February 16th, 2010 12:08 PM

Short Sale vs. Loan Modification

Another successful Bank of America Making Home Affordable Final Modification completed today!  This SoCal client had fallen behind on his mortgage payments with (Countrywide) BofA because his significant other (not married and not on the loan) left him.  Without this income he fell behind and couldn't obtain assistance from the bank on his own. 

After analyzing his situation we urged hime to do a short sale.  He owed $341,000.00 to Bank of America (thankfully no 2nd mortgage) on the home and it was only worth $293,000.00 at the time.  Homes are funny things though... he couldn't quite make the leap to selling and really wanted to stay.  We agreed to assist him in pursuit of a loan modification.

After several months of pushing, prodding, faxing, calling, cajoling, correcting the bank on incorrect income calculations, and escalating (To Office of the President) he was admitted in to the Making Home Affordable Loan Modification Program (MHA, HAMP, etc) and was put on a trial payment plan. (Yes, it is supposed to be 3 months.  It never is!)

Unfortunately, while in the trial period BofA asserted that his case had failed their NPV Test (Net Present Value Test).  We successfully refuted their inflated value with BPOs, AVMs, and comps of our own after several months of back and forth.  In the end (after making 6 trial plan payments) and supplying heaps more documentation the Home Affordable Modification Agreement (Step Two of Two-Step Documentation Process) was obtained.  2% for 5 years.  1% increase per year in years 6-8.  Rate caps at 5.125% in year 9.  Term was extended to 40 years and $86,392.71 of principal was deferred until maturity.  His monthly payment (for the first five years was reduced by $1,346.00/mo (from $2,549/mo to $1,203/mo).

His case is not atypical and demonstrates the amount of time and persistence it takes when you are working with the lenders on distressed properties.  We have all been bombarded (by the banks, the government, and sometimes the media) with assertions that this process is easy... you don't need any help.  Anyone intimately involved has come to discover that the process (of obtaining assistance via HAMP) is anything but easy.  Can homeowner's do it on their own... certainly.  Would I recommend it.  No!

From the point he first became delinquent to the signing of final modification papers a year and 2 months had elapsed.  A year and two months to resolve! In the end, although he is very pleased, I would still recommend a short sale to this client!  Not because it would benefit me (in the form of a sales commission) but because he still owes more on his home (now worth $250k - $260k) than it is worth today and more than it is likely to be worth for many years.  Not to mention the emotional/psychological toll of over a year of worrying about it. 

It was his decision but I urge all homeowners that are having difficulty with their current mortgage arrangements to carefully analyze their options.  If you bought at the market high it will likely be a very long time before you are in an equity position again.  A short sale may be a better solution.

You Have Options... We Can Help

(800)622-6720

Dave Gubler: IML Real Estate

www.IMLRealEstate.com

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