Is bank more likely to modify after filing BK?

[magua2]

House underwater. First mortgage $380k (great interest rate) second mortgage HELOC $280k. (Interest only payments at 1.5% - even greater interest rate) Zillow value $370k - $480k. Contemplating Chapter 7, don't qualify for 13. We will not reaffirm either mortgage however we are current on both payments. Renting another house would be more expensive than our current payments, because the HELOC is interest only for the next five years. We don't want to move and will be doing the pay to stay. We like our house and can afford the payments. The catch....we have a balloon payment on the second mortgage at the end of the five years. Our house will still be underwater in five years so I'm concerned about refinancing the second when that time comes. The first mortgage holder recently purchased the second mortgage holder so they are both Wells Fargo.

After filing BK, what are the chances that the bank will offer some amazing modification to both loans, combining them into one at today's interest rate and perhaps reducing the HELOC amount down?

[jst4f]

Based on the response I got on my similar thread, the answer is no. I don't know how to paste a link but my thread but it is just a few ahead of yours. There is one great post that you should read.

[HomeNow2]

Look up loansafe.org 'HAMPster Game' If you are underwater that much Suze Orman would be another one, on YouTube, that I would look at. She states that if the bank won't work with you and you are 30%+ underwater IF the market was increasing now at 3% a year it would take you 14+ years to break even and that is before you account for taxes and realtor fees.

Great readings on this site for 'Ride-Through'. I'd highly recommend you look into that. Basically you won't reaffirm but you can stay and pay.....then, when you are ready, or if you are ever ready, you can walk because you did not reaffirm the mortgage :-)

Soo, nope, I would not reaffirm, nor did I. We did the BK7 and checked the 'other' box.....if we tried down right tried to dump the house it knocked us out of the 7 so there is 'other' box which our attorney then said we would 'like to consider a loan mod'. Well, no matter what they offer, we simply 'cannot do it' and 'won't agree to the terms'. Thus, we dumped the house :-)

We are 3 payments behind post BK, we were current going into the BK but we really don't want to keep a house after getting so financially educated on all of this. Looks like we will have 2 1/2 + years of no payments since we have learned SO much with the HAMPster Wheel Game!

Good luck!

[Pandora]

House underwater. First mortgage $380k (great interest rate) second mortgage HELOC $280k. (Interest only payments at 1.5% - even greater interest rate) Zillow value $370k - $480k. Contemplating Chapter 7, don't qualify for 13.

We like our house and can afford the payments. The catch....we have a balloon payment on the second mortgage at the end of the five years. .....so I'm concerned about refinancing the second when that time comes. The first mortgage holder recently purchased the second mortgage holder so they are both Wells Fargo.

How is it you believe you dont qualify for a CH. 13 with a house purchased at the amount you listed? You have to be above the median if you purchased a house of that nature. Are you coming out with negative DMI?

As to affording your payments - no actually you cant, which is why you're considering filing BK. If you could afford the house then you wouldnt have an I/O loan that is ballooned, in which you need to ask yourself will you have the cash upfront to pay the balloon when it comes due? You wont be able to refi the house if its underwater, not to mention filing BK gets thrown into the mix.

The chances of WF foreclosing is high given they hold both the 1st & 2nd liens unless you continue to pay both every month - but you also need to be aware that once that balloon comes due and you cant pay it - regardless that you've been paying 1st / 2nd or both, foreclosure is likely. In a Ch. 13 you have the option to strip the 2nd if the value of the house is less than whats owed to the 1st - thats one of the perks of a CH. 13 plan.

[magua2]

How is it you believe you dont qualify for a CH. 13 with a house purchased at the amount you listed? You have to be above the median if you purchased a house of that nature. Are you coming out with negative DMI?

Non-consumer debt, with over the maximum allowed unsecured debt for a 13.

As to affording your payments - no actually you cant, which is why you're considering filing BK.

No, actually I can. The debt is from a failed business and personal guarantees on that business. My actual "personal" debt and spending habits are well within my means. Without the business debt dragging me down my life will be good.

