Is it possible WAMU will lower my principal?

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Is it possible WAMU will lower my principal?

Donna J
AL · Member since 2008 · 25 posts · 1 vote

We have an investment property that we bought in 2004. We had an adjustable rate mortgage, so we refinanced in 2006 to a fixed rate, because we were to afraid of what the rate would be if we waited longer. We have a first and second mortgage. Both are thru Washington Mutual. We are current on all payments and have a 800 credit score.

The FMV of the property is about half what it was in 2004. Our first WAMU mortgage is for $315K, the second with WAMU is for 23K. The last condos in the same building like ours, went for 190K-226K with the 190K being the most recent sale. I believe they were short sales and foreclosures. The lowest priced one is listed for $245K and it hasn't sold for months.

My question is: Is there any chance WAMU would lower my principal to FMV and let me keep the property? I have spoken with them about a short sale and they have told me to list the property at FMV. If my principal amount could be the same as a new buyer's will be, on short sale, I could afford to keep it.

If this is impossible, we do plan to sell short. There are so many SS and foreclosures, it will take years before the value comes back, if ever. There is overbuilding in the area, too. I do rent it an do well enough that if my principal was lowered, I would be able to come out on it.

Thank you!

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  • Richard Warren
    Real Estate Investor · Las Vegas, NV · Member since 2008 · 1k+ posts · 447 votes
    18y

    Chances of WAMU lowering the amount you owe AND letting you stay in the house is zero. If they did it for you they would have to do it for everyone. From what I’ve seen, to get them to allow a short sale you need to be behind in payments as well. Understand that I am not a short sale expert, I’m sure some of those who are will chime in.

    :cool:

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  • Scott Hubbard
    Rehabber · Tucson, AZ · Member since 2008 · 1k+ posts · 802 votes
    18y

    I do not necessarily agree with Richard. There is a slight chance you can accomplish both, but only if the following scenario has occurred and can be substantiated. There is a little known precedence regarding predatory lending practices that could allow you, under law, to stay in your property and seek restitution in the form lost equity. The caveat to this is, I am unsure if an investment property would be eligible.

    In order for this to work, your mortgage broker would have needed to misrepresent your qualifications in order to get you qualified for the loan. Perhaps he/she inflated your income, called this property your primary residence, manipulated your credit report, etc., The theory behind this is that, had the loan officer not falsify the application, you would not be in the financial turmoil your in now. Now, the second part to this is you need to prove he/she was dishonest.

    If you think you can do the above, contact me and we can talk.

    Another solution, though I would not recommend this, is to find a relative or friend to purchase the house from you as a short sale and after a couple of years, sell it back to you. This, of course is slimey to say the least, but I have seen other people do this with success. Two or three years is suggested because it will a least be that long before your credit will recover anyway.

    Otherwise, Richard is correct. There is no chance that WAMU will entertain a hit like that at this time.

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  • Jason F
    Real Estate Investor · Gainesville, FL · Member since 2008 · 296 posts · 7 votes
    18y

    Slimy?

    Don't you think blaming your problems on your mortgage broker is a little slimy as well.

    Yeah, I'm sure djm4 had no idea that he was falsifying his income....it was all his broker's idea....blame it on the banks right???

    Don't drag the broker into your bad RE decision. You were smart enough to pursue an investment property, you should have been smart enough not to let them lie on your loan app if that was the case.

    djm4, you bought a property in the real estate MARKET. Key word is 'Market' which means prices fluctuate. Deal with the price drop and take the hit on your credit and move on.

    Think about this, would you give WAMU extra if you made money off this property?

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  • Donna J
    OP
    AL · Member since 2008 · 25 posts · 1 vote
    18y

    I am not, nor do I plan to blame my mortgage problem on anyone but myself. Trust me, I take all this very seriously. I am very disappointed in myself for being in this spot and for buying the property in the first place.

    *Did I tell the mortgage broker that it was a rental? Yes.
    *Did he schedule the appraisal around a renter? Yes.
    *Was I aware the loan was being written as a second home? No.

    *Did he get a very high appraisal? Yes.
    *Was I happy about that? Yes.
    *Was it too high at the time? Yes.
    *Did I tell him before he had the appraisal done that I was concerned the prices had dropped enough that we would not be able to get the money we needed? Yes.


