Mortgage Modification

[Lurker]

has it been confirmed that this has no impact on your credit? I read previously (pre-covid) that it takes a pretty hard hit on your credit to do a modifciation

This was a concern of mine, as well. I did not get a conclusive answer, although I was told from a few different sources that Covid mods will not affect my credit as long as I was current before the mod and continue to be current upon starting the mod. I was also told (but did not confirm) that the credit hit a pre-Covid loan mod would cause would be limited to about 2 years, as long as every thing is kept current during that period.

The numbers guys will correct me if I'm wrong, but I calculated that dropping from a 4.75 (early in a 30 yr mortgage) to a 2.875 (on a 40 year) would lower my payments by $170/month per every $100k borrowed, plus I would save over 20% in total interest paid over the complete term of the loan. Additionally, if I take those savings and use them to make extra monthly payments to pay down the loan quicker, I would save over 60% of the interest I would have paid on the original 30 year mortgage. (My actual savings are closer to 15% making the lower payments and 50% making the extra payments, but that's because the interest and escrow from the last 19 months of "missed" payments were capitalized in the mod.)

To me, those numbers justified the risk that my credit may take a short term hit. Everyone else's calculations will vary based on how much it may save them and how badly they need to have good credit in the short term.

[ExGingi]

The numbers guys will correct me if I'm wrong, but I calculated that dropping from a 4.75 (early in a 30 yr mortgage) to a 2.875 (on a 40 year) would lower my payments by $170/month per every $100k borrowed, plus I would save over 20% in total interest paid over the complete term of the loan. Additionally, if I take those savings and use them to make extra monthly payments to pay down the loan quicker, I would save over 60% of the interest I would have paid on the original 30 year mortgage. (My actual savings are closer to 15% making the lower payments and 50% making the extra payments, but that's because the interest and escrow from the last 19 months of "missed" payments were capitalized in the mod.)

Depending on whether or not the modification includes a deferred amount, making extra payments is either not so smart or outright foolish IMNSHO.

If there's a deferred amount, those extra payments are paying down that amount first, a long-term interest-free loan!

Even without a deferral, there is much more efficient use of the money saved than converting it back to illiquid real-estate equity (yes, I know one can get a HELOC or a new mortgage and borrow against the real estate, but it doesn't change the fact that the real estate isn't a liquid asset, and would require bank approval in order to borrow against), only to save less than 3% (which might even be tax-deductible, depending on circumstances, making the benefit even less than that of the actual interest rate).

I fully agree with you that even if there is a temporary hit to one's credit, it is worth the benefits obtained in most cases. Though I believe that if there were no late payments prior to COVID and all COVID relief and modification T&C are kept to, there might be no hit at all.

[Lurker]

Depending on whether or not the modification includes a deferred amount, making extra payments is either not so smart or outright foolish IMNSHO.

I was going to add that paying early is probably not the best use for those savings, but for the purposes of calculating whether the possible credit hit would be worth it, I wasn't gonna go there.

[yesitsme]

Depending on whether or not the modification includes a deferred amount, making extra payments is either not so smart or outright foolish IMNSHO.

If there's a deferred amount, those extra payments are paying down that amount first, a long-term interest-free loan!

Even without a deferral, there is much more efficient use of the money saved than converting it back to illiquid real-estate equity (yes, I know one can get a HELOC or a new mortgage and borrow against the real estate, but it doesn't change the fact that the real estate isn't a liquid asset, and would require bank approval in order to borrow against), only to save less than 3% (which might even be tax-deductible, depending on circumstances, making the benefit even less than that of the actual interest rate).

I fully agree with you that even if there is a temporary hit to one's credit, it is worth the benefits obtained in most cases. Though I believe that if there were no late payments prior to COVID and all COVID relief and modification T&C are kept to, there might be no hit at all.

what ideas do you have besides for life insurance?

[ExGingi]

what ideas do you have besides for life insurance?

Well, that would also be like asking a dairy farmer what ideas does he have for a good breakfast other than a cup of milk... (with the difference being that in the case of Life Insurance this can be objectively measured and verified).

So if you want something safe, secure, and guaranteed alternative, having a well-structured overfunded Life Insurance policy (with the transition of policies to comply with the new section 7702, it would be prudent to evaluate older versions while they are still available - being phased out very soon, and newer versions, to see what makes more sense) will probably be your best and safest alternative (and will have the added benefit of a death benefit to pay off the mortgage in case of a tragedy c"v).

If willing to give up on safety in exchange for better returns, there could be good dividend-paying stocks, as well as decent bond plays (for the coupon, as well as capital gains), especially if willing to actively manage, with an eye on taxation, I think one can do better than 3% without tremendous risk.

[ushdadude]

Well, that would also be like asking a dairy farmer what ideas does he have for a good breakfast other than a cup of milk... (with the difference being that in the case of Life Insurance this can be objectively measured and verified).

So if you want something safe, secure, and guaranteed alternative, having a well-structured overfunded Life Insurance policy (with the transition of policies to comply with the new section 7702, it would be prudent to evaluate older versions while they are still available - being phased out very soon, and newer versions, to see what makes more sense) will probably be your best and safest alternative (and will have the added benefit of a death benefit to pay off the mortgage in case of a tragedy c"v).

If willing to give up on safety in exchange for better returns, there could be good dividend-paying stocks, as well as decent bond plays (for the coupon, as well as capital gains), especially if willing to actively manage, with an eye on taxation, I think one can do better than 3% without tremendous risk.

Such as low cost index funds

[ExGingi]

Such as low cost index funds

Since we are talking about a long term (30 or 40 years) you are probably right even if there's a precipitous drop just before the end of the term. But that would be equally true with actively managed funds, and many other alternatives.