[2manybills]

House underwater. First mortgage $380k (great interest rate) second mortgage HELOC $280k. (Interest only payments at 1.5% - even greater interest rate) Zillow value $370k - $480k. Contemplating Chapter 7, don't qualify for 13. We will not reaffirm either mortgage however we are current on both payments. Renting another house would be more expensive than our current payments, because the HELOC is interest only for the next five years. We don't want to move and will be doing the pay to stay. We like our house and can afford the payments. The catch....we have a balloon payment on the second mortgage at the end of the five years. Our house will still be underwater in five years so I'm concerned about refinancing the second when that time comes. The first mortgage holder recently purchased the second mortgage holder so they are both Wells Fargo.

After filing BK, what are the chances that the bank will offer some amazing modification to both loans, combining them into one at today's interest rate and perhaps reducing the HELOC amount down?

You may want to read my posts. I did not reaffirm either mortgage and just settled my HELOC with Wells for 10 cents on the dollar. That's what I would do. After we were filed and discharged, I quit paying the second. Then I began the negotiation process to settle that second mortgage. If you are showing totally underwater, I bet you could settle for somewhere between 5 and 8 cents on the dollar. I would quit making that 2nd mortgage payment and save that money (after your BK of course) towards a settlement of your HELOC. Then work on a loan mod of the first only. Why would you want to combine both loans. You'll never get that 280K back.

[sh9730]

2manybills,

I forget, did you try (and receive?) to modify your 1st after BK? Im still in the "review" from Chase and did not reaffirm and was just discharged. Im thinking maybe they just decided to hold off until after my discharge to start the process for real so they now KNOW my monthly obligations....I am behind on my payments though, so that may be different than your situation.

[btbeme]

Here is the way that most banks (Chase for sure) modify a loan under HAMP...speaking from 16 months of experience in trying.

First, you need to be late on your payments. Forget about their claim that if "you anticipate being late" they can help. If you are NOT late, your case will most likely be reviewed in-house and not under HAMP. Anything can happen, but in-house reviews are generally much more invasive, much more frustrating, take longer, and rarely result in anything adequate. There are exceptions, though.

Second, you shouldn't have much money in the bank. Since you were recently discharged from Ch 7, this may not be a problem, but if you have about 3 mortgage payments in savings or liquid assets - no HAMP mod for you.

Third - the HAMP loan will be modified based almost solely on your income, and little else. They will try to find a payment that will bring you in under 31% of your gross monthly income. The will do this by playing with the interest rate first, then the term of your loan. They will NOT forgive or write down any of the principle.

#4. If an interest rate change and an extension to another 30 years (or even 40 years) won't bring you in under 31%, they will do something absolutely dastardly - they will back-load your loan. They do this in the following fashion... Lets say you owe $250,000 to Chase on a house worth $175,000. Will they trim your loan amount? Nope - not gonna happen. But what they will do is suspend a portion of your loan principle, say $50,000, and make that amount a balloon payment at the back end of the loan. They will then calculate your payment based on the new interest rate, new term, and the remainder of the principle.

So, lets say you have been paying your loan of $250k and an interest rate of 6% on a 30 year loan for the last 7 years. Your payment before taxes and insurance is about $1499 a month. If Chase issues a HAMP loan, it would be for something like a 2.5% interest rate for the first 3 years, a new 30 year term, and a principle of $200,000 with a $50,000 balloon payment. That would make your payment about $790 a month. That is a great savings - just understand that you still owe the full $250,000, you are still underwater, they have restarted the clock on your loan, you have signed a new loan (your non-reaffirmation is out the window) and the interest rate will increase over the next few years to a reasonable capped amount.

Oh, and here's the best part - they WILL NOT tell you the terms of your loan until you have made at least 3 "trial payments" under their offer. Only then will you find out that you still owe the full amount - they just played fancy with the numbers.

