Mortgage Modification: Debt, Divorce, Assumption
by Marc in Nassau County, NY and by Stephanie in Runnemede, NJ
Ask Kate about paying off debt to reverse a mortgage modification denial: Marc's mortgage payment is increasing but because he has $25,000 in savings, his request for a loan modification was denied. Should he pay off debt to reduce his cash reserves and hopefully secure loan approval? Stephanie asks how to convince the loan servicer to allow her to assume the mortgage after divorce and loan modification.
Ask Kate: HAMP Tier 2 - Is it Wise to Pay Off Debt to Qualify for Mortgage Modification By Marc in Nassau County, NY
My house is underwater with two equity lines of credit owned by Chase. The 1st lien is $296,000 and the 2nd is $404,000. The house is worth about $450,000. I have been turned down for a loan modification on the 1st lien.
Both liens are already modified but in May the 1st lien payment is going up to principal plus interest instead of interest-only. The 2nd lien is modified also with interest-only.
I was denied because of too much cash reserves (more than $25,000) but I can deplete them by paying off other loans. Is there any limitations on the kind of debt I have to pay?
Kate's Answer: HAMP Tier 2 - Is it Wise to Pay Off Debt to Qualify for Mortgage Modification
I wonder if you will have a better chance of getting your mortgage modified, once the principal plus interest payment has actually increased.
It's only a hunch but it makes sense because you'll be able to document a personal hardship
based on the increased payment and 2016 income paperwork. In other words, instead of predicting it will become unaffordable, you'll be able to demonstrate that the payment is out of reach.
Mortgage Modification Approvals Must Be in Writing
I do want to caution you about paying down debt to reverse a modification denial. As I warned Keith from Toledo, OH
about Chris' experience (he got totally burned by his lender)
, unless you have a written agreement spelling out the terms of an approval in detail, you have no way of knowing if the lender will follow through on verbal communication.
If the lender decides to add conditions you cannot fulfill (as in the case of Chris), you will be stuck with an unaffordable house payment and little to no cash reserves. Food for thought, right?
Paying Off Debt Before Modification Approval
What type of debt would be acceptable to pay off? This is not a question I can answer. Loan approvals depend on many factors. Take one out of the equation, and another condition might pop into its place. Again, I recommend getting the lender's specific conditions to your modification approval in writing. Signed. Dated. And perused by an attorney to be safe.
Ask Kate: Assume My Mortgage After Divorce and HAMP Modification By Stephanie in Runnemede,NJ
I have been divorced for over six years. I, by the grace of God, got the HAMP modification in my name only.
My mortgage is adjusted to my income only and did NOT require a signature from my ex-husband.
It is stated in my decree that he has no financial obligations to my home (given to me by my Grandmother).
I have been making mortgage payments without one default for over five years.
How do I get the bank to agree to let me assume mortgage? I have had same union job for 30 years, and my credit is good. HELP.
Kate's Answer: HAMP Modification, Divorce, and Assumption
I find that some loan servicers can be very helpful assisting with assumptions after divorce. But I assume (not intended as a pun) that your servicer is not cooperating with your request.
Mortgage Assumption After Divorce and Loan Modification
You appear to have several crucial pegs on which an underwriter can hang a hat (another way of saying issue approval). Sufficient income, pristine credit, stable job history, and five years of timely mortgage payments make underwriters confident that you are not a candidate for foreclosure, the bottom line in lending.
If the lender has turned down your request for an assumption after mortgage modification, I would spend a few hours organizing my paperwork. In a cover letter, I'd spell out the house was originally mine from an inheritance and remained mine per the divorce decree. I'd attach the divorce decree and be prepared to send my grandma's will, if asked.
Then I'd gather five years of documentation from the bank account solely in my name from which I made the mortgage payment. This will show the underwriter that I have a history of paying the mortgage, not the ex-spouse. This can be very convincing.
Lastly, I'd include income documentation showing that I could afford the payment and attach a copy of my budget.
How to Pack a Loan Approval Punch
I understand you may have already given similar paperwork to the loan servicer. But re-sending it, organized in one neat package with a cover letter packs a punch.
Label all paperwork clearly, make sure the copies are legible, and that no data is cut off the edges.
I'd also send it by registered mail that requires a signature upon receipt.
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