Loan Mod (BoA) after Ch7 Discharge

[Resigned2BK]

Although 10 cents on the dollar to settle the HELOC out would be attractive -- but only if we were approved for a non-reaffirmed mod on the 1st mortgage. We might even be able to do that if I can finally get a real job again later this year.

[Resigned2BK]

Great information BT. I agree with you also that I have not seen any bank lower the principal amount of the first mortgage. I'm getting ready to go for an in-house loan mod with GMAC. First things first for us, and that was to settle our equity line. (10 cents on the dollar) That put us back into a positive on our house. I tried the HAMP loan, and they denied it right out of the gate, which was back in October. We are now 2 years post discharge and I'm ready to go back at them again. (My mother-in-law passed in November, so I didn't have the energy to go back at this again.)

Also, SH, as far as credit reporting after discharge on a reaffirmed debt, that also depends on the lender. Lexus Financial (or Toyota) does not report, still does not send statements or anything.) It doesn't bother me as we've got our credit scores up to about 670 now.

Will they strip the 2nd (HELOC) though? Like as in, HELOC is pretty much not anything to pay on at all after discharge? If that were possible, that would knock about $300-350/mo off what we had been paying each month before we defaulted last March. And if it was just the 1st loan only that we would pay, that'd be about like renting a house instead which is what we assume we'll be doing however long the foreclosure process might take when they ever initiate that. Ours was Countrywide all the way converted to BofA and probably robosigned which would not surprise me one bit -- personally I think it might be more interesting to see if a local law firm that's already fought BofA on predatory loan stuff might have or know of some sort of class action Countrywide thing we could be part of, but if we had a chance at in-house mod approving us and dropping that HELOC entirely, that'd sure be something to think hard about.

[2manybills]

Found it!

From the official hmpadmin.com website, buried deep in the FAQ download in the resources section (and absolutely nowhere else that I could find):

Q - Am I eligible for HAMP if I have received a chapter 7 bankruptcy discharge?

A - Yes, even if you have received a chapter 7 bankruptcy discharge, you are eligible for HAMP. If you did not reaffirm your mortgage debt, the following language must be inserted in the Home Affordable Modification Agreement:
“I was discharged in a chapter 7 bankruptcy proceeding subsequent to the execution of the Loan Documents. Based on this representation, Lender agrees that I will not have personal liability on the debt pursuant to this Agreement.”


Anyway, I do hope that people get a loan modification that actually works for their situation. For us, it meant a $890/mo difference in our payment.

Great information BT. I agree with you also that I have not seen any bank lower the principal amount of the first mortgage. I'm getting ready to go for an in-house loan mod with GMAC. First things first for us, and that was to settle our equity line. (10 cents on the dollar) That put us back into a positive on our house. I tried the HAMP loan, and they denied it right out of the gate, which was back in October. We are now 2 years post discharge and I'm ready to go back at them again. (My mother-in-law passed in November, so I didn't have the energy to go back at this again.)

Also, SH, as far as credit reporting after discharge on a reaffirmed debt, that also depends on the lender. Lexus Financial (or Toyota) does not report, still does not send statements or anything.) It doesn't bother me as we've got our credit scores up to about 670 now.

[sh9730]

BT

I ve seen that language while I was going through my process (before I knew whether I would be HAMP or in house). I think what the feds were saying there is that if the lenders or servicers DO offer a mod on a discharged loan, they MUST insert that language so that they are not in violation of the BK discharge (i.e. collection efforts) - not that if a borrower rec'd a modification without this language (and signed it) they would be liable for the debt again. They were just reminding the servicers that the loan IS discharged.....

[btbeme]

Found it!

From the official hmpadmin.com website, buried deep in the FAQ download in the resources section (and absolutely nowhere else that I could find):

Q - Am I eligible for HAMP if I have received a chapter 7 bankruptcy discharge?

A - Yes, even if you have received a chapter 7 bankruptcy discharge, you are eligible for HAMP. If you did not reaffirm your mortgage debt, the following language must be inserted in the Home Affordable Modification Agreement:
“I was discharged in a chapter 7 bankruptcy proceeding subsequent to the execution of the Loan Documents. Based on this representation, Lender agrees that I will not have personal liability on the debt pursuant to this Agreement.”


Anyway, I do hope that people get a loan modification that actually works for their situation. For us, it meant a $890/mo difference in our payment.

[btbeme]

BT,

I do NOT believe that a modification puts you back on the hook for a non-reaffirmed loan as you said. Since it is MODIFYING an existing loan that has already been discharged, rather than a truly "new" loan, I do not believe they can come after you for any deficiency if you have trouble again in the future.