To answer your question more directly, I would imagine that banks take a non-reaffirmed, underwater first mortgage pretty seriously. However, your Ch 7 and discharge will not necessarily get you anything different from what others are getting, except maybe a little quicker process. Seconds and HELOCS may be in more of a mood to settle, but be prepared to play hardball with them.

Myself - I said NO to the HAMP remod, and haven't made a payment to Chase in 15 months - with no Notice of Default so far. Your mileage may vary.

[Miknan]

Btbeme, thanks for the detailed explanation. From the sounds of it, it seems if somebody did this they would likely find themselves in trouble again in a few years but now are really screwed because they reaffirmed.

[btbeme]

Miknan, that is pretty much my assessment, for what it is worth.

Now, I do hear, from time to time, about people who get "miracle mortgages" from their bank, with the bank trimming principle, forgiving a second, etc. These are very rare, and I have not delved deeply to find out if there is a pattern, a specific bank, a particular set of circumstances, etc that seem to be in play with these folks. It is kinda like winning the lottery, I guess.

Magua2, you are at least $200k and probably more like $250k underwater. Your discharge of the non-reaffirmed mortgages means you are home free. If the housing market were to start increasing in value by the standard 3-4% a year, it would take you about 12-14 years to be at break-even on your house. That is a lot of payments going into a deep hole. Would you rather that money be paid, at least in part, into a retirement account?

We are walking away from our beautiful home (about $300k underwater). Our normal $2800/mo payment has gone straight to savings the last 15 months - we have over $34,000 in that account. The bank is paying us to leave the house intact. We found a beautiful rental half a mile away which will save us $900 a month instead of owning. In two years we will qualify for another mortgage, and we will have about $80k in savings ready for a down payment.

The biggest decision we will face is whether or not we will WANT to own again.

[Miknan]

Btbeme, what kind of BK did you file? If you can afford that kind of payment are you in a 13? How can you get another loan in 2 years? I thought it was 3? My wife and I both made about $60k a year but then she got sick and it is doubtful if she will ever work again. Even with 3 kids, with our combined income, we wouldn't qualify for a 7. Now that our income is split in half we do. But my wife applied for disability and if she gets it the lawyer said the trustee might make us go to a 13 which would really suck. My biggest concern is where are we going to live? There are almost no rentals around. Everyone must have foreclosed and rented everything before us. I would love to find a way to stay in my house but the first mortgage is still a bit too much and the second would make it impossible. My house is about $10k underwater with the first mort and the second is about $24k. I was hoping to settle with the second and work out something with WF on the first but I guess it looks like we will be moving from a beautiful home to I don't know what.

[btbeme]

Filed Ch 7, just below median income. And, yes, Ch 13 sucks.

Here is my free opinion, which carries as much legal weight as anyone else's free advice - which is none. I say that the Means Test is both a hurdle to clear and a hurdle to figure out how to clear. These forums are filled with advice that leans toward the latter, while your attorney is ethically bound to promote only the former.

With that in mind, I am reminded of an old Stones lyric...."Tiiiime is on my side, yes it is!" Given the proper amount of time - and the right timing - you should be able to limbo under the Means Test, and maybe even do the Charleston right under that bar. Good planning for a Ch 7 is both legal and well-advised, which is why I hired the attorney I hired instead of the first 15 or so that I talked to.

What did I lean from my Ch 7? That much I am planning to post in a month or two around the anniversary of my discharge. But, here's a preview, for what it is worth:

- Banks don't negotiate anything but profit. Giving you the break you want is not profitable.
- If it was repossessed, you couldn't afford it anyway, either before or after your BK. Get another one, cheaper than the last one.
- Three months rent paid in cash in advance will get you anything you want to rent, regardless of your credit score.
- Having no debts is the best sleep aid, aphrodisiac, dietary supplement, weight loss program, and anti-wrinkle cream you could ever hope to buy.
- Don't reaffirm anything unless you are three payments short of payoff and have the cash in hand.
- The bank does not care who owns the house, because someone will buy it and the federal government will pay the bank their loss (or most of it).
- The federal government is paying the banks with your children's future earnings.
- Upside down, under water, negative equity position - all of these sound pretty uncomfortable to me.

