Ch. 13 and mortgage questions.

[NeedOptions]

Currently, I have never missed a payment on my mortgage loan in the past 7 years. I am on a 30 year fixed, 5.94% loan, with payments of $2440/month+tax. I owe $375k on the house and the house is worth $250k. I am $125k underwater. Since I am going to be filing ch. 13 in a few months, is there something I should do about the mortgage? Should I try for some sort of mortgage modification? My credit will soon be shot in 2 weeks, as I will be over 30 days late on a few credit cards. Since my credit will be crap soon, should I stop paying my mortgage and hope for a mod? My wife and I make $140k/year between the both of us. Ideally, I would love some sort of principle reduction and a lower interest rate. Btw, Wells Fargo owns the loan now. Thanks all.

[Skipper]

Hi,
Having gone through some of this, here are some thoughts...

1. Any modification will likely only reduce your PITI to about 31% of your monthly gross income (if you are the only borrower, then your income. If you and your spouse, then both incomes). Principle reductions really don't seem to be happening. So you need to ponder a few thoughts, such as; do I want to stay in this house, this far upside down (strictly a business decision)? Because you will be filing, it is an opportunity to potentially get out of a bad deal.

2. If you decide to stay, you will need to present a case of "imminent default" to your lender/servicer. Maybe stop paying unsecured debts totally, and consider holding back a mortgage payment, if not for any other reason, be sure you have an emergency fund to help when credit totally goes away.

Back to the home, being that far under water I would have no doubt that the lender does not want it back. Again, be sure you want it, as depending on the area you are in, it will most likely be a long while before there is any equity... Go to http://www.loansafe.org/ and look under the tab of "free online help" for a blog of people going through the mod process.

Good luck no matter how it goes.

Skipper

[NeedOptions]

Thanks Skipper. We definitely plan on staying in the house as my wife loves it. We really have no problems paying the mortgage but I just thought I'd weigh all my options since our credit will be trashed anyways. If I can somehow lower the interest rate and/or principle, that would be a bonus. Since we wouldn't qualify for any of the modification programs (mortgage dti is under 31% of our gross income), I wonder what Wells Fargo can do for us?

[SMinGA]

We are on the tail end of completing an inhouse mod with Bank of America. (Sent signed docs back by FedEx yesterday.) Our mortgage was not over 31% of our gross. Bank of America reduced our rate and amortized the interest from our missed payments. Were @ 6.95% 30 year fixed. Rate is reduced to 3.875% for 2 years, then will be 4.375% for 2 years, and then will permanently change to 4.75%.

I know you're not with Bank of America, and have no missed payments at this point, but just wanted to post that there can be some turnout even if you don't qualify for HAMP. There is no harm in trying. Unfortunately it seems lenders are more willing to do something if you are behind. If they think you can manage as you are, they have no reason to modify.

We are not in a drastic negative equity scenario though. Have not done an actual appraisal, but with the new principal we're somewhere in the -10% to +10% equity range. Couldn't really rent a 3 bedroom house for less than what our old mortgage payment was, and certainly not now with the reduced rate. We expect to be in this house for at least 5 years and based on our location I believe our home value is bottomed out now. We have intentions to finish a 4th bedroom and complete an extra bath that will eventually add more value.

[NeedOptions]

Does your credit score matter when it comes to doing a mod? Obviously, my score will be trashed soon. It seems like you didn't go through HAMP to get a mod done. That's awesome. Also, I just read your signature and it says you are on track to file for Ch. 13 at years end. Have you stopped paying on your credit cards? Did BofA pull credit when they offered you the mod?

[SMinGA]

If it mattered for our mod, then apparently low is the new high? My scores are perhaps setting new all time lows in recent months. Most things are charged off, stopped paying on most things early 2009. Stopped paying on all unsecured by Aug-Sept 2009.

I think the idea behind the mod was to make slight adjustments so we could stay in the house, and Bank of America would not be stuck with another non-performing loan.

I had to send in check stubs, bank statements, tax returns. Had to itemize my budget, not as detailed as for a bankruptcy filing but they wanted to see that I would be able to afford the mortgage going forward. I guess going thru the trouble of modifying if someone truly cannot afford it is a wasted effort?

For a recap - our income gradually dropped while expenses increased. Used credit to bridge the difference, expecting the income shortage to be temporary. Eventually ran out of room on credit, had to stop making payments to afford day to day stuff. I started looking for a 2nd job last spring. Finally found one 6 months later. With that extra income, we're in good shape for our required expenses and even a little room to spare. (But still not enough for unsecured debt.) But our mortgage got further & further behind with the long-term income shortage.

Does your credit score matter when it comes to doing a mod? Obviously, my score will be trashed soon. It seems like you didn't go through HAMP to get a mod done. That's awesome. Also, I just read your signature and it says you are on track to file for Ch. 13 at years end. Have you stopped paying on your credit cards? Did BofA pull credit when they offered you the mod?

[NeedOptions]

I appreciate the response, SMinGA. The information you provided is very helpful to me.

[lrprn]

We definitely plan on staying in the house as my wife loves it. We really have no problems paying the mortgage....

It's great that your wife really loves the house because there's a very good chance you won't be able to sell the house for more than what you owe on it for many, many years, if ever. Hopefully you'll have paid down the mortgage a great deal before selling enters the picture.

Until then, good luck! Hope everything works out as you hope it does.