09.07.08
Smart loan modification strategy from WAMU
I had an 5 year ARM on a duplex whose fixed interest rate was about to expire. As I previously written it was a dilemma. Refinance and increase my already negative cash flow by hundreds of dollars. There are no investor loans out there for 5.6% (my current rate). Or try to sell in a down market. Since my real estate broker said there was investor activity, I listed. However my listing hit the market literally hours before the Humboldt fire which almost wiped out the town of Paradise. A last minute wind shift spared most of Paradise but the fledging real estate activity was snuffed out.
So I then spent some time reading through the note trying to understand what would happen in a few months. It was confusing so I called my lender, WAMU, they had been sending me letters about the reset anyway.
The bad news? Once the ARM expired, the interest rate would be recalculated every month. If it had been once a year, I could have taken my chances and re-evaluated the situation next year as the margin would have kept the rate around 6%. Although interest rates are not moving up very quickly right now, in time, inflation will push them up, so a significant risk.
The good news? They offered me a loan modification. And get this, I did not have to qualify for it. The deal was a 7% 5 year fixed rate with interest only payments. Since my current 5.6% loan was fully amortized, my payments would actually go down by $50. I took the deal.
Is a good deal? Well it’s really not a great deal. I would stop making progress at paying down the principal. And I would be paying quite a bit more in interest. So the numbers are not great. However for my current situation, it was a good enough deal. Here’s why:
I didn’t have to qualify. While my FICO is good, my debt to income ratio is not the best and I have more than four properties. Some of you might not know this, but borrowers with more than four properties are having problems getting any loans at all. I recently talked to a big time investor that has hundreds of properties. His financials are pretty good, but no one will give him a loan, he has to pay cash.
5 years of breathing room. The property is essentially break even, and with this deal it will stay break even. The extra $50 a month cashflow will cover the loan modification fee in a year.
I keep the HELOC that sits behind this loan. I have a second lien on this property that is a HELOC, there is a balance that would need to be paid off with any refinance or sale. The property isn’t underwater but in this market paying off the first and second liens when selling would leave very little profit likely to be eaten up by the transaction fees. Also keeping the HELOC is a nice bonus as it is a possible emergency cash source for me. It helps me sleep a bit better at night.
Since WAMU is making better money on the increased interest rate, it’s a good deal for them. And by offering this deal they prevent a possible foreclosure and have a performing loan on their books. I believe WAMU is yet another lender that has been slammed by foreclosures and the subprime debacle. So it’s a win win for every one. I wonder how many banks are adopting this strategy.
loan Holder said,
September 14, 2008 at 7:48 pm
Nice blog.Keep on going with good work.
WAMU fails, sold off to JP Morgan « Real Estate Cash Dreams said,
September 26, 2008 at 2:33 pm
[...] bad news after bad. This morning’s shocker was the spectacular failure of WAMU. I just recently wrote about WAMU a few weeks ago. They offered me a loan modification that I gratefully took. Maybe it was a [...]
Loan Modification said,
October 20, 2008 at 5:43 am
This is indeed an interesting post, it seems that you are an expert in your field.
I liked the article its informative especially from people seeking info’s like this.
I’ll bookmark this one, and i am looking forward for more of your content.
Best Regards,
Craig Leshinger
National Modification Corp
James Burns, Esq. said,
October 28, 2008 at 9:53 pm
Under California’s Mortgage Foreclosure Act as codified in Sections 2945 et seq. of the Civil Code, all so called foreclosure specialist or consultants are prohibited from collecting an upfront fee from a consumer, even if they work with attorneys or have attorneys inside their shop. Hence, they must perform services before collecting a fee absent being a law firm where an ordinary attorney/client relationship has occurred under a normal retainer agreement.
Recently a mortgage modification shop was shut down by the California Attorney General’s office and the attorney who worked “with them” was brought into the unlawful liability since he never undertook any of the consumers as clients under an attorney/client relationship. Therefore, they were prohibited from taking an upfront fee and should have performed the services first and then tried to collect which typically is hard to do so that is the reason many are trying to ‘work with’ attorneys but both are misinformed on the law and this is probably the first of many more cases to come because it generates revenue for the state…millions in fines for getting this WRONG. This is all laid out in California Civil Code section 2945.1 subdivision (a) as it describes a foreclosure consultant and if it walks like a duck and it quacks like a duck it is a duck.
This sends a shockwave through this mass market where many think they can just be cowboys and steer consumers into the corral for a bilking. Seeking a loan modification or short sale in these tumultuous financial times should be a legal play as the clients need the attorney/client privilege when submitting their documents to the bank looking for relief. These cases are hardship driven and many consumers were would-be real estate investor who forgot the real estate club they went to that sold them 5 or 10 properties at a time were salespeople doing what salespeople do; sell you as much of a product as frequently as they can. Many of the loan broker’s working with these investment clubs probably stretched the boundaries of reality as they made a case for income under a stated loan helping someone buy 5 or more properties at the same time when they truly had the income to handle their own personal residence with no financial hiccups.
The message here is if you are looking for a foreclosure solution consider it a legal solution and hire a law firm that is focusing on these transactions to preserve your rights and protect you from having your loan documents turned against you if your broker over stated your income just to qualify you so they could get their commissions.
We have a stunning do-it-yourself product for those who don’t want legal assistance and have the hours to do it on their own.
hipposkin said,
November 13, 2008 at 1:13 am
Glad to hear WaMu was making loan modifications in September. How long did the process take you? I’m working on one now and it has been a nightmare. They actually told me to call them back every day at one point to check the status.
I think WaMu and all other lenders should do everything they can to keep people in their homes. Who knows what is coming next with the auto industry in this country and what that will do to further plumment our economic future.
realestatecash said,
November 16, 2008 at 3:29 pm
The process only took a week or two. However a couple of points to consider: 1) this was before WAMU was bought out/acquired. 2) I took advantage of an offer. So they approached me .. not the other way around. So there was no negotiation, just required me to say yes or no
Gracy said,
February 6, 2009 at 12:34 am
Hi, I desperately need help. I will not be ale to make this month’s mortgage payment, and have considered applying for a modification. Does anyone know what debt to income ratio WAMU looks for in approving a home equity line of credit loan modification?
Gracy said,
February 6, 2009 at 12:34 am
Hi, I desperately need help. I will not be ale to make this month’s mortgage payment, and have considered applying for a modification. Does anyone know what debt to income ratio WAMU looks for in approving a home equity line of credit loan modification?
realestatecash said,
February 6, 2009 at 10:24 pm
Hmm, I don’t know much about modifying seconds (assuming your HELOC sits behind your first). What I can pass along to you is that you want to show that you have too many expenses vs. income, but that it isn’t hopeless (ie. an income of 2K a month vs. 10K in expenses). Usually you will need to submit a budget. You will need to prove that you have income.