As far as a new home loan...I am not sure we want one. In a year or so I'll start poking around to see if a bank will give us one (again, being debt-free with cash in hand is worth a lot to a bank). FHA says two years after discharge, but I am pretty sure they want you to trade in a unicorn to get a loan. Don't have a unicorn? No loan! Forever the optimist, I figure that we will be the ones to make the decision when the time comes, not the bank. Never forget that they are selling money, and they want to sell as much as they can. They will just be very cautious who they sell to, that all. So position yourself with exemplary post-BK credit, no debts, cash in the bank, and a job history if you want a chance. That is what we are doing, and so far, so good.

[Miknan]

Bt, what you say makes alot of sense and thanks for such a detailed response. But there seems to be one major difference to our situation... Around here there are very, very few rentals. I found only 1 three bedroom 1 bath home in my childrens school district (and even then they would change schools), one! Moving outside where we live trying to stay in the three other nice towns around here I can count rentals on a few fingers but they are very expensive. Unless I move into the city, which I am not going to do because of my kids, I just don't know where we are going to live. My wife is really struggling with her illness which stress makes worse and telling her we might be moving into a trailer park sure isn't going to help her. Sigh.. Slept terrible last night, 341 in four hours!

[Pandora]

No, actually I can. My actual "personal" debt and spending habits are well within my means.

While I understand that you like your house and you believe you can afford it and are living within your means absent your business debt, your posts say otherwise (sorry). You mention you have a "great interest rate on the 1st" and a "greater one on the 2nd"; yet the 2nd is I/O with a balloon, and you're looking to modify. Are both I/O loans by chance? If so, then you need to ask if you truly are living w/in your means as it stands today, including any home improvement situations. If you went I/O vs. fixed due to it being the only way you'd be able to afford the house, then reality is the house wasn't affordable to begin with based on your income.

As to rent being more expensive than current payment(s), you seem to be factoring that based on your HELOC being I/O; what about when it becomes due? If you are lucky enough to obtain a personal loan to pay off your balloon 2nd (again affordability means paying the 2nd in cash vs. loan) you need to factor that payment into the mix since it will be a fixed % and term. Refinancing is pretty much out if your current value on the home is correct (-$180K to -$290K underwater) as it stands today, therefore you will be hard pressed to obtain a loan or even modify to roll the 1st & 2nd together. How many years will it be before your house makes that money back in value to be worth the $ and interest rate you'll fork out to do it? There is an entire smorgasboard of how to come up with NPV calculations that go into modifying a mortgage; the lender is only going to risk so much before they opt to foreclose vs modify, especially w/out reaffirming both loans due to WF owning both liens. The chances of them foreclosing is higher than if you had 2 separate lenders - even if they modified by waterfalling your rate and extending the terms to 40 years, you'd still have a massive balloon payment at the end as well as be in the red on LTV numbers. Is renting still the more expensive option if you factor all of that in?

Someone else on the forum is currently going through this exact situation (balloon payment / non-reaffirmed) and the options are few and far between. Just make sure you look into everything from every angle before you pull the BK trigger as to how the house will work in the process of your BK, as well as afterward.

You don't want any surprises down the line...

[magua2]

Thank you Pandora. No, I don't want any surprises. The first is not I/O. It's around 4.5%. Very doable payments. I don't want to modify that one. After reading the post by 2manybills: "I did not reaffirm either mortgage and just settled my HELOC with Wells for 10 cents on the dollar" I plan on doing the same thing. I'll stop paying the second after filing and save the money for a settlement. For the first time I'm encouraged by the thought of filing BK and truly having a chance to start over. The funds from the second were put into a business that failed and that is what put us in the situation we are in. I have hopes that I can get the second settled in the future for ten cents on the dollar. After BK, with the second gone all of the business debts will be gone and I can have my life back.