    I DO NOT blame the mortgage broker! We asked him to refi so we could get a fixed interest rate and that is what he did. He gave us what we wanted. I do not want to backlash now and blame him or cause him problems.

    Of course, you are correct when you say that I would not give WAMU more than the payoff if I had made a profit.

    My reason for asking the question in the first place, is because I am truly shocked that a thing like Short Sales, where the mortgage company is the one that takes the loss, exists. I thought maybe there are other options that would be just as shocking, that I don't know about.

    Short Sales and foreclosures have contributed to our declining values, along with overbuilding in the area. I don't feel good about adding to that problem by selling short. The hurricane scares, gas prices and the economy has had a huge impact on the number of rentals and the rental rates. I can't carry it forever. The amount I have to pay above income is drastically increasing every year.

    A person at WAMU told me that the payments being current would not affect their decision of whether to accept a Short Sale offer. I guess if I pay as long as I can, then they see there is no money left in my accounts they may accept it or I will stop making payments because it has run me dry. Then again, she could just be saying that to keep the money coming in. If I have to stop making the payments that will be something I have never done.

    Thanks

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    18y

    A seriously bad situation. Very sorry to hear you're in this pickle.

    Like Richard I'm not s short sale expert. It does see, though, that getting a short sale accepted requires some hardship. Job loss, medical issues, forced move, or some such. Otherwise, the lender expects you to keep paying. Do any of these apply?

    Have you tried listing the property to see what you can get?

    This shows the real downside of leverage and real estate as an investment. If you buy a stock and it goes down 50% (yep, been there), you can still sell it and get back the 50% of your money. You had to pay the full amount up front. With real estate, when the market turns bad, it can be really tough to sell at any price. Plus, you have all the exorbitant costs associated with RE transactions. Leverage makes it really painful because you didn't have to pay up front. So, in order to sell, you end up having to pay on the back end.

    Still, if you can find a buyer and get a contract WaMu may be more likely to accept a short that when its just a hypothetical situation. They might still push you to make up some of the shortfall, but then you can negotiate with them to give you a loan. That would at least limit your downside. As it stands, you could keep paying for years, losing money each month, and then still take a big hit when you sell.

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  • Scott Weaner
    Rental Property Investor · Yardley, PA · Member since 2008 · 1k+ posts · 561 votes
    18y

    I am confused. What problem does the OP have? Is the rent just not covering the loan/expenses? That would have little to do with the drop in value of the property. I think?

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    18y

    OP's problem is that they owe $338K on a condo that's worth $190K. Speaking with WaMu, they seem willing to perhaps accept a short sale. OP is wondering if WaMu would just lower their principle to what they would net from a short sale.

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  • Dave P.
    Real Estate Consultant · Member since 2008 · 792 posts · 30 votes
    18y

    Short Sales and foreclosures have contributed to our declining values

    This statement is wrong on so many levels it is not even funny. The value of your property is what someone else will pay for it or the cash flow that you can obtain from it....period.

    I am so tired of the "short sale" ruined my comps argument. The people that over-payed for property "ruined" the comps in an equal and opposite manner.

    Principal reduction loan is highly unlikely (as others have said) due to the fact that it is not owner occ. Principal reduction loan mods are mostly a figment of Barney Frank's imagination anyway, but with Investment property , they are even more rare...like never.

    I help people navigate short sales full time and have learned to reserve judgment (specifically with failed "investors"). Having said that, it's time to be real.

    I feel that negotiating a short sale with your lender is an honorable out. But I can tell you one thing, they are coming after any asset you have....They are looking for you to get some "skin in the game".

    Then again, she could just be saying that to keep the money coming in

    You got that right. Remember the phone recording, "We are attempting to collect a debt...."

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  • Shari Posey
    Residential Real Estate Agent · Long Beach, CA · Member since 2008 · 432 posts · 63 votes
    18y

    Call WAMU and ask them if they ever reduce the balance. I called two banks today that will not reduce the balances but will extend the length of the loan or reduce the interest rate if they can. (I've only heard of 2 cases of banks reducing the balance.)

    Do you know how many people currently have properties that are worth less than the loan? A LOT. Your situation is not unique.

    It sounds like you also got cash out with your refi...that may make a difference because you 1)are a non-owner occupant 2) may not have spent the money on home improvements.

