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Old 05-13-2011, 02:33 PM
 
Location: SF Bay Area
11 posts, read 32,792 times
Reputation: 13

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Hi

I searched and found this informational thread. I am hoping someone can provide some guidance and I am hope people can understand that everyone's situation is different...

What we have is a traditional loan; 5/1 ARM Interest Only. At the time of getting the loan, the lender/mortgage originator told me that this loan is the lowest repayment possible until our financial circumstances pick up in a few years time.

Time passed, my loan was sold/transfered to a larger bank, and the expiry is coming around 07/01/2012. I recently received a marketing letter from a certified auditor company that is listed on the BBB, who claims that I could potentially get a loan modification by legal process against the current bank who administers my loan.

Truth is, when July comes around next year, and depending on the reset, I know we will be unable to meet the repayments.

My loan is not fannie mae and I already checked that I cannnot take advantage of any govt assistance programs. Basically, I need a lender who is willing to take into consideration my FICO score (800+) and employment track record and provide me a refi without a home appraisal. My current home value in California is underwater.

Any advice is most appreciated...


Moderator note: Moved from this thread.

Last edited by Green Irish Eyes; 05-13-2011 at 03:43 PM..
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Old 05-13-2011, 04:18 PM
 
Location: Laguna Niguel, CA
768 posts, read 4,325,457 times
Reputation: 457
Have you approached your lender for a loan modification?

Read my blog post at //www.city-data.com/blogs/blog3...tgage-get.html about a client in the SF Bay Area who had a 5/1 I/O ARM with BofA who was able to get their loan modified without having to miss a payment and no damage to his credit.

Your interest may not go up like you think it is.

On an ARM, when the rate is going to adjust, there are a few things that it is based on. First thing you want to do before reading this is go into the loan docs you signed/received a copy of at closing, in those docs are some papers called the "Note" or "Adjustable Rate Note" or "Adjustable Rate Rider", sometimes you'll get just an Adjustable Rate Note, or sometimes it'll be a Note with the two addendums, it varies slightly with each lender and each state.

Once you have that info you'll want to look for some items. The first is the "Index" that your rate is based on when it starts to adjust. Common indexes are the the LIBOR and treasury/CMT. There are 1 month, 3 month, 6 month, and 1-year averages of these indexes that are released each month (1 month LIBOR is the average LIBOR rate for the past 30 days, the 6 month LIBOR is a 6 month average of the LIBOR index, etc.). Odds are your index will either be a 6-month or 1-year average of an index, if it's a sub-prime program then it's likely tied to the 6-month LIBOR. OK, now that you've found your index in your docs, you'll now want to look for the "Margin". The margin is what is added to the index to determine your "Fully Indexed" interest rate when your rate adjusts. The margin is a fixed number, whereas the index number changes constantly. So as an example, let's say your rate is about to adjust, based on the 6 month LIBOR, and let's say the 6 month LIBOR is at 2.17% (because it is right now), and let's say your margin is 5%... when your rate adjusts, your fully indexed rate will be the fully indexed rate (2.17%) + the margin (5%) = 7.17%. Lenders usually round up to the nearest 1/8th of a percent, so figure it'd be rounded up to 7.25%.

The next thing to look for are the "Rate Caps", which can also be found in the documents you have. The rate cap is the maximum amount your interest rate can change on any given rate adjustment. There are three different caps - the initial cap, the subsequent cap, and the lifetime cap. The initial cap is the maximum amount the interest rate can increase over the rate you had for the fixed period. So while you are at 6.975%, and if your initial cap is 5%, the maximum it can increase to would be 11.975%... even if the index + margin equals over 11.975%. The next cap is the subsequent cap, meaning you also have a cap on any other time the rate will adjust either. That cap is usually lower, such as 2%. So let's say you went from 6.975% to 7.25% on your 1st adjustment, and then on the 2nd adjustment, the index + margin would equal 10%, but since your subsequent cap is 2%, the most your interest rate can adjust to would be 9.25% (7.25% + 2%). The final cap is the lifetime cap, and this is the maximum your interest rate can increase over the rate you had for the fixed period, and is often the same as the initial cap. So if the lifetime cap is 5%, and your initial fixed rate was 6.975%, then your interest rate may never exceed 11.975% for the entire term of the loan.

When you go to apply for a new ARM you can get all of this information upfront - index, margin + caps. The caps are usually in a X/X/X format, where the first X is the initial cap, 2nd X is the subsequent cap, and the 3rd X is the lifetime cap - such as 5/2/5, 2/1/5, etc.
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Old 02-04-2012, 07:18 PM
 
Location: SF Bay Area
11 posts, read 32,792 times
Reputation: 13
Quote:
Originally Posted by ShanetheMortgageMan View Post
Have you approached your lender for a loan modification?

Read my blog post at //www.city-data.com/blogs/blog3...tgage-get.html about a client in the SF Bay Area who had a 5/1 I/O ARM with BofA who was able to get their loan modified without having to miss a payment and no damage to his credit.

Your interest may not go up like you think it is.

On an ARM, when the rate is going to adjust, there are a few things that it is based on. First thing you want to do before reading this is go into the loan docs you signed/received a copy of at closing, in those docs are some papers called the "Note" or "Adjustable Rate Note" or "Adjustable Rate Rider", sometimes you'll get just an Adjustable Rate Note, or sometimes it'll be a Note with the two addendums, it varies slightly with each lender and each state.

< cut >
Shane, Thanks for the info. I did look up some of the requested data...

Int rate cannot increase more the 5.00%

Int rate cannot decrease more the 3.625%

It states on the first Change Date, the int rate cannot increase more than 5% above, or decrease more than 3.625% below the initial int rate.

There is also a note about second Change Date and every Change Date thereafter the int rate cannot increase/decrease more than 2.00%

Loan int rate is based on 1-Year LIBOR as I indicated in my original post.

Let me know what you think, Shane.

Thanks for your help!
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Old 02-04-2012, 07:22 PM
 
Location: NJ
17,574 posts, read 45,900,262 times
Reputation: 16265
You may want to shoot him a PM. It is almost a year later.
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Old 02-04-2012, 07:35 PM
 
Location: SF Bay Area
11 posts, read 32,792 times
Reputation: 13
Quote:
Originally Posted by manderly6 View Post
You may want to shoot him a PM. It is almost a year later.
Yep, I just PMed him.

Thanks manderly6.
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Old 02-06-2012, 11:16 AM
 
Location: Laguna Niguel, CA
768 posts, read 4,325,457 times
Reputation: 457
With the Fed's most recent policy being that they will "keep rates low through 2014" it makes me think people on ARM mortgages aren't in immediate danger of their interest rates increasing. LIBOR is based on the banks in London, however the LIBOR rates have been moving very similarly to other indexes - Historical Rate Comparison of Adjustable Rate Loan Indexes
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