Bankruptcy and Foreclosures

The really smart people at Credit Slips made a good point the other day about homeowners in bankruptcy. Mortgages are the only loans that bankruptcy cannot modify! So it is possible to discharge or modify all your other debts, but if you can't make your mortgage payment, you're still outta there. I did not know that.

So pay your mortgage first, folks. And talk to the mortgage company when you first get into trouble, because if you get to bankruptcy, it may not help.

Did Fannie and Freddie's Demise Help Me?

Welcome Carnival Goers.

This post has been included in The Carnival of Debt Reduction and in Political Calculations On the Moneyed Midways, best posts from the past week's business and money-related blog carnivals.

I find myself wondering if my loan is owned by Fannie Mae or Freddie Mac. Apparently there's a 50-50 chance that it is. It is notoriously difficult to discover who owns your loan, according to ABC News's Betsy Stark, due in part to the complex mortgage-backed securities that have brought the economy crashing down around us.

I find the timing curious. After months of relentless collection calls (like a couple a day) from our mortgage company, and their inability to acknowledge our third-party request for a loan modification , all of a sudden, with no warning, we got a loan mod out of the blue. And it was after the federal goverment took over the mortgage giants. The company didn't ask us to verify our income or anything. Curiouser and curiouser.

Mortgage News Daily speculated after the takeover that since the government doesn't want to own thousands of homes, homeowners already in danger of foreclosure may actually fare better under the bailout. It's probably too soon to tell.

This thing is huge, isn't it? And I have to say that it actually makes me feel better to know that we are not alone in this, that we aren't just irresponsible, that there's something larger at work here. Or so I tell myself. Sometimes.

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• Freddie, Fannie and you

The Fedex Guy--Better than Ed McMahon

Image via Wikipedia It's better than winning the American Family Publishing sweepstakes. Out of the blue today, the Fedex guy brought loan modification papers for our mortgage.

Believe me when I tell you we did not even know this was in the works. The terms were beyond our wildest expectations. For a couple of hundred dollars extra a month, they will add our past due principal to the amount we owe and spread it out over the life of the loan. The low fixed interest rate does not change. The term of the loan does not change. There are no processing fees or closing costs. All we have to do is sign and notarize the papers and (cough) come up with the first payment, which has an extra $1000 towards the principal amount.

Wow. How did this happen?

Here's what I think it was. A few months ago, we hit rock bottom. Mr. Poorhouse was working minimum wage part time because nobody in retail was hiring managers. I've been working "for the man" since March, but my income just wasn't enough. We had missed a mortgage payment. The well had run dry--we had tapped out our home equity line, our credit cards, my business loan. We had borrowed against my retirement savings. There were no more pots to cover the mortgage and other expenses.

I googled consumer credit counseling services. I found one: Money Management International. I wanted to talk to them right then. But they didn't have an appointment for weeks. (I guess the Poorhouses and the MacMahons have something in common with lots of other folks these days.) I made the appointment.

The day came. I spent an excrutiating evening on the phone going over our financial situation with the mortgage counselor. At the end of the day (literally) he said we didn't have enough income to carry the debt. He talked about options. Selling Assets. Borrowing from relatives. Increasing income (now why didn't WE think of that!). Short Sale. Bankruptcy. Walking away from the property (not that he recommended that.)

I explained that my husband had an full time job offer for a job that would start in September.
The counselor said he would submit a request for loan modification to the mortgage company, but that he could not say what would happen.

I was pretty emotional during that phone call. He was good. He explained he had also had a failed business and had been in this place himself. A little compassion goes a long way.

A few weeks later, I got the "plan" in the mail. All it was was a reiteration of the financial information I had given him, and advice about options (short sale, bankrutpcy, yada yada). It said NOTHING about a loan modification.

(Aside: MMI also has a credit card debt division. Different counselors, and for me different outcome. I'll blog about that another day. See this post.)

In the meantime, the mortgage company called every few days. I mentioned to each and every individual that I had requested a loan modification through MMI. The answer was always the same: "We don't have any information about that."

One day, in a conversation with my husband, the lender suggested a payment plan which would add a hefty (like 50%) addition to each mortgage payment for six months until the loan became current. We talked about it, and I called the next day to work it out, but by then the acceptible payment amount had gone UP. No representative we talked to ever seemed to have any knowledge of any other conversation we had had with any of his or her colleagues. Hmmm.

Well, we agreed to a payment plan. On a payment plan, it turns out, the mortgage company will accept partial payments, so I started paying 50% of the new really high payment out of each paycheck so that I wouldn't be short at the end of the month. All this during a time when my husband hadn't yet started his new full-time job with a full-time salary.

So imagine my surprise when this loan modification fell out of the sky today! It doesn't make any reference to the payment plan we had agreed to. It doesn't make any reference to the credit counselor.

No matter how it came about. You bet your sweet bippy I'm signing these docs.

The catch: I need to send them a certified initial payment plus $1000 cash contribution to reduce the principal by September 25. Trouble is, I just made a partial mortgage payment, and I don't have the cash.

So, for the first time in all of this, I asked for money from a relative. I'll skip the long complicated family relationship story. But this wonderful woman simply said, "Of course, Polly. You don't have to ask. The money is already yours. It isn't a loan. You need it, I'll send you a check tomorrow. And if it isn't enough, let me know."

Saved. Thank you National City. Thank you Money Management International. Thank you lovely relative. I think I'm going to cry.

OK, I'm better. Just wanted to let you know if you didn't already that MMI and other credit counseling services get their funding from the lenders. This modification didn't cost me anything but sweat and tears. If you keep that in mind you may be better off. Follow the money to see whose interest in being served. In this case, it was both ours, and the bank's, which, I have heard on the news, is having financial troubles of its own. The difference is, in our case, the federal government is pretty unlikely to bail us out.

A good day.