    Talk to an accountant and talk to the loss mitigation department at WAMU and tell them why you can no longer afford to pay. They will require proof that you can not pay regardless of how the market has erroded the value of the property.

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  • Account Closed
    Manhattan, NY · Member since 2008 · 801 posts · 61 votes
    18y

    Short sales and foreclosures have not in any way contributed to the declining market values. Any piece of real estate is worth EXACTLY what a willing and able buyer will pay and a willing seller will accept. If the sellers could get more they would, if they buyers could pay less they would.

    You mentioned this was a refi and that probably eliminates any possibility WaMu would accept a reduction in the principal amount and let you just walk away from the difference. With a refi, in Florida, they are likely going to seek a deficiency judgment unless you get it negotiated out as part of the short sale. if you can get them to write it off instead of seeking a deficiency you will likely see a 1099 for the write off amount.

    I think your central question is flawed in asking if they would just do a write down of the principal and let you keep the home. Why would they? How is that in their best interest or to the benefit of their shareholders?

    I'm not sure how wedded you are to this idea but I will tell you there is a bank here in Georgia that has negotiated write downs of the principal and allowed the borrowers to stay in the home. However, these were primary residences, not investment properties. The two I have actually seen documentation on were a write down of 40% of the difference and 35% of the difference. In other words, if the loan balance was 100k more than current value they knocked off 40K and 35K respectively. In both of these cases, the borrowers will see a 1099.

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  • Christopher Lippincott
    Real Estate Consultant · Little Town, OK · Member since 2008 · 688 posts · 21 votes
    18y

    You may want to update your records

    WaMu Collapses

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    18y

    What Chris is referring to is the fact WaMu no longer exists, as of about 5:00 PM this evening. Your new lender is Chase.

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  • Shari Posey
    Residential Real Estate Agent · Long Beach, CA · Member since 2008 · 432 posts · 63 votes
    18y

    I am working on a loan mod with Chase but it is owner occupied. Chase will work out a payment plan or extend the term of the loan or reduce the interest rate to make your payments lower. You need to call their customer service number and then ask to be transfer to loss mitigation. I'm not sure how long it will take for them to integrate the WAMU loans into their system.

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  • Account Closed
    Manhattan, NY · Member since 2008 · 801 posts · 61 votes
    18y

    Word on the street is Chase did not buy all of WaMu's mortgage business. They have agreed to service it indefinitely if needed but the agreement with the Comptroller of the Currency allows them to pass on buying the riskier parts of the WaMu portfolio.

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  • Donna J
    OP
    AL · Member since 2008 · 25 posts · 1 vote
    18y

    I really had to rack my brain about the cash out Shari brought up. When we refi'd we included a loan for a portion of the furnishings. The remainder was closing costs.

    Last night, I had a dream that my credit score dropped by 130 points just because I called WAMU to ask about a Short Sale.

    My husband's employer will not tolerate receiving phone calls from debt collectors, so I assume we can't do a SS because I feel sure they will call everyone.

    Our condos are in FL and vacation rental income is dropping, making it more difficult for us to make the payments. We are current on all payments.

    What is a reasonable interest rate to ask for, right now?

    The first condo:
    The info below is from the refinance we did in 2006 to get a fixed interest rate.
    We owe WAMU (Chase?) $312K at 6.625 on a first and 23K to WAMU (Chase?) on a second at 9.24%.

    What would be the chances of getting them to add te second mortgage to the first, drop the interest and extend for 40 years?
    After adding the 2nd to the 1st, if they would drop the interest to 5.6% my P&I would decrease by appr $627 month for 40 years or $455 for 30 years.

    2nd investment property:
    If it sold it right now, we might be able to break even. We owe $245,718 at 6.625% to BB&T. We are current on payments. We had rather keep this one forever. It rents well, but I feel sure the rental income will drop. Is the advice of this board to sell it, while we can?? If we can.

    Taz, anything else on whether it will be Chase or WAMU.

    Thanks for your patience.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    18y

    Currently interest rates are around 6% for 30 year fixed. Investment loans about a half a point higher. If you refied, and assuming your credit, income, and everything is still good, you should be able to get something around that.

    I'd say there is zero chance of getting them to adjust it to 5.6%.

