Seeking input - mod primary, strategic default on HELOC

[albacore44]

All a "charge off" means is that they have expensed a lose for the value of the loan. It is an accounting entry that takes the loan off of their balance sheet.

They still have the lien against the collateral and may sell the right to the "lien" or just sit on it. If they sit on it and at some point in the future the value of the house increases, they can still foreclose and any proceeds would be a gain on their books.

The good thing about it being "charged off" is that they have taken the financial hit. So anything they recover in the future is like new income to them. That is why it is easier to negotiate a settlement after it has been written off.

This is true. we do it in my business too. We call it O & R's (opportunities and Risks). A lot of this came about post Enron. So when a loan goes delinquent, the bank puts it in the risk column until they charge it off. If they think they have a chance to collect, it then goes in to the opportunity column

[BCA2009]

All true, although there is one caveat - statutory limits may mean (depending on state) that at some point the loss is no longer recoverable. It can get interesting.

That very well could be. I'll be honest, I don't know anything about the statutory limits, just the accounting side of it.

[onwards]

All a "charge off" means is that they have expensed a lose for the value of the loan. It is an accounting entry that takes the loan off of their balance sheet.

They still have the lien against the collateral and may sell the right to the "lien" or just sit on it. If they sit on it and at some point in the future the value of the house increases, they can still foreclose and any proceeds would be a gain on their books.

The good thing about it being "charged off" is that they have taken the financial hit. So anything they recover in the future is like new income to them. That is why it is easier to negotiate a settlement after it has been written off.

All true, although there is one caveat - statutory limits may mean (depending on state) that at some point the loss is no longer recoverable. It can get interesting.

[sofarsogood2]

Keep us posted.

We are discharged, underwater by a lot too. Haven't yet pursued mod because I don't want to sign on and revalidate any debt amount until I see how far down prices go.

I have time before a reset, and I know my lender's loss sharing agreement with FDIC expires in 2012- that may be a better time as they will own the loss of a foreclosure all by themselves- no help from the gov. anymore.

They will have to choose whether to work with me (never missed a payment) or foreclose and hope to sell without losing their butts. I know they bought the debt for pennies on the dollar when they acquired my loan from FDIC.

We are in a unique area- not convenient to anything- just got a grocery store a few years ago. Commuting from here would be a real pain and quite costly for most people, so the buyers pool would be small- suits our purposes, though. We like being in the middle of nowhere.

I'm in a holding pattern, but would love to hear how this turns out for you as I may be trying for a mod later.

[BCA2009]

Question. When a bank "charges off" your 2nd, does that remove their lien on the property? What actually happens?

All a "charge off" means is that they have expensed a lose for the value of the loan. It is an accounting entry that takes the loan off of their balance sheet.

They still have the lien against the collateral and may sell the right to the "lien" or just sit on it. If they sit on it and at some point in the future the value of the house increases, they can still foreclose and any proceeds would be a gain on their books.

The good thing about it being "charged off" is that they have taken the financial hit. So anything they recover in the future is like new income to them. That is why it is easier to negotiate a settlement after it has been written off.

[CCsAreEvil]

Question. When a bank "charges off" your 2nd, does that remove their lien on the property? What actually happens?

[BCA2009]

Well i am in a similar situation, and yes, i am in the inland empire, and i can tell you it aint pretty here right now. here is my plan. i should be filing my Ch-7 by month end.
mortgage = 1st Citi $417K 7 year adjustable 4.5% 10 int only option adjusts in May 2013 .
2nd (heloc) HSBC $241K Int only adjustable currently at 4.5%, house is worth mabee $450k ?? depending on forclosures 9many), most people in this tract of Mcmansion homes which started building in 2003 are under water. many are walking away. some homes topped out a $1m right before the down turn.

