Note Modification is a Compromise - It's Not For Everyone and Won't Save Every Home

I have been blogging on note modification a lot lately.   As a result I have gotten a lot of calls from distressed borrowers looking for some free advice, which I am happy to provide.

This morning I got a call from a woman named Alice in Florida.  She wanted me to help her talk to her mortgage company about a note modification because she said she "couldn't get anyone to listen to her." 

We did a conference call with her mortgage company.

Alice is upside down in her home.  She has an Option ARM she has been paying 1% on.  Her loan is $300,000 and she is paying around $1000 per month and has been for a few years. 

Now its adjusting to 7.500%.  Her new payment is $1875 and she can't afford it nor can she refinance.  So we got the mortgage company on the phone.

The rep from the modification department of this mortgage company was very helpful.  She said that their records show they had already spoken with Alice about this matter.  

It seems they told Alice that if her note modification was accepted she would get a new 30 year fixed rate mortgage between 6.625% and 7.125%.   Not interest only.  She would have to pay principal and interest.  This would mean her new payment would be between $1650 and $1780 per month.   

In my opinion, this is a fair compromise, but Alice doesn't see it like that nor does she want it.  Alice wants her payment to stay near $1000 per month.  

"See, Aaron, they won't work with me!" Alice cried.

Although I eventually explained it all to Alice, the expectation that your payment is going to stay that low is unreasonable.  It simply isn't going to work. 

Note modification is not only to bail you out because you made a mortgage mistake or were misled.  It's to reach a compromise between you and the lender so that you can both move on successfully.   You get to save your home.   They get to avoid a costly foreclosure and continue to profit on the interest of your home.  

Banks, like all businesses, are in the game to make money. 

Keep in mind, the people on the other end of the phone, although usually pretty helpful in my experience so far, are debt collectors.   Their job is to get as much from you as they can.

Like all negotiations, not all will be successful.  If you truly want to stay in your home, you have to be prepared to compromise when you pick up the phone to request a note modification.   

Plan on being offered a 30 year fixed rate mortgage somewhere between the best 30 year rate today, around 6.500%, and your adjusted rate.

For example, if your rate has adjusted to 8.000%, you can plan on an offer between 6.500% and 8.000%.   You will likely be asked to pay principal and interest and if you are behind on your payments, plan on them rolling those in the loan.

If you can't live with this, I encourage you to still try and save your home, but don't be disappointed when they say "no."  They are going to foreclose on some homes and if you are not willing to compromise, it could be yours.

There is a great website started by an Active Rain member, Moe Bedard, called www.loansafe.org.   Moe set this entire site up to help people save their home from foreclosure.  There are sections and discussions on note modification.   You many want to surf that a bit before making your first call.

Be reasonable.  Be willing to compromise.  And understand the adjustable rate mortgage you have today will eventually disappear and when it does your payment will increase.