    What's the first condo worth? When I did a refi about six weeks ago (ancient history, I know), I was told I could go up to 90% LTV with no cash out. Would $312K + $23K = $335K be under 90%? That is, is this condo worth more than about $372K? If so, do a refi.

    But, I think this is the investment property you discussed at the beginning of the thread, and that its worth $190K. So, a refi is out of the question. Could you maybe sell this for the $190K, get WaMu/Chase, to take a $50K short and get them to give you a loan for the shortfall?

    On the second, how much rent are you getting? Based on the loan you mention, I'd guess your payment at $1575. Using the 50% for expenses rule of thumb (read in the landlording forums), that says you need rent of $3150 to be breaking even. I suspect by breaking even you mean the rent is about the same as the PITI payment. That's not breaking even, its in the hole. As soon as you have a major expense (roof, furnace, AC, major tenant damage, and lengthy eviction, etc., etc.) you're going to be seriously hurting. Even minor and routine rental expenses, like a two week vacancy, cleanup, and advertising for and screening a new tenant will be out of pocket.

    Why do you want to keep this? Property value are going to continue to decline in most areas. Unless there's something very local that makes this property more attractive OR it really is cash flow positive once you consider all expenses, I'd sell it in a heartbeat. If break even really means rent = PITI, and you think rents will fall, selling it will relieve some of the pressure on your primary.

    If you can clean up your financial situation, there will be plenty of buying opportunities in the future. FL was vastly overbuilt, driven by the bubble. We're not going to see any appreciation there for a long time.

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  • Donna J
    OP
    AL · Member since 2008 · 25 posts · 1 vote
    18y

    2nd property
    We started renting it in Feb 2008 as a weekly vacation rental. My gross income for 9 months (thru Oct) including sales tax is $33K. My gross expense including sales tax is $11602 (I added estimated utilities, etc for Oct). Of course Nov & Dec will be lower rental months. There will be no profit.

    You are right, though. We need to sell and pray that it does sell. I have been in contact with our realtor, I will tell them to list it.

    1st property (It is the one worth 190K)
    If we ask Chase or WAMU to do a write-off, with a loan to us will they contact our employers? I assume we would get an offer, then approach them with the sales price and offer to pay a portion of the shortfall. It seems to me that there would be no need for them to contact the employer if we remain current on our mortgage payments until that time. We would approach them with the offer and the hardship at the same time.

    It has rented for 28K thru October. The payments for 12 months are close to $30K and the estimated expense would be 16+K. If I got no additional rent, that leaves me about 18K out of pocket (in previous years it has been closer to 15k out of pocket not considering what is saves me on my taxes). If I offer to take a loan for 95K, I could carry it for 5 more years for 95K (if rents don't drop too badly).

    I don't really believe the value will rise to $335,000 in 5 years.

    You think $50,000 write off is the most they would consider? We would still be hit on our credit and owe a tons of money.

    Would you put them both on the market at the same time, or should I sell the one that may break even first?

    Thanks! I really do appreciate it.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    18y

    I don't really know what amount they might write off. Pretty sure they wouldn't write off the whole amount, though.

    I'd talk to a Realtor about what you could realistically get for it. Subtract off the closing costs (about 8%). Assuming $190K is a good price, that nets you about $175K, which is $160K less than you owe. Call WaMu/Chase and tell them what you think you'll net on the sale. Ask them what they would do to help you get away from this property. Maybe they will do something, maybe not. But if they would eat some of it, and give you a loan for the rest, you could at least stabilize the situation.

    What is the hardship? That's the first time you've mentioned that. The falling value wouldn't be considered a hardship. Not sure true hardships (e.g., job loss, medical issues, death of a spouse) have much weight for investment properties.

    If they do take a write down, its forgiven debt, so it is subject to taxes. Its likely you'll get a 1099 for any forgiven debt on an investment property. That's been done away with for primary residences, but I think its still in effect for investment properties.

    A writeoff will affect your credit. The only way to avoid a credit impact is to pay the loan off according to the original terms.

    I would think they would only contact your employer for employment verification, same as on a mortgage. Maybe not even that. I certainly wouldn't expect them to start calling and asking a lot of questions.

