Working On An In-House Loan Modification With Wells Fargo

by Peter
(New York, USA)

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Working On An In-House Loan Modification With Wells Fargo

1. Our Home Affordable Modification Program, HAMP, was denied due to a negative result on the Net Present Value, NPV, Means Test. Our modification request was just sent to their Loss Mitigation Dept for an in-house loan modification.

2. According to Wells Fargo the house is worth $325k and $249K is owed. The loan is a 30 year fixed rate at 5.75% with 23 years left to pay. The monthly Principal & Interest payment is $1672, the monthly Escrow Payment (property taxes and home owner insurance) is $700 = $2372 total monthly mortgage payment.

3. We are current on the mortgage but that will end in two months because after that we are looking at $600 monthly deficit.

4. My understanding is Wells Fargo uses net income for their in-house modifications, while HAMP uses one's gross income. Net income is $3600/month.

My question is:

1. Will Wells Fargo deny our loan modification because we will show a $600/month deficit beginning in two months?

2. On the flip side, if we get monthly help from family, say $800/per month for the next 6 to 12 months and show a $200 positive each month, will Wells Fargo deny the loan modification in this scenario? (I am also curious to know if banks modify loans if a person shows a small amount of income left at the end of month).

3. Do banks have a threshold for how much a monthly deficit or surplus can be that determines if they modify or not?

Mortgage Loan Modification Answer:

by Wells Fargo Mortgage Loan Modification Expert - Dan North

I made some guesses from the information you gave, ran the numbers through the NPV test and came up with the same result than Wells Fargo is telling you. Playing with some of the figures it was possible to get your property to pass the test, I will go over that below.

Here are the guesses that I assumed for the NPV Test:

• Original Loan Amount $285,000


• Remaining term on loan 276 months


• Monthly gross income in two months after the $600 monthly deficit starts - $4200 (this assumed income reduced $600 a month instead of increased expenses)

You Need To Lower Your Escrow Payment
If At All Possible

The first thing I noticed is that your escrow payment came in $400/month higher than was predicted for New York. At the lower amount you would have passed the NPV test and received the HAMP mortgage modification.

This suggests that there is room to lower your escrow payment by lowering your property tax and lowering home owner insurance costs. The amount you are paying may be correct but it is worth finding out for yourself, especially if you could knock $400/month off your payment.

You Could Still Qualify For HAMP Loan Modification

There are options your Representative at Wells Fargo Is not making know so that you will qualify for HAMP and pass the NPV Test.

You brought up one possibility by having family members contribute toward mortgage payments each month. The amount they contribute would increase your gross income to qualify for HAMP, but would not be actual personal income that you would be taxed on, but they would not have to be added to the mortgage contract under HAMP. They would have to be residence in your home though.

Any family member who wanted to contribute to your mortgage could rent a room in your house for the amount he wanted to contribute and that would increase your monthly income and not require that the family member reside in your home. Only use the amount needed to qualify and pass the NPV Test

Make A Counter Offer On A HAMP Loan Modification That Will Get Approved By Wells Fargo

This where you want to play with the variables of the NPV Test to see what works and what will pass so Wells Fargo gives you a HAMP loan modification.

1. Will Wells Fargo deny our loan modification because we will show a $600/month deficit beginning in two months?

Hard to say with out more information. The first thing to realize is a $600 drop in income or increase in monthly expense is valid grounds for imminent default and grounds to modify you mortgage as a valid hardship.

There does have to be a valid hardship or Wells Fargo will not modify your loan. The NPV Test will determine if it is cheaper to modify or foreclose but you lender can still grant the modification even if the NPV test is not passed. This is true for HAMP as well as an in-house mortgage loan modification with Wells Fargo.

With all that in mind your chances are much higher if you work out a scenario that does pass the NPV Test.

Don't lie, but present your case in a submission that will be approved.

2. If we get monthly help from family, say $800/per month for the next 6 to 12 months and show a $200 positive each month, will Wells Fargo deny the loan modification in this scenario?

That amount is not an unreasonable amount of money to have available to live from month to month. There is an expectancy that you will need discretionary funds available each month. In Fact if you did not, the chances of re-defaulting on your mortgage is almost guaranteed. What if your car broke down and you needed a new transmission or water pump? It is a plus point that you have additional funds available.

You can understate what money you will get from family but do not overstate. Overstating is fraud but if you are getting family help you only need to state what is required to be approved for the best terms possible.

3. Do banks have a threshold for how much a monthly deficit or surplus can be that determines if they modify or not?

Not exactly. You do have to have a financial hardship that makes the mortgage payment unaffordable before a bank or any lender will modify a loan or mortgage. This means either currently in default and 60 to 90 days late or will default in the immediate future, imminent default.

Mortgage loan modification is really a financial decision based on how much money Wells Fargo will lose if it modifies and how much money Wells Fargo will lose if it forecloses.

After the mortgage is modified the new lower payments do have to be affordable so there would have to be enough surplus at the end of the month to cover unexpected living expenses.

Things that would be taken into consideration are you Debt to Income ratio before and after a loan modification, income and expenses along with your proposed budget for live with in your means. These would all have to demonstrate that you can afford the modified payments and would not re-default.


Resources:
Net Present Value - NPV test
Lowering your property tax
Lower home owner insurance costs
Apply for No-Upfront Fee Hardship Loan Modification


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