As soon as my BK is final, I'm stopping the 2nd. i'll save the $$ and see what happens. i'll try to settle with HSBC but i'm reakky hopeing they charge it off and sell to a JDB, then I will settle with them, trying for 10% of the balance .

then i will attack the 1st. but i'm still good for 2 1/2 years. even then I can still pay interest only for another 3 years after that, assuming the rates dont skyrocket. but if I were Citi, i would try to get me into a different loan. we shall see.

Why would a JDB buy a debt that they can't pursue collection on? I guess maybe they would hold it until there is equity and foreclose then??

[Lajazz947]

Well... we love the house, which is why we are willing to overpay some (which is in effect what we are choosing to do by not walking away). It's unique in servicing our needs where we live in the sense that we couldn't, say, rent something comparable even if we wanted to do so (we've looked).

It's just that there is a difference between overpaying some and overpaying a lot :-)

As for the first... I can put away the payments and sit on them for a bit. Foreclosure can almost always be forestalled by making arears, ESPECIALLY if the lender stands to lose a lot of money by foreclosing. They don't HAVE to know my real intent - in many ways, it becomes a game of chicken and who blinks first. The most I am risking is some late fees, and possibly a couple grand for a lawyer depending on how far I'm willing to play - and for the amounts in question, I'm willing to play quite far.

As for the second... California's one-action rule combined with their subordinate position makes it more or less expected that they will simply charge it off. Dealing with a CA or JDB afterwards is something I am happy to do; I would love to do the same with the actual lender, but my experience with them indicates that no matter what, they won't settle on balances and rather charge it off. Not sure why but it's what it is, not my problem really. They are entitled to make their own decisions, as I am entitled to make mine :-)

I actuallyt did the very same thing. I had some equity in my home but filed for a 7 and stopped paying Wachovia.

I saved the money just in case but they just came through with a modification and a reduction in principal.

I was however at 55% debt on the fully amortized payment and had a pick a pay.

Now, I have a second with WF which I have not paid for 10 months. Only $50,000 with payments saved but I am getting a bit worried as i have not heard a peep from them.

I tried to settle a while back for 10% and they got into some stupid argument about who was 1st on title, them or Wach but that was fixed so here we are and no other communication.

now that the 1st is modified I am thinking about offering to settle again but how do I know if they have charged me off already? It does not show on my credit report.

Thanks,

[tknj99]

Im working on the same thing. Havent filed yet..
$30k underwater on the 1st loan with BofA and owe $120 on the second with Citi.
I offered Citi 10% and still waiting on a response. I contacted primary lender and worked out a trial mod of 2% for 5 years that includes principle, interest, taxes and insurance. That saves me about $500 per month. The rep said that he's seen the rate step to 3% for the duration of the loan once the 5 years are up.. All of this is much better than the 5/1 Arm interest only i currently have on the 1st..

[onwards]

Alright folks. I have just canceled the autopay on the HELOC. Next payment is set for 2/5, so it will be a while before anything starts happening, but... I'll keep everyone posted.

For the record, I reasonably expect the loan to get charged off and then settle. However, I will do my best to settle with the HELOC lien holder (USAA) before charge off, but I am certain they will not do anything until they are convinced I am serious - that is, at least 90 days late. And having experienced their approach just last year, I highly doubt they will do anything regardless.

Interestingly, I found that the HELOC is under my name; wife did sign it, but only as co-owner of the property. The loan appears under her credit report but I'm not entirely clear that it should; I will be going through the paperwork this weekend. If indeed she is not a co-borrower then there is absolutely nothing legally they can do, because due to my ch7 the debt is no longer collectible and all they have is a worthless second lien.

[albacore44]

Well i am in a similar situation, and yes, i am in the inland empire, and i can tell you it aint pretty here right now. here is my plan. i should be filing my Ch-7 by month end.
mortgage = 1st Citi $417K 7 year adjustable 4.5% 10 int only option adjusts in May 2013 .
2nd (heloc) HSBC $241K Int only adjustable currently at 4.5%, house is worth mabee $450k ?? depending on forclosures 9many), most people in this tract of Mcmansion homes which started building in 2003 are under water. many are walking away. some homes topped out a $1m right before the down turn.