Glad someone else out there had the patience to git 'er done, too! As above in my diatribe, one nice aspect to an in-home modification - the banks usually see it as exactly that - a continuation of your original loan, discharge included. Being in a non-recourse state may also be helpful, if it is a purchase-money loan.

However, HAMP loans and many credit union loans force the issue and require the borrower to "enlighten" them, which is unfortunate. In fact, I have the actual required HAMP wording and instructions buried somewhere...I'll see if I can find it again and post it here for anyone diving into the Post-Ch 7 HAMP waters. It took forever to get an answer to that HAMP rule - only after digging in to about 4000 postings on LoanSafe did I find any reference to it. Then again, it is a federal program, so having hidden hidden "treasures" like that are pretty much standard operating procedure. The drones on the other end of the telephone act like you grew a third head when you ask them about it.

[sh9730]

BT,

As one who DID get a modification AFTER CH7 discharge, I appreciate your explanation. I ended up with a very reasonable "in house" modification....basiscally they took the 10 month interest for the payments I had not made (prior to and during BK proceedings), added it to the loan balance, and readjusted back out to 30 years from the 27 I originally had left (but remember I hadnt made payments for almost a year). They waived all other late fees, and allowed me to catch up all the back esrows over a 5 year period. Overall pretty fair I thought...I wanted to stay in my house as it is also my workplace so I needed the room, and I wasnt THAT upside down (140K balance vs 125K value). I actually do think the fact that I was discharged without reaffirmation did help my cause, although I live in non-recourse state anyway.

I do disagree with one thing you said though....I do NOT believe that a modification puts you back on the hook for a non-reaffirmed loan as you said. Since it is MODIFYING an existing loan that has already been discharged, rather than a truly "new" loan, I do not believe they can come after you for any deficiency if you have trouble again in the future. In essence a modified loan after BK is just like a "stay and pay" situation. Nowhere in any of my paperwork does it say they have the right to any additional remedies other than foreclosure like they always had and they never asked anything of me in that regard. I even have the same loan number etc...

Also, one DISADVANTAGE of my situation is that my credit report does NOT report my payments I am now making on my modified loan. It just shows as discharged in BK. For me that is no biggie....but its kind of a bummer vs my auto payments (which I DID reaffirm) which show up as positive reporting on my report.

But, again, I do not think that you in essence can "reaffirm" an already discharged loan...

Otherwise - AWESOME post - it will help many. Thanks for taking the time to write all that up!

[btbeme]

OK, so here’s the deal. All of the following is based on my experience, but my experience seems to be fortified with the similar experiences of many others. There are always exceptions to the norm (remember that plane that landed in the Hudson River?). I’ll tell you that you really have to want to do the legwork, as we did, to get a modification done. I feel like we were a success story, but it was also a long march to get there.

I can tell you that post-Ch 7 discharge modifications exist, and they are a worthwhile goal in the right circumstances. Before we start, I’ll tell you that loan modifications are hard to predict and difficult to “tough out.” There are no hard and fast rules – only “guidelines,” and different banks, divisions, and underwriters have different viewpoints of those guidelines.

Let’s break it down into two different types – federal and “in-house.” I’ll tell you my viewpoints of both, for what they are worth. Your mileage may vary.

First, federal modifications. These are generally underwritten following a set of guidelines known as HAMP, or the “Home Affordable Program.” The very basic principles of a HAMP modification are to get people out from under “risky” loans such as variable interest rate loans and underwater loans and move them into what they call an affordable permanent loan. The HAMP program is federally underwritten, which essentially means that the bank’s own policies, personnel, etc are a secondary consideration. This can be enormously frustrating, as you will get bounced from person to person, paperwork will “expire” or go missing, and generally the process will move slowly with a few restarts just for good measure.

In short, the loan structure that is offered via a HAMP modification looks like this: If you qualify, you will (well, maybe – see details later) end up with a mortgage payment at 31% of your adjusted gross monthly income. That payment will be based on one thing and one thing only – your income. It does not consider how far upside down you are, how much you have outstanding on your loan, or anything else from what I can tell. Yes, they will tell you otherwise, but believe me they are withholding the details. Trust me on this.

I won’t go into detail on what the qualifications are because they are readily available on the Internet. In short, you must have a steady income and a real reason that a modification will be necessary to keep you in the home.

As I said, what the bank will do under HAMP is aim for a specific payment of 31% of adjusted gross monthly income. The bank will ask you to fill out the same stack of paperwork you have filled out twenty times already. After a couple of weeks of farting around, they will congratulate you on being accepted into the HAMP process and offer you a three month trial period of payments. You must make those three months of payments to continue in the program. After that – yes, AFTER that - they will try to tweak the loan terms any way they can to make that target payment happen as part of a permanent loan.

