Dear Ali; I am in somewhat of a unique situation because I owe about $400,000 on a home worth about $320,000 (DC Metro). I want to get a loan modification from my lender.
But I am not quite sure how to portray my situation, because I have racked up credit card debt from another property, a first home-turned-rental property where the tenant stopped paying me. I can currently make the payments on my second place, my primary residence, but it's becoming difficult, and I have a 5/1 ARM set to reset next year. Of course I would be happy if the bank would just forgive some of the "in-the-hole" balance.
A: The first thing I would tell you is that you're not alone. There's a story by Peter S. Goodman in the New York Times today, "Foreclosures force Ex-Homeowners to Turn to Shelters," where the subject of the narrative is a former owner of a primary residence and an investment property who ended up losing both once she was hit by the additional economic calamities of a divorce and prolonged unemployment.
That said, you're not a strong candidate for loan modification because you just have too many obligations for your financial situation. Your goals now should be a) to keep your head above water and b) to "right-size" your housing costs so that they don't total more than a third of your income.
So the first thing you have to think about is, can you carry your primary residence until the economy comes back? Interest rates are low now, so even when your ARM resets next year your housing costs shouldn't pop that much - but 2011, when most experts expect rates to be higher, is a storm that's coming and you need to assess whether you can ride it out
If not, a negotiated short sale with your lender -- now, while you've got the time to go through the process -- might be your best option.
Read More on Loan Modifications:
- New October Report Card for "Good" and "Bad" Mortgage Lenders
- FHA Running through Money
- Three Million Mortgages Still Need to be Modified