Should my friend attempt a loan mod or do a short sale?

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Submitted by fredo4 on December 23, 2010 - 2:28pm

She bought her house in Oside in 2007 for almost twice as much as it's worth now. Her husband is currently out of work and she's home with her baby. They are worried about ruining their credit. What do you suggest? In four years their interest rate will change to a variable. Thanks!

Submitted by DataAgent on December 23, 2010 - 2:35pm.

Since they are both not working, why would a lender do a loan mod? They have no documented income. Short sale is probably the better (and maybe the only) option.

Submitted by fredo4 on December 23, 2010 - 3:06pm.

With the unemployment rate as high as it aren't the majority of people looking for loan mods out of work? A friend of mine in the entertainment industry was out of work when she applied (and I believe received) a loan mod.

Submitted by briansd1 on December 23, 2010 - 3:29pm.

I wonder, is someone who is out of a job and without income entitled to a loan mod or short sale?

Or should foreclosure be the best market-based approach.

Submitted by fredo4 on December 23, 2010 - 5:04pm.

I think we're long past the point of entitlement being an issue. As we've seen, the system is set up to cater to the least responsible people in society (which they aren't). And as far as a market-based approach is concerned, her husband, a computer software designer, should be able to find another well paying job soon. I know that banks aren't really excited about getting any new inventory that they'll have to later unload. So, while I'm no expert, it seems like she might have a good chance on getting a loan modification. I'm wondering what sd and SD's (realtors) opinions are on this, since I'm sure they see it everyday.

Submitted by SD Realtor on December 23, 2010 - 4:39pm.

Loan mods are not generally "given away" and there are underwriting guidelines that apply which include employment, income, viability of maintaining the loan, etc... I just obtained a client who owns in Oceanside and she did a loan mod last year, and is now short selling.

What your friend should do is figure out exactly what they can afford and if a loan mod cannot bring them down to affordability, they should most likely sell. In the end it is most likely a moot point because it does not sound like they will meet the criteria needed for the loan mod. (which may be in their best interest given the rate of recidivism for loan mods)

Submitted by fredo4 on December 23, 2010 - 5:02pm.

Do banks look at savings or other assets when considering loan modifications or is it mostly (or all)dependent on income?

Submitted by Effective Demand on December 23, 2010 - 5:24pm.

fredo4 wrote:
Do banks look at savings or other assets when considering loan modifications or is it mostly (or all)dependent on income?

They'll want to know assets as well.

I've rarely seen a good loan mod, and usually they are given out in the more depressed areas. Check out the loansafe forums for particulars relative to who owns and services the loan as there is a huge variance depending on those factors.

There is also a third option, let it go back to the bank and saving the mortgage payments.

And within short selling much is dependent on the servicer. Also within short selling there is the option of short selling but still current and short selling but not paying. The rolling 30/60/90 day lates reporting on the credit report is what hurts a lot if they were trying to save their credit but some servicers/investor combos might not allow non-defaulters to sell short.

Based on the very limited info given, I would say short sale. In fact in most cases with distress and highly underwater homes I would say short sale. If you can show cooperation with the lender and distress then FHA loans become a viable option much sooner for the borrower to rebuy (sometimes immediately).

Submitted by permabear on December 23, 2010 - 6:56pm.

Well, either way they have to miss payments to get the bank's attention. So why not just start missing payments and see how long it takes for the bank to contact them and attempt foreclosure. The current average is 492 days, as insane as that is:

http://dailybail.com/home/national-avera...

Between the massive loss the bank would have to write down on that property, plus the slow process made slower by the robo-signing fiasco, they might get 2-3+ years of no payments. I would stash the mortgage money in a savings account, and if the husband finds new work, try a loan mod then. Otherwise enjoy living for free!

Submitted by patb on December 26, 2010 - 7:54pm.

fredo4 wrote:
As we've seen, the system is set up to cater to the least responsible people in society

That would be the Drooling, morons of Wall Street.

Submitted by CA renter on December 26, 2010 - 11:21pm.

briansd1 wrote:
I wonder, is someone who is out of a job and without income entitled to a loan mod or short sale?

Or should foreclosure be the best market-based approach.

From what little I know about it, they used to allow people to use their income from unemployment to qualify for a loan mod. It's my understanding that they have stopped that practice sometime this year (the high re-default rate might have been a hint that it wasn't the best move to allow UE payments to qualify for "income"...DUH!).

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