My Mortgage Loan Modification Part 4 - The Reprieve

So, when we last visited out intrepid hero (me) he was about to lose his house, due to a downturn in his business, and a large subsequent reduction in income. We were simply sitting and waiting for some server spawns from our bank and or the modification company that contracted to handle the flood of applications.

Well, we finally got our answer. And while it's not what we had hoped for, is certainly not a total rejection. In fact, my take on it is that it is more of a placeholder or stalling technique than anything else.

Home saver payment forbearance agreement

Okay as I am reading through this thing it looks as if we will be able to stay in our house, which of course is a huge positive. In a nutshell, what they're offering is reduced payments for a period of six months with some caveats.

Here is how it breaks down: for the next six months beginning August 1, I make mortgage payments that are roughly half of my normal payment. This means that instead of just over $2500, maybe about $1225. Not bad and definitely doable. While it is somewhat vexing not to have all of this laid to rest and to have a clear way forward, it's really nice to at least have a plan in place through Christmas.

In addition to the reduced mortgage payments, I'm also responsible for real estate taxes and insurance, which run about $250 per month. When all is said and done the monthly nut to stay in this place has just dropped from over $2500 to a little less than $1500. Not bad at all. However, what happens at the end of the six-month forbearance?

Well I'm getting to that. But first let's take a look at the rest of this forbearance agreement. During the period of forbearance they agree to:

Suspend all foreclosure activity.

Nice. My credits already trashed, so that does not really matter I guess. But it's good to know that we're not going to be forced into a short sale and that we don't have to deal with the foreclosure process the least until after it January of next year.

Application of payments

What they're going to be doing is holding these reduced payments in a non-interest-bearing escrow account. When the amount of multiple reduced payments equals what is owed in principle interest and penalties on my oldest mortgage payment they will then pay that. That seems reasonable. Of course, I will steadily be getting farther and farther behind for the next six months, but I do not see any way to avoid that.

During the deferral period, they are going to be reviewing the loan and determining whether additional assistance can be offered. At the end of the deferral, there are several different things that can happen:

I could be required to recommence my regular mortgage payment and to make additional payments on terms to be determined by them until all the past due amounts are paid in full. That is not going to happen. I really can't see the economy turning around in the next six months to a level where I can make enough money to make a $2500 mortgage payment plus additional payments to catch up what will then be six full months of late payments.

In addition, given the huge reduction in appraised value of this home, I am no longer willing to make up for a full mortgage payment to stay in. It is simply not worth it to me.

They also say that I will be required to reinstate my loan in full whatever that means.

The next option is that they will offer to modify my loan. This is obviously what were hoping for and what we have been attempting to obtain with this process in the beginning.

They also may offer me some other form of assistance or alternative to foreclosure but on terms to be determined solely by them. Not sure what that means but it sounds like they are just going to make something up and give me a take it or leave it choice.

Of course if no other alternative can be identified, they are going to go ahead and foreclose. While I would probably try to do a short sale or give up a deed in lieu of foreclosure, I think that we are still really where we were at the beginning of this.

The fact of the matter is that my income still simply does not support these mortgage payments. If they had come back to me after receiving my application with a flat no, I would have been fine with that. It would have taken some adjustment, but we could have simply put the house on the market, done a short sale and been done with it.

I'm sure that some people reading this will have some sort of moral problem with my willingness to walk away from the agreement I signed with the bank last year. I understand that perfectly but I have no such compunctions. Here is why:

I have been in business for a very long time, and I have seen downturns before. I've been working my way through the different recessions and downturns and slowdowns and whatever else you want to call them for the last 30 something years. I have never ever seen anything that even remotely approaches what we're experiencing now.

This is not a simple downturn, this is a disaster. And it is a disaster that was brought on not by you and me but by a bunch of greedheads inside the DC beltway and on Wall Street. Their combination of a lack of regulation and oversight in DC, and unbridled greed in New York City is what caused this mess.

I have zero remorse if my bank has to take a hit because I am no longer able to make payments. I see the banks as being culpable in the creation of this crisis and feel that if anything they still gotten nothing near what is coming to them at this point.

Six months from now -- maybe sooner if something happens -- I'll be putting up the conclusion to the series and will see how it all turns out.