Loan Modification Principle Balance reduction

[BKch7]

Does anyone have any knowledge on how to get a principle reduction?

We want to keep our home but we owe more that it is worth. It is worth about $200,000 but the 1st is about $250,000 (HSBC Mortgage) and the 2nd is $50,000 (GMAC Mortgate). HSBC offered a reaffirmation with rate reduction from 8% to 5.25% but not a principle reduction.

So far the reaffirmation lawyer for HSBC said they do not do principle reductions and that I should contact HSBC Bankruptcy department. I tried that and the department I called (could not get past the main customer service department) gave me a phone number to the Loss midigation department. I called that department and it must have been a wrong number so I have to try again to get the correct number next week.

Does anyone have any different experience or knowledge?

We filed May 2009 and expect discharge in Sept 2009. So time is running out on the ability to get a reaffirmation done.

[HHM]

If they said no, they said no.

Even outside the context of bankruptcy reaffirmation, banks are not doing principal reductions.

I would strongly advise agianst a reaffirmation agreement, especially in a negative equity position. In a reaffirmation, you are allowing your personal liability on the loan to survive your bankruptcy. If you need to walk away from the home in the future, you will be liable for the deficiency. You are far better off simply getting your bankruptcy discharge and then going through the regular loan modification process (for as much good as that will do).

[BKch7]

Follow up

HHM: Thank you very much for your reply. I really appreciate the help and advice.

Your recommindation to go through the regular loan modification after discharge is sound advice.
Have you or anyone else seen principle reductions after discharge in a loan modification?

It seems the bank would do this since if they foreclose they will get fair market value anyways and after discharge we will be in a good position to pay our loan. Our debt ratios will be low and we have regular steady income. Unfortunatly our expenses are still a bit high since we have ongoing medical expenses, but not so high that we can not afford a reasonable mortgage payment.

[CCCrazy]

Do not reaffirm and about a month before your discharge stop paying your second for good. They will not foreclose on you since you're upside down with just your first like I am with mine. And then after your BK is closed concentrate on settling the second for about 10 percent of the balance paid out over a year or so. That's what I'm in the process of doing on my 2nd with Wells.

[HHM]

It seems the bank would do this since if they foreclose they will get fair market value anyways and after discharge we will be in a good position to pay our loan. Our debt ratios will be low and we have regular steady income. Unfortunately our expenses are still a bit high since we have ongoing medical expenses, but not so high that we can not afford a reasonable mortgage payment.

Unfortunately, it just doesn't work that way. A write down of the principal or a foreclosure are both "losses" for the bank. The problem everyone is running into is the behind the scenes securitization of the mortgage note. Whoever you are dealing with for your mortgage doesn't really own the mortgage. Your mortgage is security for bonds that were issued by the bank and sold to institutional investors. From here, it gets even more complex and beyond the scope of what you need to know. Are principal reductions "possible", yes, (in theory) are the lenders doing them in any meaningful way, no (and most of the time, they simply can't because of the way the bonds are structured).

Realize this..in June, 2009 there was something like 18,000 mortgage modification done, at the same time there werre over 275,000 foreclosures. The redefault rate on mortgage modifications (meaning, the owner was given a modification but defaulted after) is over 60%.

CCcrazy is right, whatever you do, DO NOT reaffirm your 1st or 2nd mortgage. Stop paying your second mortgage after you trustee meeting and don't look back (start saving that money you were paying to the 2nd mortgage to offer about 10% to settle the 2nd mortgage). Once the BK is over, you can start beating your head against the wall and try to get a modification of the first mortgage.

Or, big picture, if you are that upside down, 20% just on the 1st mortgage, walk away from the house. You are most likely not going to get a principal reduction on the loan mod, you are too upside down, you are MUCH better off financially to simply walk, rent for 2 years and buy again at that time.

[hereforinfo]

HHM: Thank you very much for your reply. I really appreciate the help and advice.

Your recommindation to go through the regular loan modification after discharge is sound advice.
Have you or anyone else seen principle reductions after discharge in a loan modification?

It seems the bank would do this since if they foreclose they will get fair market value anyways and after discharge we will be in a good position to pay our loan. Our debt ratios will be low and we have regular steady income. Unfortunatly our expenses are still a bit high since we have ongoing medical expenses, but not so high that we can not afford a reasonable mortgage payment.

Most of America is upside on a mortgage. They can't write them all down. True, the bank would lose the same amount if they foreclose and sell to someone else, but in that case they would get cash right away instead of keeping a risky loan with a history of default.

The point of a modification is to give someone a payment they can afford, not give you a gift of equity. They want to get the payment amount to about 31% of your monthly income by lowering the interest rate and then if necessary, lengthen the loan term. If that doesn't do it, then a modification is not likely to work.

[casdem1]

HSBC is Horrible

We have never been able to speak with anyone at HSBC and get a straight answer to questions about modifications or a new loan (and we weren't even looking for a principal reduction, just a lower interest rate.)
We did not reaffirm after our Chapter 7 and have just tried to save money for a year, waiting for them to foreclose. It has been hard, because I love my house and my neighborhood, but sometimes you have to just do what you have to do. I wouldn't count on anything from HSBC.