How they tweak the loan will make your head spin. First, they will extend the term to 40 years. Second, they will establish an interest rate around the 2.5% range – not a permanent rate, but enough to get you started. Third, if they can’t get you to the target payment with those tweaks, they will do an evil thing – they will back-load the loan with a balloon payment and base the monthly payment on a partial principle amount.

Here is how that evil part works. Let’s say you have a loan for $300,000 and a gross income of $44,500 a year. They will temporarily drop the interest rate to about 2.5% and raise the term to 40 years, for a payment of $989/mo plus taxes and insurance. Lets say your property taxes, HOA dues, and homeowner’s insurance add $300/mo to the payment for a total of $1289/mo. If the target payment based on your income is $1150 (that is about 31% of your adjusted gross monthly income) they will then create a balloon payment at the back of the loan. In this case, what they would do is create a balloon payment of about $42,000 due on the last day of the loan, then base your payment on a principle amount of $258,000. Using $258k as the loan amount, 40 years as the term, and a temporary 2.5% interest rate, your payment would be $1150 a month including taxes, HOA, and insurance. Bingo!

The fine details are the killer. First, you start over on the loan term – and that will likely be 40 years on the term, starting the day you accept. Second, the interest rate they base it on is temporary – 5 years at best. The rate will increase up to a capped rate of about 4.5% or so after the fifth year. Last, they don’t care how much you owe or what the house is worth – the balloon payment guarantees that you are tied to the house and cannot get out from under it unless you can satisfy the entire loan, balloon and all.

Oh, and the REALLY good part… your offer is predicated on your making three months of trial payments. They will not tell you the loan terms until AFTER you have paid. Kinda like going to a car dealership and being offered a payment that you can afford, but not being able to take the car – or even know what car you bought – until you have made three payments. What a deal.

If you are late or miss a payment, Game Over. At the end of three months, they MAY OR MAY NOT be able to tweak the loan enough to get to that payment target. If not – Game Over (and thanks for the three payments!)! AND…they might extend the “trial period” out as long as 12 months – and THEN tell you Game Over because they cannot make the numbers work! (insert evil laughter here)

Funny – they don’t tell you the details until you have made your trial payments. Also funny – about 80% of the HAMP loans offered have “failed” according to the feds. These two items may be related…

Now, in your Ch 7, you were discharged from any personal liability from the mortgage (assuming you did not reaffirm). In a HAMP loan, you get that responsibility back…that is, unless YOU insert the proper notification into the HAMP agreement and ensure that the final agreement – if or when it ever arrives – include the release of personal liability. You must must must initiate that part yourself, and the responsibility for ensuring your final offer is structured properly is yours as well.

The good news about HAMP is that if you qualify, you qualify – all you have to do is apply and then put up with the six months of mind-numbing BS and lost/expired paperwork until they actually get around to doing the loan.

Frankly, I see the HAMP loan mods as a last-ditch effort to save your house. While they do exist, and while they can buy you time to decide what to do after your Ch 7 discharge, there are a few tripwires to watch out for, and it is an exercise in frustration to deal with the process. You do have alternatives, though.

Now, lets look at the other type of modification – an in-house (bank) modification. These mods are offered by the original lending bank, are owned by the bank, on the bank’s terms. Sometimes, they are more lenient than a HAMP loan, but usually they follow a similar set of guidelines. You will get a lot better and more personal attention this way, since the bank has a vested interest in keeping you as a client.

The BIG difference, however, is that you can generally negotiate the terms. You don’t have to get stuck with onerous terms that you can’t live with. You can easily get the personal liability issue resolved – most banks state in their modifications that they will abide by the BK discharge, so you wont have to babysit the issue. This is where we finally landed, after 5 months of frustrating HAMP paperwork.

If you contact the bank, you will need to be specific about the type of mod that you want to attempt. You will get pressed into the HAMP line almost for sure, unless you insist on an in-house mod. Don’t get discouraged – keep trying. And, remember that (especially if you are underwater on your loan) the banks often have more incentive to make a HAMP loan then an in-house mod.

Summary - If you discharged (did not reaffirm) your mortgage under Ch 7, I believe that you have three avenues to pursue. First, and honestly, if you are underwater (you owe more than the house is worth) very far, I suggest that you live for free as long as you can and surrender the house via foreclosure or short sale. Second, I suggest that you apply for a HAMP modification during that process, because it will generally give you more time to do the first thing.

Third, if you want to stay in the house, and are not too far underwater (or have equity), I suggest that you attempt an in-house modification with the bank. This is not a pleasant or fast process, but it did work for us. As I said, the home we modified was a second home, but we made it our primary residence to make the loan modification happen. It also had equity.

