5/1 Arm Fannie Mae 9 months left (insurance, loan officer, fixed rate, interest)

[rlathe]

If you are reading this, thank you. Four years and three months ago I purchased a brand new beautiful condo for 190,000.00 following a divorce and put 40k down on the condo. I decided on an interest only loan thinking I would earn equity and sell for a profit in three years.

Since the time of my purchase, two units were foreclosed on and one exactly like mine sold for 103k. My neighbor is attempting to sell theirs for 144k. (same unit type)

I've attempted an appraisal/ refi three times over the past two years and all the appraisals come in well under the 146,500 I currently owe.

Two years ago I was concerned. Now I realize I made a big mistake.
I sat down today and read through the original closing material and attempted to interpret as well as possible. It looks like when I hit the last month of the arm, the interest rate resets to an additional minimum of 2.5 and possibly added to this, the avg interest rate per wall st. journal. I could be wrong about that latter. (This was not easy reading) But minimum increase for sure is an additional 2.5 percent increase.

Today I again attempted to speak with a new broker. He said Fannie, the lender I currently have the loan with, might waive the appraisal and refinance regardless of the appraisal. He claimed this is something new that came out last month and said they will increase the value of the appraisal 110 percent, which doesn't help if I have lost this much equity.

With no recent sales in my area except for the foreclosure and pending 144k sale...I have a feeling, I am going to get the same response...fax over all my info and never hear from this person again.

I know most reading this may be oozing with sarcasm, but really..I have two kids a 740 credit score and I really could use some help.

[VictorBurek]

Yes, both Fannie and Freddie have loan programs that allow you to refinance even if upside down on mortgage.

When your interest rate adjusts, your interest rate will probably fall to under 3%. Check out your closing documents and find out what your margin and index are. YOur margin will probably be 2.25% to 2.50% and have an index such as the 6 month libor, 12MTA. Currently, most ARM's are adjusting to under 3%. However, when the Fed starts to tighten monetary policy, some think as early as Nov of this year while others say not until well into 2012, ARM rates will start to rise due to index rising.

[rlathe]

Thank's Victor. I was working with a "broker" who said I should qualify for a refinanced loan even though I owe more on the house then it is appraised value.

I spent a 1/2 hour at the UPS store and 30 dollars to fax 30 documents to him last night. He called me this morning to say he ran my "area" through the system and I do not qualify to have the appraisal waived. I would need to pay for it and there is no guarantee it will go through.

The last local lender I worked with six months ago paid for the appraisal. He said it was 200.00. This new person through his constant stuttering told me I would be responsible for a 400.00 dollar appraisal.

Am I being scammed? Should I try another local broker? Why can't I qualify for this type of loan with a good credit rating.

Two years ago, I used Quicken to attempt a refi. That was my first attempt and they billed me 500 dollars and wouldn't refund the money when the appraisal came in low.

From what I understand with my current loan documentation, once I hit the 5 year mark, they set a new rate, the minimum is 2.50 percent and the max is 11 percent... Then there is wording about basing it on the wall street journal. But I can't interpret in the wording if I get reset, as you said to around 3 or 4 percent and there is another interest rate added to that based on the wall street journal.

Currently the loan is at 6.25%.. I don't know what to do.

[rlathe]

I have typed below the wording associated to the end of the 5/1 fixed LIBOR. If you see any red flags I'd greatly appreciate a heads up. Thanks again.


Adjustable interest rate and monthly payment changes
a Change Dates
The initial fixed interest rate I will pay will change to an adjustable interest rate on the 1st day of January 2012 and the adjustable interest rate I will pay may change on that day every 12th month thereafter. The date on which my initial fixed interest rate changes to an adjustable interest rate, and each date on which my adjustable interest rate could change is called a change date.


Beginning with the first change date, my adjustable interest rate will be based on an Index. The Index is the avg. of interbank offered rates for one year US dollar denominated deposits in the London market (LIBOR) as published in the Wall Street Journal. The most recent Index figure available as of the 45 days before each Change Date is called the "Current index."

If the Index is no longer available, the Note Holder will choose a new index that is based upon comparable information. The Note Holder will give me notice of this choice.