The main difference between various investments (in the context of trying to find a better alternative than prepaying a low-interest mortgage) would be the volatility of the returns and the tax consequences of cashing out at various times.

If one looks, one can find bonds that sell at discounts, locking in the capital gain, while collecting the bond coupon. I actually did that several months ago reading about a dividend paying stock that was suggested on some newsletter after Biden took over. Rather than buy the stock I decided to buy the bonds of that company, and am sitting on > 10% capital gain while collecting a yield of over 7% on capital invested. If held to maturity I believe my annualized return (locked in at the time of purchase) would be around 12%. As a reminder, in a worst-case scenario of bankruptcy, common stockholders are the first to get wiped out.

[zagguru]

I am about to close on a house with a 30 year fixed w/ 2.75 rate at TD Bank. Would I immediately be able to mod to a 40 year fixed?

[ExGingi]

I am about to close on a house with a 30 year fixed w/ 2.75 rate at TD Bank. Would I immediately be able to mod to a 40 year fixed?

Not likely.

[nucheiner]

@exGingy or someone, can we get a summary.

If appears there is a COVID program for Loan modification which should be applicable to most loans (Freddie and Fannie). One needs to be COVID impacted.

Benefits are getting access to lower interest rate, obvious savings. And more time to repay, which lowers the monthly, however you will be carrying a loan for longer resulting in more interest paid.

Additionally if there a forbearance this may be carried interest free to the end of the loan.

One must be behind on their payments. A deferral of payment 90+ days is sufficient. A forbearance is not necessary.

Credit impact. As of now there does not  seem to be negative impact when the loan goes into COVID related deferral or even forbearance. Fair Issac might change his mind, YMMV.

Can you respond inline or

[yesitsme]

I am not aware of a deadline.

I would presume it's one shot, though in the MHA/HAMP days there was at a certain point a HAMP-2 IIRC (though I don't think any modifications I helped with might have qualified, as I always designed them to maximize the modification).

Some resources:

https://www.hud.gov/sites/dfiles/SFH/documents/COVID-19_Recovery_Loss_Mitigation_Options_ML_2021-18.pdf

https://sf.freddiemac.com/working-with-us/servicing/servicing-solutions/freddie-mac-flex-modification

https://sf.freddiemac.com/content/_assets/resources/pdf/other/covid_ref_guide.pdf

https://www.knowyouroptions.com/options-to-stay-in-your-home/overview/modify-overview/flex-modification

to my understanding from you links, that you cant get a reduced rate if you're not in forbearance, is that true?

[Ver hut gazugt]

I am about to close on a house with a 30 year fixed w/ 2.75 rate at TD Bank. Would I immediately be able to mod to a 40 year fixed?

Mazel tov!!

[tov hashem]

to my understanding from you links, that you cant get a reduced rate if you're not in forbearance, is that true?

is it like that?

[zagguru]

how does modification work for jumbo loans? Is it also based on PMMS?

[ExGingi]

how does modification work for jumbo loans? Is it also based on PMMS?

Once it's not an agency owned loan, it really boils down to what the investor is willing to do.

Bank in the MHA days Chase would give very favorable modifications, similar or better than offered for Freddie and Fannie. IINM banks that received bailout money were required to give similar modifications for loans they owned. The problem was the often jumbo loans were owned by trusts or by strong banks  that simply wouldn't grant (favorable) modifications.

The real PITA I am facing now is with them requesting more and more documentation, just to check off the boxes, even though said documentation won't affect the actual modification one way or another.

[tov hashem]

Once it's not an agency owned loan, it really boils down to what the investor is willing to do.

Bank in the MHA days Chase would give very favorable modifications, similar or better than offered for Freddie and Fannie. IINM banks that received bailout money were required to give similar modifications for loans they owned. The problem was the often jumbo loans were owned by trusts or by strong banks  that simply wouldn't grant (favorable) modifications.

The real PITA I am facing now is with them requesting more and more documentation, just to check off the boxes, even though said documentation won't affect the actual modification one way or another.

which bank?

[ExGingi]

which bank?

Bank of America.

And while I would have expected the underwriters at other servicers to ask for the same, BofA has a separate defective website to supposedly submit documents and track the process (requires separate registration, which doesn't work, and there's no support). The phone lines are of such low quality, that there's a substantial delay, and I can hear everything I say echoed back during the lag (do they use half duplex lines?).

At least my rep learned in the last to weeks (I didn't tell her) that a / is called a slash and not a backslash, as she was originally calling it.

Back in the MHA days Chase was a pleasure to work with, while BofA was one of the most incompetent ones out there.

[aygart]

Bank of America.

And while I would have expected the underwriters at other servicers to ask for the same, BofA has a separate defective website to supposedly submit documents and track the process (requires separate registration, which doesn't work, and there's no support). The phone lines are of such low quality, that there's a substantial delay, and I can hear everything I say echoed back during the lag (do they use half duplex lines?).

At least my rep learned in the last to weeks (I didn't tell her) that a / is called a slash and not a backslash, as she was originally calling it.

Back in the MHA days Chase was a pleasure to work with, while BofA was one of the most incompetent ones out there.

Hmmm. Sound like their estate department.

[ExGingi]

Hmmm. Sound like their estate department.

Incompetence should be their middle name. Though so far I can tell that faxes do seem to be received and properly assigned. It isn't the total chaos it was a decade ago. I have a friend who got constantly denied back then, until we found out that they were looking at a wrong set of mortgage figures when evaluating him for a modification (they had his UPB at a higher figure than the original mortgage, despite having paid for a few years).

[deal12349]

Mortgage currently up to date with 3.5% interest rate
How would I got about getting a loan modification?