Note Modification is a Compromise - It's Not For Everyone and Won't Save Every Home

Mortgage and Lending with Branch Manager NMLS 557050

I have been blogging on note modification a lot lately.   As a result I have gotten a lot of calls from distressed borrowers looking for some free advice, which I am happy to provide.

This morning I got a call from a woman named Alice in Florida.  She wanted me to help her talk to her mortgage company about a note modification because she said she "couldn't get anyone to listen to her." 

We did a conference call with her mortgage company.

Alice is upside down in her home.  She has an Option ARM she has been paying 1% on.  Her loan is $300,000 and she is paying around $1000 per month and has been for a few years. 

Now its adjusting to 7.500%.  Her new payment is $1875 and she can't afford it nor can she refinance.  So we got the mortgage company on the phone.

The rep from the modification department of this mortgage company was very helpful.  She said that their records show they had already spoken with Alice about this matter.  

It seems they told Alice that if her note modification was accepted she would get a new 30 year fixed rate mortgage between 6.625% and 7.125%.   Not interest only.  She would have to pay principal and interest.  This would mean her new payment would be between $1650 and $1780 per month.   

In my opinion, this is a fair compromise, but Alice doesn't see it like that nor does she want it.  Alice wants her payment to stay near $1000 per month.  

"See, Aaron, they won't work with me!" Alice cried.

Although I eventually explained it all to Alice, the expectation that your payment is going to stay that low is unreasonable.  It simply isn't going to work. 

Note modification is not only to bail you out because you made a mortgage mistake or were misled.  It's to reach a compromise between you and the lender so that you can both move on successfully.   You get to save your home.   They get to avoid a costly foreclosure and continue to profit on the interest of your home.  

Banks, like all businesses, are in the game to make money. 

Keep in mind, the people on the other end of the phone, although usually pretty helpful in my experience so far, are debt collectors.   Their job is to get as much from you as they can.

Like all negotiations, not all will be successful.  If you truly want to stay in your home, you have to be prepared to compromise when you pick up the phone to request a note modification.   

Plan on being offered a 30 year fixed rate mortgage somewhere between the best 30 year rate today, around 6.500%, and your adjusted rate.

For example, if your rate has adjusted to 8.000%, you can plan on an offer between 6.500% and 8.000%.   You will likely be asked to pay principal and interest and if you are behind on your payments, plan on them rolling those in the loan.

If you can't live with this, I encourage you to still try and save your home, but don't be disappointed when they say "no."  They are going to foreclose on some homes and if you are not willing to compromise, it could be yours.

There is a great website started by an Active Rain member, Moe Bedard, called   Moe set this entire site up to help people save their home from foreclosure.  There are sections and discussions on note modification.   You many want to surf that a bit before making your first call.

Be reasonable.  Be willing to compromise.  And understand the adjustable rate mortgage you have today will eventually disappear and when it does your payment will increase.



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Hayden Gerson
HPM Financial LLC - San Diego, CA
Very well written Aaron, to many people like the neg am payment based on 40 years and see no reason why they should pay a penny more. Are you charging for this service as an hourly wage or do you charge a percentage of the loan?
Sep 26, 2007 04:21 PM #1
Bill Nazur
Corona, CA
Oh mean Alice is not entitled to make that big bad bank help her save her home? but they have plenty of money, don't they? OK, I"m not feeling nice tonight...I had 5 of these today, and all of them were Alice type clients.................................and guess what, 3 of them said they will just buy again when the market drops? where is my gun when I need it? LOL!
Sep 26, 2007 04:37 PM #2
Aaron Gordon
Branch Manager - Las Vegas, NV
Home Loan Consultant - Las Vegas, NV

Hayden--- All free!  Send referrals.  :)

Bill--- I can handle about 2 "Alice's" in a day before I am ready for a shot of whisky and a gun. :)  Hang in there!!