Calculation of charges- Before each change date, the note holder will calculate my new interest rate by adding TWO AND 250/1000 percentage points (2.250%) to the current index. The Note Holder will then round the results of this addition of the nearest one eighth of one percentage point. Subject to the limits stated in Section 4(dD) below this rounded amount will be my new interest rate until the next change date.
The Note Holder will then determine the amount of the monthly payment that would be sufficient to repay the unpaid principal that I am expected to owe a the Change Date in full on the Maturity Date at my new interest rate in substantially equal payments. The result of the calculation will be the new amount of my monthly payment.
(D) Limits on Interest Rate Changes

The interest rate I am required to pay at the first change date will not be greater then 11.125% or less then 2.250%. Thereafter my adjustable interest rate will never be increased or decreased on any single change date by more than two and 000/1000 percentage points from the rate of interest I have been paying for the preceding 12 months. My interest rate will never be greater than 11.25



I did go to http://www.bankrate.com/rates/intere...rime-rate.aspx to check the index which shows 3.25 for the prime rate. Based on the above statement "Calculation of charges- Before each change date, the note holder will calculate my new interest rate by adding TWO AND 250/1000 percentage points (2.250%) to the current index." My question here: Am I to understand, they automatically set me at 2.250% and the add the prime rate of 3.5 totaling 5.75 to be the new rate on January 2012? Then every year after or "change" they continue to add another 2.25 and prime.

[SmartMoney]

You've taken a couple of detours....and you're facing constant changing guidelines. Let me see if I can try to help make sense of this for you.

You're on an IO 5/1 ARM. The IO period is for 5 years only. Year six, not only does your ARM adjust, you start amortizing. So, even if your rate goes down, your payment most likely will go up because you now have a 25 year mortgage.

The anatomy of an ARM is:

Start rate: rate you are now paying
Index: the rate the ARM follows (you have indicated LIBOR)
Margin: what gets added to index to determine next adjustment rate.
Caps: 6% first adjustment cap/2 annual cap, thereafter

So, right now, it appears you are paying 5.125% IO on 150K loan amount, or ~$641 a month for interest only.

This is the math:

5.125% Current rate

The current LIBOR is .78
Margin 2.25
Year 6 rate 3.03%, rounded up to the next .125% = 3.125%

150K amortized over 25 years = $721 principal and interest @ 3.125%, or, ~$80 more than what you are currently paying. This assumes all remains the same between now and when it's time to calculate for the next adjustment.

Then next year, your loan will recalculate, not to go any higher than 5.125% and then will amortize over 24 years. (And if we assume the worse case for that adjustment, a crude estimate would put that payment to go to $881 per month, or $240 more than what you are paying now).

Of course, you would have to add taxes and insurance to the payment.

Have you contacted your current lender to inquire about any assistance getting into a fixed rate loan or any kind of modification?

I don't know how to dress up my reply about paying for the appraisal, but to just be blunt. You are asking another lender to refinance your upside down mortgage. The number of appraisal waivers on underwater loans is less than 10%. So any lender (other than your own) must have an appraisal done. This requires an independent 3rd party to perform the service. The "independence" piece of the equation means they get paid regardless of outcome on the value of your home. Banks, brokers and loan officers can't pick up the tab for wannabe refinances. Your credit score has nothing to do with the problem you are having, it's assumed anyone these days looking for a mortgage has an excellent credit history. The problem is the value.

I'm not sure how you got referred to Quicken or the current lender you are talking to, but my advice would be to stay away from online lenders. I would be more inclined to recommend you contact your Realtor (or another Realtor if you don't want to return to the same lender) for recommendations. You need someone to spell out your options....and be honest and tell you if there aren't any real options (without putting more cash into the home).

I suspect that is the problem, there aren't any real solutions other than with the lender you are currently with - your stuttering loan officer probably was trying to be kind and didn't want to squash your hope, but he also wasn't going to pull $400 out of his checkbook, either (and that is what happens when we don't collect).

