Changing our current mortgage?

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We bought our home in 2006 with the intent of only keeping it for 3 years and then selling it to buy something bigger. We did a first and a second Interest Only mortgage and are with B of A but our loan was from Bank of NY. Due to the drop in the market and the fact that all of the homes around us are going into foreclosure, our house value has dropped down to 192,000 when we owe 232,000 on it. We are looking at needing to keep the house until the market comes back otherwise we would take a pretty big loss if we sold it now. We contacted our current lender about seeing if we could combine both loans into a conventional loan so that we can start paying towards the principal instead of just interest. No luck. Even though we have great credit, in short, we are being told that “since you make your payments on-time and are in good standing, there is no motivation for us to help you convert your current mortgage – we will only assist you if you were to no longer be paying on the mortgage”. So let me get this straight – BECAUSE I can afford my mortgage and BECAUSE I am in good standing with you and BECAUSE we (thankfully) have good employment history and are financially stable……you don’t have an interest in helping us stay good customers by restructuring our mortgage so it makes sense? Hmmm…that doesn’t seem like it makes sense to me.
We have looked at doing a HARP loan but because the loan came from Bank of NY it is not an FHA loan so – that doesn’t help.
It’s just frustrating because I feel like we are being penalized for NOT falling behind on our mortgage because there is no motivation to help us do anything about it since we’re not in jeopardy of losing it at all. Granted, I understand it was a risky loan to begin with, so I can’t point the finger at anyone but us, we get that and aren’t disputing that on any level – but there has to be SOMETHING that we can do, right?
Since prices are so low right now in our area, we are looking at buying a home for ourselves and then renting our current home out until the market comes back a little, but how does that work? Would THAT let us finally qualify for re-doing the mortgage on our house if it turned into a rental?
Thanks for your quick responses 🙂

In answer to a couple of the questions – both 1st & 2nd are with B of NY, so they are in the same place so there are not 2 different investors.

As for the interest question – the 1st is a low interest rate and the second is a fairly low rate (but obviously a little higher than the 1st since it is in second position).

And in answer to anyone’s curiosity – yes, I can bite the bullet and say we made a stupid move on this, so I am not trying to point the finger at anyone but us. The truth is, we had made very good, safe moves on our previous homes (at least 10% down, 30 year fixed, principal, interest, mortgage insurance and property taxes) and we decided to be stupid and take a risk thinking we could move in on an interest only, then sell it for a little higher about 3 years later and move into something different. Unfortunately, half of America had the same thought we did – and yes, we are part to blame for the situation we are all in. I’m a big en
enough to say that yes – we were wrong, now we’re just trying to fix it.
Thanks again for the responses everyone 🙂

  1. Reply
    May 1, 2011 at 5:49 am

    No, investment property is not subject to modification.

    Ask them to streamline your loan. Same loan, lower interest.

    I am doing it to mine, one at a time, and it is working like a charm.

  2. Reply
    Spock (rhp)
    May 1, 2011 at 6:30 am

    nope. won’t work.

    almost certainly, your loans were sold to some unknown investors and the owners of the first and the second are different. They have different interests in the situation.

    the owner of the first mortgage might be in fairly decent position — you are making payments on time and have plenty of income to continue doing so. Further, they paid to buy the paper from the originating firm [BofA], so they have money they need to earn back. Why should they take more risk by letting you refi to include the second mortgage? That’s not worth it unless they get something significant in return — either a slug of cash now or a much higher interest rate [and therefore bigger payments].

    The servicing was sold to Bof NY as a separate enterprise. BofNY paid to buy that — they have no incentive to do any work whatsoever on the loan as long as you can afford to keep paying.

    The second was probably sold to different investors. They’re scared that you’ll be unable to pay when the principle comes due [it is interest only, right?] — and they already know that the collateral can’t be seized and sold to pay them off. Since they already think they’re behind, why should they double down and put up even more money to buy out the first mortgage? seems like it would be a bad decision.

