CASE STUDY 3 – Don’t Play All Your Cards
Ms. S is recently divorced with a teenage son in high school. She wants to keep her house but the payment will be adjusting soon and she knows when it does, she won’t be able to make the payment.
Her goal is to get the loan re-negotiated to a lower “fixed” payment that she can afford. Her recent divorce indicated that her husband was to quit claim her onto title “alone” and he would be removed. She felt as though this would give her control over the home. Her portfolio is as follows:
- 317,000 adjustable first mortgage with Pentagon Federal Credit Union
- Payment of $2,086 per month including PITI
- Loan will adjust in October 2012 and then adjust annually based on index
- Child support of $800/m will be ending in just 6 months
Ms. S has no credit card debt, her automobile is almost paid off and her son is graduating in 2012. She called the Credit Union to see if they would modify her loan and she was told to go to the website and complete the hardship package. The package asked for all the typical information for income, assets and expenses. Pen Fed also asked to see her Divorce Decree. After months of going back and forth, the credit union told her that she didn’t qualify for the modification because she earned too much money, but they would offer her a refinance. The refi was another adjustable loan, fixed for only 5 years at 4.5% and amortized for 40 years. The refinance seemed pretty good to her, but a friend told her to call 360 Group to have us evaluate it for free.
If Ms S came to us before sending everything to Pen Fed we could have helped her modify into a 30 year fixed, and here’s why.
- Pen Fed clearly indicates on their website that they will modify loans as long as they meet their guidelines.
- Typical mods start at 2.0% up to 3.5% and her loan balance would amortize for 30 years
- Her income was over the guidelines only because it “included” the child support which was ending in May 2012, just 6 months from the date of her request. She should not have included that in her submission.
- The second key on this file was the Divorce Decree.
- Pen Fed was now holding all the cards because Ms S sent the Decree to them which specifically stated that she had 12 months from the date of Divorce to refinance the home in her name or she would have to sell it.
The facts on this file are as follows. Ms. S almost agreed to refinance into a worse loan, amortized for 40 years which increases the profit to Pen Fed, and does nothing about securing her payment for the future. There is no telling what her rate would be in 5 years. Additionally, her payment was only going down by $200 a month and she was relinquishing her x-husband from any and all responsibility. By passing on the 40 year refi, and short selling the home instead, any potential tax burden would be shared with her and her x-husband making it more fair. This forces Pen Fed’s hand into a decent low rate modification instead of losing up to $60,000 by selling short. So it benefits and bank and the homeowner.
Remember, the key to any negotiation is the numbers. It’s vital to have someone who knows the guidelines inside and out help you before you send anything to the bank or credit union.
Client P went to all the bank-sponsored seminars during 2008 and 2009 and submitted their forms for a modification with Hope Now, and various other non profits that were touted by the government and the news to help them lower their mortgage payment. Nothing happened. When they were referred to 360 Group we started with the Pre Audit questionnaire and found several reasons why they couldn’t get anywhere.
Upon review of their portfolio several things where made clear.
1. Both self employed, their P & L showed that together they earned too much money to qualify for a modification.
2. They were not deducting any expenses from their home based businesses.
3. Then other items surfaced. They had 3 life insurance policies that all overlapped. They were spending over $300 per month on double coverage without even realizing it.
Client P called 360 Group when they became late on their mortgage payment and the lender helped themselves to the money in their savings account. They thought that taking money from their account without written approval was illegal. It is not! Banks have a variety of small print that allows them to “help themselves” to your cash if you miss a payment on a loan or even a credit card.
One of the best things you can do as a consumer in this country is to NOT bank and borrow with the same institution. Further, you need to know the details about the affiliates these firms share information with. For example, Bank of America owns over 14 different companies of a different name. This fact alone impacts millions of people each year. We all get a small brochure in the mail twice a year with the tiny 2 point font you need a magnifying glass to read. This is the affiliated business relationship fine print.
Over the next six months 360 Group began a course to help the P’s with several structural plans so that they “could” actually qualify for that modification. Here’s what we did.
- Helped them organize their life insurance to one main plan, dropping the overlapping plan and saving them $300 per month.
- Showed them how to save receipts and use legitimate business expense deductions for their business which lowered their combined income.
- The lower income then enabled them to qualify for a modification to save their home.Often, time needs to be spent organizing and planning BEFORE a modification is submitted or a Short Sale is executed. If you know someone who needs advice on what their options are, we’re always here to help. Contact us today.