Here is an inside description of one family's experience with navigating the loan modification process. These are clients of mine who sold their first home that their growing family had outgrown and bought a larger one right at the peak of the market and then had the misfortune of losing a job and half their income. I've always admired these people for their positive attitude about whatever came their way and their ability to keep moving forward. They sent me this story of their experiences because they want to help others navigate these very choppy and treacherous waters if they can. Please feel free to comment or ask questions and I will get them to my client for whatever answers might be available.
Our story is a familiar one.
In January 2010, my husband lost his job. We could no longer afford our mortgage
payments, so we stopped making them. That sounds much easier than it actually was
(emotionally, anyway). We’d purchased our house at the height of the market so we
owed about $120k more than what we could sell it for. A regular sale wasn’t an option
for us. We began researching our other options and after talking to friends in similar
situations, reading articles and discussion boards online, we came to the conclusion
that despite Obama’s Making Home Affordable program (HAMP) and despite all the
efforts of millions of homeowners trying to save their homes, very few people actually
succeeded. Our particular loan structure made a work-out even more difficult. We began
trying to make ourselves comfortable with the idea that we would be losing our home.
Thanks to a persistent friend who couldn’t accept that we were going to let it go so easily,
we rallied. This month, we were offered a trial modification from our bank, which gets
us 90% of the way to getting a permanent modification. Here’s what we did right.
We bought our second mortgage.
We bought our home 4 years ago with two loans: the 1st mortgage was 80% of the
purchase price and the 2nd was 20%. Indymac held our 1st and CitiMortgage held the
2nd. This definitely made our journey more complicated. Thanks to a conversation with
a financial counselor, I discovered that it was possible to negotiate with the bank to buy
our second loan (a settlement). It’s basically like doing a short sale, except we could be
our own buyers. I did a little research on it, and despite not really having much in
savings, we thought we’d give it a try. I called the bank and asked to talk to someone
about a settlement. They transferred me to the loss mitigation department, who had me
fill out some paperwork and submit a hardship letter, which I wrote. In it, I outlined that
we had a hardship (income loss) that we’d like to make good on our loan in any way that
we could. I explained that because we bought at the height of the market, if our house
sold today in a short sale or foreclosure, after paying off our 1st mortgage, there would be
nothing left for the 2nd. I offered to settle with them by paying $9,000 for my $119,000
loan. It seemed impossible, but worth a shot. A few weeks later, they called and
countered. They offered $12,000 and I took it! I wired in the $12,000 and within a
couple of weeks the loan was written off as ‘settled for less than the amount owed.’ We
took a hit on our credit, but it meant that if we did lose our home, they couldn’t come
after us for the money later and if we didn’t lose our home, it was again worth
approximately market value.
We called a HUD Counselor and our Congressman.
After buying our 2nd mortgage, we started trying to modify our 1st. This was not
easy. This application was about 67 pages. It required constant updating (sending in
a new paystub every two weeks, a new bank statement every month and writing letters
explaining things when the packet was kicked back because the reviewer was confused).
I called 2x a week to check on the status of the modification and to see if they needed
any new documents. After 4 months, I had to resubmit my application (again, 67 pages)
because it had expired. And after 5 months, we got a notice on our door that our house was being sold at auction. It seemed like the end. But we had two things on our side.
First, our HUD counselor knew the California laws: that they couldn’t sell our home at
auction while we were in the HAMP modification process. She called our bank on our
behalf and made sure that we had a process for stopping the sale (that process was, of
course, complicated). Second, I’d contacted our congressman early in the modification
process, asking for his help. His office had a contact within the bank, who they regularly
called to check on the status of our loan. That’s all they could really do, but just the
fact that the congressman was working on our behalf helped us get special attention. I
called his office as soon as we got the foreclosure notice on our door. Within days, the
bank called us (this NEVER happens) to tell us that our sale was put on hold, that the
escalations department was handling our modification and that they were trying to finish
Three weeks later, we had an offer for a trial modification. From what I understand, this
means that the bank has established that we are eligible for a permanent modification and
that they can offer us a new loan. They are offering us a new payment, which is about
30% less than our old payments combined, and if we make those payments on time for 3
months, they should offer us a permanent modification. There are still things that could
go wrong. Trial payments have been known to go on much longer than 3 months. Banks
are overwhelmed and under-staffed, so they make mistakes. But this is a win, and for
now, we’ll take it.
Find yourself in a similar situation?
• Call a HUD counselor. Operation HOPE was very helpful to us: http://
• Contact your congressman and ask if he/she can assist you when dealing with
your bank. On Congressman Becerra’s website, he has a button right on his home
page that says “How can I help you?”: http://becerra.house.gov/
• Be persistent. It is a lot of hard work. But if you’re willing to fight, you might
just save your home.