Anne wrote to me through the GetOutOfDebt.org site and asked the following question. If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.
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“Dear Steve,
My husband and I purchased our first home 2 years ago for $745k and put down 20%. The current balance on the loan is about $550k, and our interest rate is 6.875%. Our payments are $3800 per month.
We just lost our business that provide about 50% of our income. Because of this we cannot afford our mortgage any longer. Due to the housing market slump, our house is now worth no more that $500k.
We have been trying to refi, but no one will do it with out puting down another $150k in the house. Sadly, we cannot afford to put that much more down. Our loan is not owned by Fannie or Freddie, so we have been told that we do not qualify for the new homeowner help. I called my mortgage servicer (Bank of America) for options, but they say there is nothing they can do to help. As of now, we are current on our mortgage.
Is there any help out there for people like us? Should we continue to deplete our savings in order to remain current on our loan knowing that in about 5 months we will not be able to afford our payments any more?
Or should we stop making payments now so that we will not be completely broke? We do not want to lose our house. Also, will defaulting in our loan force the bank to work with us, instead of just blowing us off like they have been every time I call?
Anne”
The Answer:
Dear Anne,
You are wise to be looking at this situation now.
I can only imagine how frustrating it is for you to see the probable brewing, reaching out to Bank of America for assistance, and have them say there is nothing they want to do to help.
I think the situation has answered question. Without any expectation of being able to replace the missing income in the next five months, simply pouring your remaining savings into the mortgage is not going to alter the situation at all.
I know you don’t want to lose the house, but it might be a possibility. And that is not caused by your actions at this point, but as a result of the loss of income.
As hard as it might be, stop sending payments you can’t sustain, makes sense. If Bank of America refuses to provide you with any meaningful help when you are delinquent, and things change for you, you could always reorganize your debts in a chapter 13 bankruptcy to save the house. But until bankruptcy judges get the legal ability to modify mortgages, even in bankruptcy you’d have to pay at least your regular mortgage payment and then some.
This is a bad situation brewing, I’m sure you’d agree with me on that. It is unfortunate and regrettable. But the best thing you can do in this situation is to be the ones to take action instead of waiting for others to determine what they will do to you.