(A side note to your problem, you are in a condo. Condos, nationwide, are having more trouble than ever obtaining financing. The primary reasons are: too high of an investor concentration, delinquent condo fees (more than 15% late), pending law suits, inadequate reserves for budget. Keep a close eye on your condo association and what's happening in those meetings. You could have an appraisal for 170K and still not be able to refinance).

[rlathe]

You were VERY kind to do this on a Saturday morning. Everything here is very organized..and articulated well.
My mortgage statement shows the percentage I'm paying is 6.125 on 149,500.00...the taxes are escrowed and my monthly payment is aprox 1130.00.

Your numbers for what I'm paying match however. It is a relief that in the beginning of the 5th year worst case, I would be in the range of an additional 80 dollars. That is affordable....It is the 6th year that concerns me, but this obviously buys me more time for other condos to sell at a higher rate so I can hopefully be appraised at the loan amount I'm looking to obtain.

My lender is Citimortgage and I asked about options. They said I qualified for HAMP because I'm currently disabled and am at 60 percent of my pay. I sent all necessary paperwork and they immediately misapplied my funds and started collection calls...telling me I did not pay my mortgage for two months after I did make the payments on time. Finally they found the funds and applied them and told me I was denied for the HAMP program. I also was not told it would effect my credit negatively. So that would be a last ditch option for me. The only other option they said would be to refinance which is of course what I would like to do, but am unable to because the property has decreased in value, two units have been foreclosed, one just sold for less then what I owe on my loan.

Another factor that plays into this issue, is my condo complex was originally built in 1989 and the units were old and run down. In 2006 they built new ones which are beautiful. They have central air, gas heat, a different floor plan, granite counter tops, better tiling..etc... I decided to buy one of the new ones, but the old ones are being used as comps because the newer purchasers like myself have not "out grown" their condo's yet.

Thank you again for your input.

[Frank Eliason]

rlathe, hello, my name is Frank Eliason and I work for Citi. I read your post. I apologize as it seems we made some errors applying your payments. Has everything been cleared up? If there's anything I can do to help you understand what your options might be, my email address is below.

Regards,

Frank Eliason
Citi
[email]frank.eliason@citi.com[/email]

[rlathe]

Originally Posted by SmartMoney

Then next year, your loan will recalculate, not to go any higher than 5.125% and then will amortize over 24 years. (And if we assume the worse case for that adjustment, a crude estimate would put that payment to go to $881 per month, or $240 more than what you are paying now).

Of course, you would have to add taxes and insurance to the payment.

If worst case, on the 6th year the loan goes up $240.00 more per month, does it top out there, or can the lender continue to change again and increase every year at 2.25 % until they reach a max of 11.125%?

[rlathe]

I just looked at my most recent bill from CitiMortgage, which reads in small print, "The current amount due covers only the interest charges on your loan. These payments will not decrease the principal balance that you owe on the loan. Fully amortized principal and interest payments will begin 02/01/12. You may elect to pay an additional 199.47 in order to fully amortize this months payment.


It looks like I don't have the additional year at the close of five years before principal begins, but a month.

[rlathe]

Just called customer service. It's a shame, the call was routed to another country. Extremely difficult to understand. Now I can see using Indian reps for an application for a sears card, but for your mortgage...very irresponsible.

I posed the question, based on today's index and margin rates, what what would my new payment be. After 30 minutes of holding, the answer was an increase of 380.00.

I explained I was told based on the current rates, there was a possibility my payment would either decrease or increase up to aprox 80.00 USD.


She couldn't explain how she calculated it...I have no idea where she came up with that amount.


My last appraisal was in November of this year and came in at 45k less then the amount I owe. Three of my neighbors went into foreclosure which is the primary reason for this issue.

I suppose the most logical path for me to take is to calm down and have another appraisal done in the fall and refi. I doubt much will change however.
Many friends and people in the business have told me straight out, call the mortgage company and tell them, okay, I'm about to default on this loan and go ahead and take it. The say the mortgage company will not want to deal with another forclosure and will probably be willing to refinance the loan being I've always paid on time for 4.5 years and put 40k into the loan initially. Otherwise, save my money and move to an apartment when they kick me to the curb.

I definitely don't see these people from India having the ability to care or work with me however.

I'm open for any other advice of course.