loan-mod and nothing else. As soon as the trial-period has been completed and your modification is permanent, THEN you can file for BK.

So yes, start the HAMP as soon as possible and when asked for expenses, only list your car and 2nd mortgage and not the CCs since you stopped paying them and won't pay them in the future.

[Lovesgirl]

More info- need clarification on order of things

From what I gather from a BOA employee HAMP is the refiance, HARP is the one where they based your new mortgage payment on 31% of the person's income on the mortgage (just the husband).

So let me clarify this:
We got new bank accounts for personal and business (new company) at a bank we've never dealt with - Wachovia.
We refinanced our car loan with a credit union where we only have a savings account and that is new or it will be with State Farm. Probably final tomorrow.
Our "old bank" BB&T says they will remod our 2nd mortgage with lower interest and save us about $70 a month. Haven't started this yet.
Wait for the 2nd mortgage remod to go thru which she says will take about a week.
Stop payiing credit cards right after that.
And stop using them, of course.
Work on saving money to pay the lawyer for the bk and living expenses.
But Keep making the full mortgage payments and the car payment.
Immediately start the loan mod HARP process. Should we do this after we quit paying the credit cards or immediately and just don't count the CC that we plan to quit paying?
Once the mod goes thru hopefully, file the chapter 7 bk and reaffirm the 1st BOA and 2nd mortgage BB&T and the car (either state farm or state employee credit union)

question: how do we ensure that boa/harp uses just husbands' W2s and not the adjusted gross income on the tax return? Cause we won't and aren't making that money this year and we use the company corp funds to pay a lot of the overhead.

question: can we go ahead and send his credit card to a dmp to get a lower payment temporarily to buy us a few months of peace and then when we need to, stop paying his and mine (also at a dmp) without affecting our ability to complete the loan mod?

Thank you so much!

[IBroke]

I just re-read that your total monthly household gross income is $73000. Is this correct? If so, HAMP might be little help to you. You must include income from all sources even if a spouse is not on the mortgage.

I have to correct you on that one. According to the HAMP-guidelines, the monthly payment is 31% of the gross income of the BORROWER, NOT of the household-income. That does make a difference..

[IBroke]

Now, first of all, is the OP seeking a Refinancing (HARP) or a Modification (HAMP)?

Based on the provided info, it seems to be HARP...