Larry Posted December 11, 2009 Share Posted December 11, 2009 My mortgage company offered to "modify" our loan, they'll drop our rate .75 of a point which would lower our monthly payment by $187. We are 44 months into our 30 year and we've paid about 100k so far. They want us to toss that away to "start over" with another 30 yr mortgage. At first I wondered why they would do this, then it became clear, they already made 100k off of us, so in order to lower our payments by 187 dollars a month we would have to start over. We would lose money by doing this, a lot of money...This is how they are offering to "help"...:doh: I still giggle when I think about the lady who left a message, "I know this seems to good to be true, no closing costs, $187 a month lower monthly payment"...blah blah... Just observing: If you're 44 months into a 30 year loan, then you've "paid" virtually nothing. At the beginning of a 30 year loan, your payments are like 95% interest. Your balance on your loan may only go down 100 bucks when you make your monthly payment. What you've paid is virtually all interest. OTOH, that also creates ain interesting situation. If your mortgage payment, say, includes only $100 in principal, then what that also means is that if you pay an extra $100, then you're paying off your mortgage at double the rate. That extra $100 on the first payment, means that you'll pay the loan off one month earlier. I'm not a financial wiz (in case it's not obvious), but you might find that it's to your tremendous advantage to take their offer (especially if there's no closing costs), and keep making your old payment amount . You could conceivably pay the (new) 30 year loan off in 15 years. Link to comment Share on other sites More sharing options...
stevenaa Posted December 11, 2009 Author Share Posted December 11, 2009 It is absolutely true that many homeowners are making decisions that are not the best for their bottom lines, and that businesses in a similar position would walk away without a second thought.On the other hand, if everyone suddenly acted this way, the mess we're in now would get a whole lot worse. On the other hand (No! There is no other hand!), if people acted were acting rationally and not emotionally, many wouldn't be in the situation to begin with. That's not entirely true. My mortgage is right at or just under outstanding loan balance due to the drop in the market. My purchase was neither irrational or emotional. I can easily afford my home. The 6 yr. old neighbor hood I live in is going to pot due to all the speculators who bought multiple homes to rent and have now let them go to foreclosure. They made this very same financial decision to walk away from a bad investment, just as businesses do. Banks are selling these homes at ridiculous prices and now less then desirable people are moving in. We just had a major drug bust of a dealer ring in the home in the court behind us, for example. I'd like to move my family to a nicer location. I can afford "moving up" with out a problem. However, I find it hard to justify writing a big check for lost equity when the problem was caused by poor lending choices by the very institution who would get stuck if I walked away. I wish that I could so easily cast asside moral responsibility in paying my debt and just walk away. I'd buy a 2nd home and walk. That's just not something I can allow myself to do. Link to comment Share on other sites More sharing options...
twa Posted December 11, 2009 Share Posted December 11, 2009 Larry the mortgage co is betting AND determining the value. They do not loan more than THEY determine it is worth(usually less) Link to comment Share on other sites More sharing options...
twa Posted December 11, 2009 Share Posted December 11, 2009 I wish that I could so easily cast asside moral responsibility in paying my debt and just walk away. I'd buy a 2nd home and walk. That's just not something I can allow myself to do. Morality ain't w/o costs...nor reward Link to comment Share on other sites More sharing options...
Hunter44 Posted December 11, 2009 Share Posted December 11, 2009 Just observing: If you're 44 months into a 30 year loan, then you've "paid" virtually nothing. At the beginning of a 30 year loan, your payments are like 95% interest. Your balance on your loan may only go down 100 bucks when you make your monthly payment. What you've paid is virtually all interest. OTOH, that also creates ain interesting situation. If your mortgage payment, say, includes only $100 in principal, then what that also means is that if you pay an extra $100, then you're paying off your mortgage at double the rate. That extra $100 on the first payment, means that you'll pay the loan off one month earlier. I'm not a financial wiz (in case it's not obvious), but you might find that it's to your tremendous advantage to take their offer (especially if there's no closing costs), and keep making your old payment amount . You could conceivably pay the (new) 30 year loan off in 15 years. You're correct and we do pay extra, which is funny in itself, we have to send a seperate check to another location to pay down the princible. Nothing like making it easy... I've thought about it but its hard to make sense of tossing away 100k in order to get into another front loaded interest only mortgage...for another 30yrs...I'm still looking into it but this is really a win for my mortgage company. If we had trouble paying our mrtgage 200 bucks a month isn't going to keep us in our home. If the deal was to start where we left off that would be awesome for us but that's not going to happen... Link to comment Share on other sites More sharing options...
