Any reason not to do a mortgage modification?

[YouAreTheFocus]

We have a 5/5 ARM on our condo at a rate of 4.875%. With a 5/5 it adjusts after 5 yrs, and then every 5 yrs thereafter. The most it can go up per adjustment is 2%. I called yesterday b/c I wasn't sure when it was due to adjust, and b/c I know rates are lower than when we got ours.

So first I found out it will adjust 1/2013. I assumed up, so then I talked to someone in refi, who told me we wouldn't be able to refi w/ them b/c we don't meet their new LTV reqs. Uh oh. Then I went back to the first person to find out what our approx adj would be. She ran some numbers and told me if it were adj today, our rate would be 2.875 ?! I had no idea it would go down, and that much! Then the rep mentioned we could do a mortgage modification, basically for 1% of the loan we can get today's 5/5 rate--3.125. No credit check, no appraisal, just pay the fee and go. Based on our monthly savings, we would recoup the fee in 10 mos.

This seems too good to be true. Is there any catch I should be weary of?

[Uno-Mom]

We refi'd recently and our appraisal was devastating! Turned out we had almost no equity anymore because of falling values. We would not have qualified for a refi without enormous penalties and PMI. However, a new program opened up at just the right moment for us: HARP-2. This new program allows you to refi at 100% without PMI. It is a regular fixed-rate loan and we got a good rate.

I don't know if those loans are available for condos, but it might be worth asking. It is a brand new program, we were the first HARP-2 for our broker.

My understanding about the modifications (this comes from both our mortgage broker and reading up) is that lots of people have been messed up. At least for the ones I read about, you must first get behind on your payment. So, lots of people stopped paying based on that advice. But then they ended up not qualifying for the modification because very few people actually got them. So they are now left with destroyed credit and an overdue mortgage.

My info may be totally out of date re the modifications, so take it FWIW. Good luck!

[sariana]

As far as I know, the programs out there are available only for those whose mortgages are held by Fannie Mae or Freddie Mac. The 50% of us in this country who have loans not owned by Fannie or Freddie are just out of luck.

OP, I don't know anything about ARMs, so I don't really have any advice. Do you plan to stay for more than 10 months? Is there any reason you might need to move before you see any savings?

In general the best advice is to ask lots of questions. Talk to as many different people as you can to make sure you get consistent information. Sometimes one person doesn't know what s/he is talking about, so make sure to get confirmation from at least one other person.

It's possible there is no catch. There are options out there right now for those who meet the qualifications.

[wellyes]

How much is the fee?
With that kind of ARM, you are going to have to refi very frequently, so it's the fees that will kill you. The APR doesn't matter so much, since it would only be for a short amount of time.

[YouAreTheFocus]

One thing to clarify--this isn't part of a special modification program for people having a hardship. We are ok with our monthly payment, haven't missed any and if someone advised that we'd run the other way!!!

This is all through the CU we have our mortgage with (they own our loan).

Worst case scenario, leave as is at 4.875, rate adjusts the 2% max to 6.875 in a yr (and then hypothetically to 8.875 5yrs after that if we want to do full worst case here).

Best case scenario, leave as is at 4.875, rates stay historically low, rate adjusts to 2.875 in a yr (or possibly lower? I haven't a clue how low it can possibly go), stays at that rate 5 yrs, who knows what after that.

New "throw a wrench in the works" scenario, pay a fee of $2483, receive new rate of 3.125, which lowers monthly pmt by $242. It would reset our 5 yr cycle, so we would have this rate for 5 yrs, at which point worst case scenario it could go up to 5.125 (and stay there for another 5 yrs). Btw, it does not reset the 30 yrs that the ARM is based on.

I am super skeptical by nature, and this just seems like a too good to be true no brainer. I want to ask them more questions, but honestly I haven't a clue what to ask. What's their benefit in doing this?

I don't see any chance of us selling anytime soon. We'd like to rent it eventually, though.

[KrisM]

Any chance you can go to a fixed rate instead of another adjustible? Who knows what rates will be in 5 years when the new one would adjust.

Otherwise, I'd probably skip it. There is a good chance your rate will still be low next year and since it takes 10 months to recoup your costs, you'd only have 2 months of savings and then you'd be losing money, potentially. I guess it's a gamble - do you think rates will be the same in a year or higher? If higher, then do it, if the same, then don't.

[fedoragirl]

We refi'd recently and our appraisal was devastating! Turned out we had almost no equity anymore because of falling values. We would not have qualified for a refi without enormous penalties and PMI. However, a new program opened up at just the right moment for us: HARP-2. This new program allows you to refi at 100% without PMI. It is a regular fixed-rate loan and we got a good rate.

I don't know if those loans are available for condos, but it might be worth asking. It is a brand new program, we were the first HARP-2 for our broker.

My understanding about the modifications (this comes from both our mortgage broker and reading up) is that lots of people have been messed up. At least for the ones I read about, you must first get behind on your payment. So, lots of people stopped paying based on that advice. But then they ended up not qualifying for the modification because very few people actually got them. So they are now left with destroyed credit and an overdue mortgage.

My info may be totally out of date re the modifications, so take it FWIW. Good luck!

I don't mean to hijack this thread but am interested in this program. We have been refused refinancing by our lender because our appraisal is lower than what we owe. What a surprise! And it's not our primary home since we don't live there anymore. They called it our investment home. What investment? We sunk our life-savings into this home and continue to do so. This has burned me from buying a home ever.

[YouAreTheFocus]

Any chance you can go to a fixed rate instead of another adjustible? Who knows what rates will be in 5 years when the new one would adjust.

Otherwise, I'd probably skip it. There is a good chance your rate will still be low next year and since it takes 10 months to recoup your costs, you'd only have 2 months of savings and then you'd be losing money, potentially. I guess it's a gamble - do you think rates will be the same in a year or higher? If higher, then do it, if the same, then don't.

We can't refinance at all with our current credit union, bc we don't meet their new LTV requirements (70%) by miles. We bought it with 20% down, so that wouldn't even comply, but on top of that it has lost a lot of value. So we'd have to look elsewhere, perhaps something like what Uno-mom mentioned.

But yes, it is totally a gamble! Good point about it potentially only being beneficial for 2mos. Who knows what will happen in a year. Certainly not me!

[Uno-Mom]

I don't mean to hijack this thread but am interested in this program. We have been refused refinancing by our lender because our appraisal is lower than what we owe. What a surprise! And it's not our primary home since we don't live there anymore. They called it our investment home. What investment? We sunk our life-savings into this home and continue to do so. This has burned me from buying a home ever.
Ouch, that stinks! Well, the HARP-2 loan can't finance more than 100% so you'd have to bring some cash to closing. It can do up to 100%, though, without penalty. We ended up having to finance about 98% :(. If the house value hadn't dropped, we would have had 25% equity. Sigh.

I honestly don't know if HARP-2 is available when you don't have Freddie/Fannie. That question didn't come up for us.

Like someone mentioned up-thread, it's designed for people who are handling their payments fine but want to refi at the lower interest rates. The new loans became available Dec 1st so we really lucked out.