    Which leaves getting an entirely new loan from a completely different lender and paying off the current loan owners — but the market has changed and you’re upside down in the property. This could be done on a conventional basis only if you can put about 80,000 cash into the deal. And, as you’ve probably already discovered, FHA and the other government agencies don’t do re-fis unless you provably can’t pay.

    Borrowing to buy another home isn’t as easy as it once was — these days, all the debt on both houses will be counted when your debt payments to income ratio is calculated — both for qualifying and to set the interest rate. Further, a minimum of 20% cash down will be required.

    If you’re truly interested in doing a bit of real estate investing and have the 20% cash downpayment that a new house would require, you might look into buying a foreclosed and bank owned property that needs fixing. Make an offer/deal with the owning bank — you put up what would be your 20% down on a good condition place and they finance the balance, plus the repairs.

    After it is fixed and rented, they make the first mortgage to payoff the loan for repairs.

    Sure, this isn’t a conforming mortgage deal — but then the bank is already on the hook for the property anyway, so maybe there’s a way. This likely won’t work if the foreclosure is actually owned by some faceless remote investors, but might work if the bank is actually carrying it on their books as an ‘asset’.

    [the faceless and remote investors are institutions such as pension funds and insurance companies — they aren’t under pressure to sell the property and soon. if a bank actually owns it, the bank is.]

  3. Reply
    May 1, 2011 at 6:43 am

    Landlord always knows what she is talking about.

    But here is some other suggestions — read your loan docs to see if there is a way to pay principle on your loan. Of course, you would be paying a higher payment than your current interest only loan.

    If you have a large amount of case you can do add money to the re-fi and change this to a traditional loan. You are going to need 20% of appriasal so that’s the $ 40K + another $ 40K.

    FYI – you don’t list the terms of the interest only loan. I know you expected to sell high but most interest only loans have good rates… so is your problem solely that you are underwater?

  4. Reply
    May 1, 2011 at 7:32 am

    Your mortgage company would be happy to give you a conventional 30 year loan paying both interest and principle, but you must realize that in your current mortgage ‘position’ you would need to make up the deficit. I doubt you are looking at coming up with 50K to get another mortgage.

    The reason they are not looking at a ‘modification’ to your mortgage IS due to the fact that you are not on the brink of foreclosure. Your best bet would be to start making payments each month towards principle.

    In the future do not get lured into getting more house then you can afford with an interest only mortgage. Works great if EVERY year the house appreciates, but not in these types of markets since you put in little to no equity and are not paying down the mortgage itself. Start doing so.

  5. Reply
    May 1, 2011 at 8:30 am

    Unfortunately there aren’t many good options for you. The assistance programs that are available are there because the government set the parameters, provided the tax dollars from you, me and our children to pay for the programs and is forcing the banks to follow them. Renting your home will make it more difficult to refinance.

    The only thing risky about interest only loans is that they don’t force you to pay toward principal until the interest only period is up and they may have allowed you to qualify for more than you would otherwise afford. There is nothing to prevent you from paying more than the required minimum interest payment, and that is probably the only way you will get this out of underwater status in the next several years. Many of the modification programs are only kicking the can down the road and will only result in losses in the future instead of taking the hit now, so in most markets home values won’t be roaring back any time soon.

    If you finance the purchase of another home you will have to have the income to qualify with the current house payment included in your debt ratio. I am not recommending it, but I have seen some that are able do that before trying to sell the current home since a short sale will prevent them from getting financing for at least a couple of years and probably more.

  6. Reply
    May 1, 2011 at 8:54 am

    It’s a pretty simple explanation – modifications are considered based on need (which you don’t have as you are current on your loans). Re-fi is based on home to loan value and you are upside down due to market conditions. Be thankful you are one of those that can still pay the payments and wait it out like everyone else that buys during an inflated market. Having negative equity isn’t a new concept but people today tend to think it is because they only know of the latest ridiculously overinflated market. It’s happened before and will again.

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