polywog999 Posted December 11, 2009 Share Posted December 11, 2009 My opinion is that there's something wrong with a system where people are speculating with borrowed money, and then sticking somebody else with the bill when they lose money on the investment. I don't think people should be defaulting on loans simply because "I'll make more money this way". (Based on my ironclad opinion as someone who's never even had a mortgage.) Larry, make no mistake about it, a bank will kick you out of your home. They do not care one bit about you or anyone else for that matter. It is one hundred % a business deal. Now, I don't encourage folks to walk away from a mortgage that is working. People need to take responsibility for their decisions in life and part of that is living up to your end of the bargain. Conversely, where was the bank's moral fiber when they wrote you a loan that they suspected you might not obligate? During the housing bubble, this was common practice. They wanted your house along with your down payment, some of the closing and everything else they had their greasy little mitts in! Banks deserve quite a bit of culpability with what went on. Edit: Sorry Larry, I did not see the post where you were talking about your house. I would have worded my response quite differently. Good luck to you kind sir! Hope things go well. Link to comment Share on other sites More sharing options...
stevenaa Posted December 11, 2009 Author Share Posted December 11, 2009 oops. not sure what happend there Link to comment Share on other sites More sharing options...
Brad_Edwards_Fan Posted December 11, 2009 Share Posted December 11, 2009 Larry, make no mistake about it, a bank will kick you out of your home, to live in a refrigerator box under the highway, in the middle of a blizzard! They do not care one bit about you or anyone else for that matter. It is one hundred % a business deal.Now, I don't encourage folks to walk away from a mortgage that is working. People need to take responsibility for their decisions in life and part of that is living up to your end of the bargain. Conversely, where was the bank's moral fiber when they wrote you a loan that they suspected you might not obligate? During the housing bubble, this was common practice. They wanted your house along with your down payment, some of the closing and everything else they had their greasy little mitts in! Banks deserve quite a bit of culpability with what went on. While i agree in general with you about the bank watching the bottom line. I think that it is also important to remember that even during the boom years banks lost on forclosures. I was working in a REO department in 2002-2004 and our baseline was normally about a 20% loss on asset value in foreclosure. In the rare event that you can sell a home for a profit (i only saw it a couple times) the profit belongs to the former borrower. Link to comment Share on other sites More sharing options...
Destino Posted December 11, 2009 Share Posted December 11, 2009 My opinion is that there's something wrong with a system where people are speculating with borrowed money, and then sticking somebody else with the bill when they lose money on the investment. I don't think people should be defaulting on loans simply because "I'll make more money this way". (Based on my ironclad opinion as someone who's never even had a mortgage.) You don't realize which party is doing the speculating. BTW - If you want to get out of your house find out what your bank will take for a short sale, get the buyer first... then short sell it. You'll get some lates and resolved debt on yoru credit BUT NOT A FORECLOSURE. Link to comment Share on other sites More sharing options...
polywog999 Posted December 11, 2009 Share Posted December 11, 2009 While i agree in general with you about the bank watching the bottom line. I think that it is also important to remember that even during the boom years banks lost on forclosures. I was working in a REO department in 2002-2004 and our baseline was normally about a 20% loss on asset value in foreclosure. In the rare event that you can sell a home for a profit (i only saw it a couple times) the profit belongs to the former borrower. Banks have a way of raising the amount of the loan so they don't have to pay the home owner squat. A $134,000 loan all of a sudden becomes a lot more right before the foreclosure. The banks were counting on the mortgage insurance to save them. They goofed on that. Link to comment Share on other sites More sharing options...
Brad_Edwards_Fan Posted December 11, 2009 Share Posted December 11, 2009 Banks have a way of raising the amount of the loan so they don't have to pay the home owner squat. A $134,000 loan all of a sudden becomes a lot more right before the foreclosure. The banks were counting on the mortgage insurance to save them. They goofed on that. technically the loan amount can not be raised. However, you are correct that fees will be added to the foreclosure. The fees are meant to reflect the cost incurred based on the foreclosure such as the cost of selling the property, fixing the property (this can get nasty with the damage people do on the way out), legal services etc. Those are the only fees that can be included outside of what was owed based on the original loan terms. Link to comment Share on other sites More sharing options...
polywog999 Posted December 11, 2009 Share Posted December 11, 2009 technically the loan amount can not be raised. However, you are correct that fees will be added to the foreclosure. The fees are meant to reflect the cost incurred based on the foreclosure such as the cost of selling the property, fixing the property (this can get nasty with the damage people do on the way out), legal services etc. Those are the only fees that can be included outside of what was owed based on the original loan terms. A lot of these fees are subjective. Any home will need a certain amount of repair. Banks will also try and monopolize the purchase of the home at FC. Not all banks were shady. There were a lot of good banks that got a raw deal. Link to comment Share on other sites More sharing options...
Heidenreich Posted December 11, 2009 Share Posted December 11, 2009 You don't realize which party is doing the speculating. BTW - If you want to get out of your house find out what your bank will take for a short sale, get the buyer first... then short sell it. You'll get some lates and resolved debt on yoru credit BUT NOT A FORECLOSURE. The only problem with a short sale is that they take forever. My offer was accepted in July, the bank still hasn't approved it yet. It's amazing how long they drag this out........ Link to comment Share on other sites More sharing options...
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