2nd Lien Mortgage Modification Payment Quadruples After 5 Years
by Mike W. in Sarasota, Florida
Ask Kate about a 2nd lien mortgage modification payment that triples after five short years: Mike's bank has proposed a modification of his 2nd mortgage with a monthly payment that triples after five years. Is that a fair offer from the bank, he asks me.
Ask Kate: BOA 2nd Lien Mortgage Modification (2MP) Proposal By Mike W. in Sarasota, Florida
Our 1st mortgage was rewritten under HAMP and we are trying to get a modification for our 2nd mortgage (2MP).
The home's value is at $190,000. Here are the details of our current financing...
- 1st lien under HAMP $35,000 at 2 percent for 60 months, then goes up to 3.750 percent.
- 2nd lien $275,000 at 2.76 percent, then resets in June 2016.
This is the proposal we just received from BOA for the 2nd lien...
- 2nd lien interest-only $275,000 at 2 percent for 60 months ($456 monthly).
- 2nd lien goes up to 3.750 percent for remaining term ($1180.00 monthly).
My concern is there is no principal reduction
and our 2nd mortgage payment triples
at the end of 5 years. Is this a fair 2MP offer or is Bank of America just up to the same old tricks? Thank you for your advise.
Kate's Answer: BOA 2nd Mortgage Modification (2MP) Proposal
For the sake of others reading your letter, I'd like to take a moment to describe the Second Lien Modification Program (2MP), which incidentally applies to principal residences and rental properties alike.
After a 1st mortgage is modified under the Making Home Affordable Modification Program (HAMP), the homeowner might be able to modify an existing 2nd mortgage that was obtained on or before January 1, 2009. The balance must be greater than $5,000 and the required monthly payment must be at least $100.
Making Home Affordable says that the average 2MP results in a monthly savings of $153 due to extending terms, lowering rates, and reducing the principal owed. With timely 2MP payments, borrowers can further reduce the balance of the 2nd mortgage. In some cases, a portion of the principal is forgiven.
The Fairness of Your Bank's Loan Modification Offer
Now back to your question about fairness. In my opinion, a proposal to triple a payment after five short years is preposterous. But here's the issue when asking if Bank of America's offer is fair or not. There's no way to compare it to other offers.
That's because borrowers who need a modification of 1st and 2nd liens are limited in choice. They can accept their loan servicer's modification offer. Or they can decline it.
However, they do not have the option of choosing one lender over another, based on shopping for the lowest interest rates and best terms
. Short of attempting a negotiation, the bank's offer stands.
But please do not mistake what I just said. I am not discouraging negotiations with loan servicers. In fact, in 2008 when Donald Trump introduced this novel idea as exploding mortgages were hitting the fan, I was prompted to write... Stop Foreclosure by Negotiating a Better Deal
How to Question a Bank's Modification Proposal
Nevertheless, the average borrower on the street might not feel equipped to challenge a not-so-receptive loan servicer. So, instead of asking if the offer is fair, I think a more beneficial line of questioning is as follows...
- Can I afford the current house payment on my 2nd mortgage without modifying it again?
- Or will the modified payment fit more comfortably within my budget?
- Is it likely that the interest rate resetting in June 2016 (current 2nd) will be more or less than the 3.75 percent (proposed 2nd)?
- Can I come to terms with the idea that I may need to sell my house in five years if I cannot afford the reset payment of $1180.00?
I hope these questions give you a helpful starting point to analyzing your bank's 2MP proposal.
Wishing your homeownership all the best,
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