[BKch7]

We have never been able to speak with anyone at HSBC and get a straight answer to questions about modifications or a new loan (and we weren't even looking for a principal reduction, just a lower interest rate.)
We did not reaffirm after our Chapter 7 and have just tried to save money for a year, waiting for them to foreclose. It has been hard, because I love my house and my neighborhood, but sometimes you have to just do what you have to do. I wouldn't count on anything from HSBC.

What is the status of your foreclosure now? How long did HSBC wait until after the bk was discharged before they started the foreclosure process?

[car67]

Whats your take TOP GUNS

What if your mortgage is owned by the same bank.
I have a first and a second..... The house has bout $20k equity

I am 5 weeks past my chapt 7 341 conversion from a 13 to a 7
so another 4 weeks or so to discharge........

I would love to drop my second (quit pay) and only pay first
Not reaffirm

280 ish is owed on first and 60 ish on the 2nd home worth 380 ish give or take 10k with 30 day market swings......

Whats my exposure if I only pay postion 1 and say pound sand to position 2
Can they evict if position one is paid! HHM JUSTBROKE value your thoughts?

[HHM]

What if your mortgage is owned by the same bank.
I have a first and a second..... The house has bout $20k equity

I am 5 weeks past my chapt 7 341 conversion from a 13 to a 7
so another 4 weeks or so to discharge........

I would love to drop my second (quit pay) and only pay first
Not reaffirm

280 ish is owed on first and 60 ish on the 2nd home worth 380 ish give or take 10k with 30 day market swings......

Whats my exposure if I only pay postion 1 and say pound sand to position 2
Can they evict if position one is paid! HHM JUSTBROKE value your thoughts?

Just because a loan is "serviced" by the the same bank doesn't mean it is actually held by the same bank. You would need to do a qualified RESPA letter (google search it) to know who actually holds your loan.
1st, in this market, I would question anyones estimate of their home value. Get a realtor to give you are "realistic" current market analysis.
2nd, but, there is a risk. If your home has equity, the 2nd mortgage has the legal right to foreclose. Will they? very unlikely unless there is a significant amount of equity. Also, keep in mind, the strategy of not paying the 2nd is done in combination with a chapter 7 bankruptcy. Reason being, if you don't discharge your personal responsibility for the 2nd mortgage, the 2nd can go after you personally, i.e. sue you and get a wage garnishment or take other action.

[casdem1]

Late answer for BKCH7

Our Chapter 7 was discharged February 2, 2009. We had not made a payment since April 2008. We may have gotten a little extra time because we started out with a Chapter 13 and converted to a Chap 7 in August 2008. HSBC filed for foreclosure in July 2009 and right now there is not a court date set. I have found that the sheriff sale is usually three months after the court date, so we probably could have stayed in our home even longer, but I did not want to move around Christmas. Now I just want them to hurry up and get it over with!!

Have you been able to speak with anyone at HSBC?

[BKch7]

Our Chapter 7 was discharged February 2, 2009. We had not made a payment since April 2008. We may have gotten a little extra time because we started out with a Chapter 13 and converted to a Chap 7 in August 2008. HSBC filed for foreclosure in July 2009 and right now there is not a court date set. I have found that the sheriff sale is usually three months after the court date, so we probably could have stayed in our home even longer, but I did not want to move around Christmas. Now I just want them to hurry up and get it over with!!

Have you been able to speak with anyone at HSBC?

I have not had much success talking to HSBC. I have had a few converstations with Moss Codilis (the firm that is responcible for reaffirmations). However Moss seems to not know to much. This last Weds they told me to call HSBC BK department direct (866-824-084) with my questions. I did this once already and HSBC gave me a number which when I called that number it was Moss. So HSBC is referring me to Moss and Moss is referring me to HSBC. Kind of funny but serious at the same time!

This weekend I plan to read a ebook on loan modifications and hopefully get a better understanding of the process.

After reading the book, I may send a letter making an offer to them explaining that I want the 5.25% they offered but a principle reduction to $200,000 and that due to the BK wiping out my other debt that I would be able to make the payments now. Logic says that they should accept this but...

Other options are:
- Hiring a foreclosure attorney
- Hiring a forensic loan review
- Renting
- Stalling the process as long as I can, saving the money and renting.
- some combination of the above
Any advice is welcome.

[BKch7]

Our Chapter 7 was discharged February 2, 2009. We had not made a payment since April 2008. We may have gotten a little extra time because we started out with a Chapter 13 and converted to a Chap 7 in August 2008. HSBC filed for foreclosure in July 2009 and right now there is not a court date set. I have found that the sheriff sale is usually three months after the court date, so we probably could have stayed in our home even longer, but I did not want to move around Christmas. Now I just want them to hurry up and get it over with!!

Have you been able to speak with anyone at HSBC?

I am surpised it took so long for HSBC to file for foreclosure. Do you know why they waited until July from February to file?

Our foreclosure was started before the BK and we expect it to be restarted shortly after our discharge (which should happen any day).