Sep 26, 2007 05:03 PM #3
Carole Cohen
Howard Hanna Cleveland City Office - Cleveland, OH
Realtor, ePRO
What I found interesting on Mo's site was the Forum Section.  Here is a story from one of the people upside down. It's a bit frustrating in my opinion because the person has good rates. I'm thinking they made bad choices lol.  Anyway, here is the forum story I am talking about. Mo refers to a newsday story on that page about how the fed rate reduction helped the heloc peeps.  Is this true?
Sep 26, 2007 05:26 PM #4
Aaron Gordon
Branch Manager - Las Vegas, NV
Home Loan Consultant - Las Vegas, NV
Carole--- Moe's site is great.  Especially hearing from the trials and tribulations of the borrowers.  Yes, most Home Equity Lines of Credit (HELOC) are tied to the Prime rate, like most of your credit cards.  So when the Fed drops rates, your HELOC likely goes down too.
Sep 26, 2007 05:35 PM #5
Kris Wales
Keller Williams Realty - Lakeside Market Center - Macomb, MI
Real Estate Blog & Homes for Sale search site, Macomb County MI

Aaron, this type of "scenario" irritates the heck out of me.  Why?

I didn't refinance MY home during the refi boom, nor did I buy a home I couldn't afford
at "normal" interest rates.  Those loans were great for some people, for others without
financial discipline to refi well before the rates reset they are a horror.  But they are a
horror of their own making  (for most people.) 

The lady you talked about wants to be bailed out of a situation that she knew was
coming.  Irresponsible on her part.

Sep 26, 2007 10:17 PM #6
Renée Donohue
Savvy Home Strategies Realty, LLC-REALTOR®-Estate-Probate - Las Vegas, NV
Las Vegas Real Estate Broker -
You got her a smoking deal!  It is too bad that Alice doesn't realize that.  We have to understand Alice's situation, her payment has almost doubled but she also needs to understand she can't 1% neg am forever!
Sep 27, 2007 02:20 AM #7
Aaron Gordon
Branch Manager - Las Vegas, NV
Home Loan Consultant - Las Vegas, NV

I agree with you 100, Kris!  Things are that too good to be true don't usually last forever.

I do feel bad for some of these people, Renee.   In a lot of cases, the LO did not explain the program properly and its pitfalls.  I have been writing my newsletter since 2003 and I wrote one on Option ARMs when they first exploded. 

I didn't make a judgement on them.  I laid out the pros and cons.  Before I sold a single one, I asked my clients to read my newsletter.   During that entire time, I sold two of them.   Nearly all of the people chose a different program after reading it.  

I am proud of that because today I can answer my phone when it rings.   I have many LO friends who can't.

Sep 27, 2007 02:34 AM #8
Kate Bourland
Marketing with Kate - Redding, CA
Onlilne Marketing Mobile Marketing
Wow, this is a case of a client who should have never been put into that loan.  My goodness Aaron, I'm enjoying your blog and these kinds of real life posts!
Sep 27, 2007 04:33 AM #9
Moe Bedard - Carlsbad, CA

Hey Aaron!

Thanks for the plug and nice comments. You're a stand up guy. Sometimes I get a little worried when I get a new poster on my forum because many times they will just make one post promoting their company and they are not truly "helping" people. It's about paying it forward. What you give, you will get back 100 fold. 

That's a great story you posted and I commend you for what you have done and what you are doing. Very little people (real estate professionals & homeowners) do not quite understand the implications a foreclosure or even a sort sale will have on them. It can affect them financially and also quite adversely tax wise for years if they do not properly safe guard themselves.

The stories are just a sad reality of what is really going on out there for hundreds of thousands of homeowners. Many are real estate professionals also. This is no laughing or light matter. This is serious and not only are people losing homes, many are losing their families in the stress and heartache.

This is going to last a while to. This just came out and confirms what I feel is going to last even longer.
Housing Slump to Last Beyond 2008, Fannie's Mudd Says (Update3)

Keep up the good work and please keep in touch!



Sep 27, 2007 06:40 AM #10
Aaron Gordon
Branch Manager - Las Vegas, NV
Home Loan Consultant - Las Vegas, NV

Thanks, Kate!  I appreciate you reading!! :)

Thank you Moe!!  I really appreciate what you are doing and I think your site is really going to be an important starting place and community to share today and in the next few years.  I look forward to being an active member. 

Sep 28, 2007 03:05 AM #11
Seth Callen
Farmers Insurance - Lawton, OK
Interesting post.   Well, at least you tried to help her, which is more than most would have done.  
Sep 28, 2007 04:00 AM #12
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