(By Michael Nazarinia of REST Report Matters) – Are you trying to get a previously modified loan re-modified after accepting an otherwise poor offer that was unaffordable but you felt as if you had no other choice? Do you have more than one mortgage or credit line with your mortgage servicer or are trying to get them both modified?
If so, you may want to see if your mortgage servicer’s specialty representative agents are willing to combine the first and second mortgages and/or credit card debt when discussing loan modifications or place you into a specialty group for handling re-modification requests.
This can be sought and achieved whether you have equity in your home or not because bankruptcy might be less palatable to your mortgage servicer than you may think with the recent victory over MERS in a landmark US federal Bankruptcy Court ruling in New York this past week.
Today, I was on a call with a homeowner in California who was having some challenges with Wells Fargo home mortgage servicing on his jumbo loan re-modification efforts and was transferred to the “Co-Loss Mitigation Team” from the “Ownership” department at Wells Fargo where Wells Fargo “owns the underlying promise to pay note as part of the mortgage agreement.”
This homeowner has a home worth approximately $780,000 with a market listing timeframe of 90 days or less from a real estate agent’s comparative market analysis, along with two mortgages worth over $1,150,000. The home had appraised for over $1,430,000 at the peak of the market.
Why did this borrower end up in this Co-Loss Mitigation department at Wells Fargo? Well he has two loans and he had a loan modification on the 1st mortgage that increased his payments from interest only to principal and interest less than 9 months ago and he re-defaulted or went late again after getting the payment-increasing loan modification.
I’d seen numerous “predatory” loan modification offers in the past 42 months in which the payments went up on the modified terms, even though the homeowner could barely afford the agreed upon monthly payments on their existing mortgage when they had fallen behind.
I call this type of predatory loan modification the “oasis in the desert modification” offer whereby it’s “good” for you to pay principal back along with the interest each month and/or an escrow account is added, even though your payment becomes less affordable because the payment goes up.
Down the road meanwhile, you are at higher risk of going late again on your mortgage because you felt like you had no other option but to take the first and perhaps only offer for modification from your mortgage servicer.
It’s like an oasis in the desert as in the homeowner doesn’t want to risk rejecting the offered loan modification even though they know they may not be able to afford the payments long term.
The borrower comes down with a short term need to escape the loan modification torture and hell the mortgage servicers sometimes put people through without much thought about the future.
The homeowner becomes so parched and exhausted from the modification effort and tired in the journey’s delays that anything to put an end to the thirst for a loan modification is welcome.
Even a loan-payment-increasing loan modification just to be out of foreclosure sale harm’s way becomes acceptable in this case to certain homeowners.
Granted, sometimes a homeowner’s income goes up so the payments go up in relation to more income when the homeowner has fallen behind more than a repayment plan will allow to be cured. This is not the loan modification that I consider to be predatory or the “oasis in the desert” type modification mentioned above.
In the case of the homeowner who I was on the call with today, the call was pleasant from a human to human standpoint, but from an institutional standpoint, it seemed rather disheartening.
Perhaps Wells Fargo, who owns the 1st and 2nd mortgage loans, tried to get the highest interest rate (4% instead of the available 2%) on the initial modification on the 1st mortgage by including income that was not entirely documented much less sustainable when they approved this loan modification that increased monthly payments on an already delinquent borrower.
Reportedly, from the Wells Fargo representative on the phone, Wells Fargo has a policy in which they do not allow interest only payments when a private loan modification (non-HAMP modifications are called private type) has been made and escrow accounts are mandatory for impounding monthly insurance and taxes.
Wells Fargo increased the borrower’s already unaffordable payments to cover principal and interest even when the home was worth less than the mortgage loan, and the borrower did not have an escrow account, nor any delinquency on property taxes or insurance.
Wells Fargo had left the 2nd lien alone out of the discussions for modification on the 1st mortgage on the intially accepted modification by the homeowner.
Other servicers have taken similar measures when combining loss mitigation efforts on more than one loan or in re-modification cases to try to create a sustainable consolidated mortgage payment that minimizes the mortgage servicer’s and investor’s financial losses.
What was unique in this homeowner’s case was that the mortgage servicer had income recorded in their system by more than 30% over the “real” income when we reviewed why his payments were so high on the 1st mortgage modification already completed and now re-defaulting less than 9 months later.
It was not immediately clear who was at fault in this case, whether it was the homeowner or the servicer who made the 4% rate-decreasing- yet-payment-increasing loan modification become a closed case on Wells Fargo’s balance sheet.
It’s hard to prove the payment increasing loan modification was intentionally predatory, but you can’t blame the bank or its investors for wanting to get principal and interest paid back instead of just interest while getting 2% higher than what was the lowest possible rate, and misleading the borrower perhaps unintentionally, about the lowest possible rate allowed. This is after all loss mitigation of perhaps hundreds of thousands of dollars.
What’s most disturbing is that in this homeowner’s case, Wells Fargo seemingly wanted to keep the mortgage interest rate at 4% when the homeowner could have easily sustained a 2% rate and in fact misled the homeowner several times about the “floor” rate for the modification which led to a re-default down the road.
The take away here for any homeowner is that the mortgage servicer may try to help you on the surface when working with you one on one, but any payment increasing modification when a homeowner can afford a 2% rate on 480 term for an upside down property and the servicer has it available, is better than the alternative.
The floor rate for a jumbo loan modification is whatever the servicer says it is, but 2% is possible and perhaps likely in more cases than not when the home is more than 10% upside down in negative equity. It would help to get a custom loan disposition analysis from rest report matters to see what your mortgage servicer can do to modify your loan if you have applied or are applying for a modification or re-modification or you have been denied. (full disclosure: author has interest in the sale of loan disposition REST report matters products).
If you have the 1st and 2nd mortgages with the same servicer, and perhaps credit lines, or are trying to re-modify, ask to work with one person on your loan(s) to consolidate your case in a ‘co-loss’ mitigation or specialist department or office so that you can cut down on the time in having to deal with the burden of working with multiple applications and departments and starting over from scratch.
The entire point here is to make sure that the servicer is not counting too much or too little income when trying to get a modification or re-modification and/or a settlement on the 1st and 2nd mortgages and if they can, and it’s to your benefit, to have them both reviewed in Co-Loss Mitigation or specialty group for these types of less common modifications.
Principal reductions through settlements of 2nd mortgages happen more often than they do when dealing with 1st mortgages. You may have a better hand if the 2nd is completely under water when it comes to equity, and trying to modify the 1st if both loans are being serviced by the same servicer.
In any case, the world of loss mitigation and loan modification and home retention at the mortgage servicers is never a straight line, and there may be more options for you if your mortgage servicer or parent company is handling your more than one mortgage or other type of liability. It may just work out for you to try to work out both or several loans/lines of credit at the same time.
About Michael Nazarinia
Michael Nazarinia is the CEO of REST Report Matters. Please feel free to call him at 877.737.8440 toll free or 760.821.1518 direct. You can also visit RESTReportMatters.com for more information.