If you try an in-house refi, you must be paid in full and up to date. If you try a HAMP loan, it seems to help you if you are actually behind on your payments. This is why I suggest that a HAMP loan mod can be used as a strategy for delaying the inevitable if you plan to leave your house – it gives you, in most cases, an additional couple-three months of rent-free living while everything processes.

Afterthought… after Ch 7 discharge, if you stop paying your mortgage, then try a HAMP, then refuse the HAMP by not paying the three month trial payments, then apply for a short sale, you stand the likelihood of extending your rent-free lifestyle for quite some time. Also, a short sale, if successful, can qualify you for $3000 of federal funds for relocation under the HAFA program. You might also be able to work some other rent-back or pay-me-to-leave cash for keys deal by trying a short sale. Short sales are no fun at all, but it is an option.

Additional info – you can forget about getting the bank to modify your mortgage by reducing the principle. Principle reduction is a myth. It does not happen…not now, anyway. It is like seeing Bigfoot – everyone knows someone who knows someone who heard of someone who can prove that it happened to them…but I have never seen proof that it has happened. I could be wrong, and I sincerely hope you are the first people to have their loan amount slashed in half by the bank, but I would not bet the house on it (no pun intended).

[btbeme]

Remember, a loan mod only modifies the terms of the original loan and does not "reaffirm" the mortgage.

That depends on the situation. But, it can often be negotiated as such. For instance, a federal HAMP loan re-saddles you, unless YOU insert the proper language into the Agreement, and YOU are responsible for making sure it happens.

[2manybills]

You know...that's where it gets gray for me. When we had our meeting of the creditors they asked if we were keeping our house and continuing to pay the payments. We told them yes. However, when we bought DH's truck our house didn't show up on our credit report.

I know we did not reaffirm.

How do I know if the 7 is closed?

I would bet that your house was included in your BK. Any and all debts are required to be listed, and most attorneys I have run into do not suggest reaffirming your mortgage. But I have heard of people doing a loan mod once their BK is closed. Remember, a loan mod only modifies the terms of the original loan and does not "reaffirm" the mortgage.

BofA has been one of the toughest as far as loan mods from what I hear. Try loansafe.org as Lady In Red suggested, there are so many people on there that share their issues and successes. They also list contact phone numbers and emails for management.

[may]

Please a few questions.

Has your BK7 closed as well?

We feel your pain!!! We went around and around with several banks can got nowhere. We are now working with a "professional" from the BK attorney's office to see if he has any luck. He is fast and direct with the banks but it is too soon to tell if he will be of any benefit for us.

I am surprised that you didn't include your house even if you did convert from BK13 to BK7. Did you reaffirm the mortgage? I am not sure how a major asset can be left out. Please check to be sure it was not discharged with your BK7.

You know...that's where it gets gray for me. When we had our meeting of the creditors they asked if we were keeping our house and continuing to pay the payments. We told them yes. However, when we bought DH's truck our house didn't show up on our credit report.

I know we did not reaffirm.

How do I know if the 7 is closed?

[btbeme]

May, I have a story to tell about B of A and a loan mod. Give me a day to gather it all together and write it up - I'll post here when I can (2 sick kids tonight...yuck).

But, I can tell you that we had a tough case and were able to get a post-Ch 7 modification on a second home through B of A that made us very happy. Details to come.

[nohoneymoney]

Please a few questions.

We discharged on Ch. 7 in June.

Has your BK7 closed as well?

We've been working with BoA since June on a loan mod. After sending the same paperwork 5 million times and having people from 3 different departments call us and request more information, we're now working with one person from the CEO and President's office.

We feel your pain!!! We went around and around with several banks can got nowhere. We are now working with a "professional" from the BK attorney's office to see if he has any luck. He is fast and direct with the banks but it is too soon to tell if he will be of any benefit for us.

Can we still put the house in the Ch 7? Do we just foreclose? Are people really getting loan mods from BoA right now?

I am surprised that you didn't include your house even if you did convert from BK13 to BK7. Did you reaffirm the mortgage? I am not sure how a major asset can be left out. Please check to be sure it was not discharged with your BK7.

[may]

This is just crazy hard. We didn't surrender it because we love it and now I guess we need to just move on.

Thanks for the link! I'm going to definitely check it out.

[LadyInTheRed]

No, we did not reaffirm.

Excellent! So, you can safely walk way.

It sounds like you are leaning towards walking away, which is a good decision if you can't afford the house on your current income. But, if you are still considering trying to get the modification, you should join the forums at loansafe.org if you aren't already a member. That may be a good place to find out if anybody is getting loan mods from BoA these days. My understanding is that things tend to move along more quickly once the Office of the President gets involved. At least, that was the case a couple of years ago when I first started exploring my options.