As soon as my BK is final, I'm stopping the 2nd. i'll save the $$ and see what happens. i'll try to settle with HSBC but i'm reakky hopeing they charge it off and sell to a JDB, then I will settle with them, trying for 10% of the balance .

then i will attack the 1st. but i'm still good for 2 1/2 years. even then I can still pay interest only for another 3 years after that, assuming the rates dont skyrocket. but if I were Citi, i would try to get me into a different loan. we shall see.

[SleepWellNow]

I read an article last week from the Washington Business Journal:

"Washington is among the few markets in the country to maintain steady improvement. San Francisco is the only other major city to post gains for seven months in a row. Minneapolis and San Diego have seen median home prices rise for six consecutive months."

As a Realtor, I have seen these increases first hand. I agree with "onwards". The San Francisco Bay area and San Diego are much different markets than the Island Empire or Central Valley of California. My biggest difficulty right now is not having a large enough supply of quality houses for buyers wanting to purchase.

[onwards]

I still think you should blow out the 2nd as your first move. I don't think you are going to do much better on the modification front. As for home values...none of us has a crystal ball, but given the market you are in (CA), houses will be depressed for far longer than other areas. This is not just a temporary draw back in home prices, this is a true readjustment. Home prices in areas like So. Cal, NV, AZ and FL were driven by speculation not by the ebb and flow of true supply and demand. Are you, by chance, in the Inland Empire; if so, you are not likely to see a return to pre crash prices for 10+ years, but, that is just my opinion. You really have to think through it, what on the horizon is going to drive prices up? Nothing. CA is not exactly attracting new businesses, highest overhead of any state, high unemployment; who exactly is going to step in and start buying houses to drive up prices?

That's a great link for the NPV discussion... I'll have to get into it more deeply but I think I have a shot at getting the primary into HAMP. At this point I am probably going to work on these in parallel; the next chance we have to miss a payment on either is early February, so I'll start chatting to GMAC right now about what program they might fit us into, warning them about difficulty, and stop the autopay on the second.

California is a big place... we're in the San Francisco bay area in a pretty decent spot. It's not the inland empire, or southern cal, or Stockton and so forth. As for what drives prices up... you know, at least in this area, there is always demand because it's still the place to be for high tech. Prices do fluctuate here faster and harder than most, but if you recall the late 80's, discussions were similar to now and prices have not only recovered but gone far, far beyond those levels in real terms in here.

[HHM]

This document gives you an overview of what happens in HAMP behind the scenes

https://www.hmpadmin.com/portal/docs/hamp_servicer/npvoverview.pdf

I still think you should blow out the 2nd as your first move. I don't think you are going to do much better on the modification front. As for home values...none of us has a crystal ball, but given the market you are in (CA), houses will be depressed for far longer than other areas. This is not just a temporary draw back in home prices, this is a true readjustment. Home prices in areas like So. Cal, NV, AZ and FL were driven by speculation not by the ebb and flow of true supply and demand. Are you, by chance, in the Inland Empire; if so, you are not likely to see a return to pre crash prices for 10+ years, but, that is just my opinion. You really have to think through it, what on the horizon is going to drive prices up? Nothing. CA is not exactly attracting new businesses, highest overhead of any state, high unemployment; who exactly is going to step in and start buying houses to drive up prices?

[SleepWellNow]

We also modified our first loan with GMAC. I was told GMAC is the servicer, Wells Fargo the investor but Duetsche Bank showed up on the Motion for Relief of Stay filed with the court during our BK. The modification agreement had a reaffirmation written into the contract. In our case, the reaffirmation was not filed with the court prior to our discharge so we are not reaffirmed although the mod is in place. In your case, if GMAC writes all their mods the same, I'm afraid you will be reaffirming the loan if they isuue you a new mod post discharge.