BMO Harris Bank: 2nd Mortgage Loan Modification / Reduction of principal?

[thesaintly]

I have a friend of mine that I'm helping. I'm her Power of Attorney, as she has a history of making poor financial choices. She's 63 years old and owns a small condo. In the last year she has gone through huge financial struggles. She was injured at work and had to take time off, in addition to racking up about $40k in medical bills and getting behind on about $8k worth of credit card debt. Additionally, she got scammed out of at least $8k (maybe as much as $30k) by a man impersonating a United States soldier but ended up being an internet scammer in Ghana. She's also about to file bankruptcy to try and discharge her medical and credit card debt.

 

She has a first mortgage with Citimortgage with a fixed interest rate of 4.75%, and a balance of $88k on a 30-year note. She took out this 30-year mortgage in 2014. Her monthly mortgage payment for her Citimortgage is $602. In the period that she was giving the scammer her life savings, she didn't make any payments on the Citi mortgage for a whole year. With my help, I qualified her for a program in the state of IL called Illinois Hardest Hit, which basically paid all her past-due amounts on her first mortgage to get her current. Starting in August, she has to resume her regular monthly payments of $602.

 

In addition to the first mortgage, she has a second loan against the house with a balance of $25k with BMO Harris Bank. She's supposed to have been making monthly payments of $256 on her second mortgage, but is is a whole year behind. The balance of $25k is due in September when the final balloon payment is looming large. Despite working two jobs, she doesn't have anything in savings, so there's no way she'll be able to pay off the $25k by this September.

 

Which leads me to the heart of the issue:

 

I've talked to a realtor, and he said the house has a value somewhere in the $100-$115k range. Her combined balances for both loans put her at $113k. So if the house is worth on the lower end of $100k, she's underwater. My goal (someone correct me if this isn't the right strategy) is to approach BMO Harris Bank with her situation (her medical injuries and bills, her unpaid credit card debt, her past-due amount on what she owes to them) and ask them for a massive reduction of principal. My friend has a pending workman's comp settlement that she could pay 10-25% of to BMO Harris to satisfy her obligations if they wrote off the rest. If they aren't willing to take a reduction of principal, my friend will obviously need some type of loan modification stretch out her payments for many more years so she can resume paying them and get current, having them eliminate September's balloon payment in favor for smaller monthly payments over several years.

 

Given everything that I've posted above, what do you think is the best course of action I can take for my friend? If BMO Harris Bank is at all open to it, I'd like the reduction of principal option best to eliminate one of her monthly bills in the long-term. But if they aren't willing to play ball with that option, I'd at least like them to do some type of loan modification. Ideas? Thoughts? Words of warning?

 

Thanks in advance for helping me navigate these waters!

[tiggerlgh]

It's a long shot and I wouldn't mention the CC debt. They won't care about unsecured debt. I would first se if they have any mod options for her.

[thesaintly]

I certainly want to give them a call and try to work out a deal. I just wanted to know what type of game plan I should have before giving them a ring. (Besides not mentioning cc debt?) Thoughts?

[Kuuner]

I would apply for a loan modification on both loans (Both real estate loans). She should also consider BK but try to get the mods before the BK.

[thesaintly]

I would apply for a loan modification on both loans (Both real estate loans). She should also consider BK but try to get the mods before the BK.

Seeing she has a low monthly payment for her 1st mortgage and a fixed interest rate, what terms would you think would be favorable to consider a loan modification? A reduction of principal? A lower monthly payment? Any ideas?

 

As for her 2nd mortgage, I certainly wanted to put a load mod in place prior to filing a bankruptcy, as I've heard that it is best to have them in place for at least a few months before filing, that way other creditors won't complain that some of them got favorable treatment right before filing for the BK.

[Kuuner]

 

I would apply for a loan modification on both loans (Both real estate loans). She should also consider BK but try to get the mods before the BK.

Seeing she has a low monthly payment for her 1st mortgage and a fixed interest rate, what terms would you think would be favorable to consider a loan modification? A reduction of principal? A lower monthly payment? Any ideas?

 

As for her 2nd mortgage, I certainly wanted to put a load mod in place prior to filing a bankruptcy, as I've heard that it is best to have them in place for at least a few months before filing, that way other creditors won't complain that some of them got favorable treatment right before filing for the BK.

 

Principle forgiveness is less common than it used to be for all loans other than the big 5 that were subject to the National Servicing Settlement (Chase, Wells, BofA, Citi and I think GMAC was the 5th), and only for the GSA (Fannie/Freddie, etc...government loans) type of loans. Any other portfolio product that isn't a government loan is only subject to the lender/servicer program guidelines. I've seen principle deferment but not forgiveness. The forgiveness was for being underwater and those days are largely over as values have recovered for the most part (Yeah I know...some areas haven't'). Mods still go as low as 2% and/or down to 31% front end debt ratios but suffice it to say, they will crunch the numbers based on what the applicant provides and come up with a payment.

 

If she has a low monthly first, the argument can be made, "Why then, aren't you paying on the loan"? There are countless replies but that's one that needs to be addressed. I get that she was scammed but at the end of the day, scammed or not, the reason she can't make the payments was her doing and not from the lender. She has a conforming loan it appears and not some upward adjusting, expensive, predatory loan. I don't see the incentive for the bank/servicer to do anything based on what I read. If she has the income to service the debt, the most I can see is them capitalizing delinquent interest, bringing the account current and the starting her over and having her make her normal payments.

[thesaintly]

Update for those following this thread:

 

Called BMO Harris and they are willing to do a settlement for between $13-$17k on the $25k owed, pending management approval, as the lady I'm helping has a pending workman's comp case. They are also willing to look into loan modifications. I'll post again when I have more info.