Editor’s note: This is Part 2 of a two-part series. Read Part 1.
DEAR BERNICE: I received an unsolicited loan modification letter from my lender in December, informing me that pursuant to my lender’s acceptance of TARP funds, our jumbo option adjustable-rate mortgage (ARM) was eligible for modification. Our loan had NEVER been paid late and was not in danger of default. Nevertheless, based on income declines of 35 percent in our household, our hardship is real.
We filled out the mountainous paperwork and provided tax returns and every other item they requested. We sent everything to the bank the first week of January. In February, they requested two more documents that we sent the same day.
On March 12, 2009, we received a letter congratulating us on "taking the first steps to save your home." (Mind you, we were not delinquent on any payment.) The letter further stated that our modification package was complete and would be acted upon in two to six weeks. With trust in our lender, we continued to make timely payments that were now coming from savings.
We have not had a single voice mail, e-mail or written correspondence responded to since then. We finally connected with the local manager of the lender’s regional modification center who told us off the record that she had never seen an instance where a loan with payments current was modified.
What? We were shocked. She suggested that if we were serious we should skip a few payments. We have. We politely tell the collections people that we have a modification request pending. When they get annoying, we inform them that we, too, are recording the phone call. They quickly hang up.
Today, I sent them a final notice to modify our loan by Sept. 1, 2009, or we will have to walk away from the property. We will stay and care for our lovely 80-year-old historic home and tend the 1.5 acres of grounds until we locate another place to live. Sadly, we will say goodbye to a home into which we poured $600,000 of real money. The gardens and pool will quickly deteriorate. The bank will end up selling it for at least $300,000 less than what it could have obtained by complying with its TARP obligations. Please warn your readers: Don’t be among the naive and wide-eyed fools who waited for the loan modification that never came from a lender who never intended to send it. –Jim A. …CONTINUED
DEAR JIM: You raise a number of important issues. Your situation is especially difficult due to the size of your loan.
The market in many places in the country is in the midst of making a recovery. For example, in Orange County, Calif., there are less than two months of inventory on the market in some areas. Two months of inventory means that these markets will stabilize in price. If the inventory continues to be low, prices will begin to increase.
Unfortunately, when you look at where the market is improving, one glaring fact still remains: The lack of financing for jumbo loans has crushed the luxury home market. The shortages of inventory exist predominantly in the first-time buyer market.
Part of what is driving the entry-level market is the $8,000 first-time homebuyer tax credit. With this opportunity ending as of Dec. 1, 2009, many buyers have decided that now is the right time for them to purchase. Second, there are a number of options in terms of where a first-time buyer may go to obtain a loan.
Freddie Mac, Fannie Mae, Federal Housing Administration and the U.S. Housing and Urban Development Departmetn are all potential resources. There is also a huge pent-up demand due to demographics. Members of Gen Y (born between 1977 and 1994) are at their prime age for buying their first homes.
Many experts believe that Gen Y is now larger than the baby boomers generation. Furthermore, unlike members of Gen X (born 1965 to 1976), who have delayed getting married and having children, married Gen Y women have an average of 2.3 children. Finally, first-time buyers don’t have to sell another property to make a purchase.
In contrast to the first-time-buyer market, where qualified borrowers can obtain financing, there are fewer options for those seeking jumbo loans.
Unless a lender intends to keep the loan on its books, the lender must sell it to an investor in the secondary loan market. Currently, there are very few investors willing to purchase these jumbo loans. The result is that unless a buyer has cash, it’s very hard to find financing for high-cost properties.
As I recommended in Part 1 of this series, please investigate your options with a HUD housing counselor, or another possible option is the National Association of Consumer Advocates. Have one of their attorneys review your loan documents to see if the lender made an error. If so, this will give some additional leverage in terms of negotiating.
Once a consumer attorney becomes involved, the attorney may be able to get a favorable response where you were unable to do so. It’s worth the effort to see if you can work this out.
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of "Real Estate Dough: Your Recipe for Real Estate Success" and other books. You can reach her at Bernice@RealEstateCoach.com and find her on Twitter: @bross.
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