    I'd agree that I don't see $335K anytime soon. I'd say $190k may be about the best price you'll see in the next five years, short of some miraculous recovery. We would need to be right at the bottom, and then have 12% annual appreciation for five years to be back at $335K. Not happening. Wouldn't be surprised to see another 20% drop in FL condos (as you say, they're way overbuilt), then, at best 4% appreciation once the market stabilizes. If that's in the right ballpart, it will take 20-25 years before the value is back at $335K. Many dot coms stocks trade at a tiny fraction of their peak. One of my bad investments, ARBA, currently trades at $15 vs. its peak price of around $1000. Its possible, IMHO, that the value of this condo will never in our lifetimes be worth $335K.

    Pretty sure just calling them won't affect your credit.

    Man, do I feel for you. Even 18 months ago, ads abounded hawking these FL condo development deals. It was so easy to get wound up in these deals.

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  • Donna J
    OP
    AL · Member since 2008 · 25 posts · 1 vote
    18y

    Are any of these hardships good enough?

    The hardship could be separation. I may be living in one of them after the rentals I now have booked are finished. I don't think it being my primary for a couple of months would carry much weight, though. People probably try that when it is not true.. We would not immediately divorce. Being under all this debt has probably been the main thing keeping us together. Then again, the stress could be what has driven us apart.

    My employment is seasonal. I have not lost my job but until March 15th, his income is the only income we will have. That and the rent. I do have some of my income set aside, but we have exhausted our reserve with our downpayments and high hopes.

    What do people do when they have just plain run out of money?

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    18y

    Divorce would carry more weight than separation. Separation has no legal consequences where divorce does.

    Is bankruptcy an option?

    Can you get a job that has income now? That's the usual answer to not having any money.

    I guess given all that, I'd list these two properties tomorrow and try to get rid of them. Convince the lenders you have no money and no way to pay off the shortage. You'll take a hit, but in time, it will fade. I think its possible that in five years lenders will look back and discount the items in your credit report from this period.

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  • Donna J
    OP
    AL · Member since 2008 · 25 posts · 1 vote
    18y

    I'd love to move to the Bahamas. I'm sorry, It seems I must have given the wrong impression regarding our current money situation. I do have money put back to live off of. I just know that I have been seeing others here in FL walk that have far more than I do, they evidently came up with a hardship.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    18y

    If you actually know someone who's done this in your area, you should speak with them. There could be a couple of things happening. One is that if they've walked away in the last six months or so, maybe even a year, the bank may just not have gotten around to doing anything about it. Another is that they may have been slapped with a deficiency judgment and given a 1099. Or, they may be on their way.

    Its an investment, and sometimes investments go south. With a straight up stock purchase, at least you'll never have to pay to sell a loser, and you might even get a little money. Had you paid cash for these investments, you would be in the same situation. But, leverage is a two edged sword. If prices rise, you get all the appreciation with a minimal investment. OTOH, if prices fall, even a little, you can end up having to pay to get out. A stock broker will let you buy stock on margin. But they will demand cash as soon as its even a little under water, and will sell it without a second though if you don't pay up quick. And they would come after you for the shortage.

    To some extent, its too bad real estate investments don't work like that. You would have been out of this property long before it fell this far.

    A lot of this stuff going on to relieve debts is aimed at owner occupants. Its not going to do much, if anything at all for us investors. Call the lenders and talk to them about what they will do to work with you.

    Krzysztof may be overstating it, but there's an element of truth to what he says. Since these are investments and not owner occupied properties, the lender may well try to come after other assets.

    A talk with a knowledgeable real estate lawyer might be in order.

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  • Account Closed
    CA · Member since 2008 · 277 posts · 11 votes
    17y

    dmj4, neither bill--Mortgage Forgiveness Debt Relief Act of 2007 and Emergency Economic Stabilization Act of 2008--is a friend to investors. Neither politicians nor banks care one whit that an investor (1) made a bad investment that doesn't cash flow and/or (2) lost value in his investment property. You WILL receive a 1099 for the "phantom income" inured to you when your property sells at either (1) short sale or (2) foreclosure.

    Unlike a primary residence, you, the investor, are supposed to (1) know what you're doing and (2) buck up when your property loses value.

    Sorry, but there's no mercy for you in the current environment nor, dare I say it, should there be.

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  • Donna J
    OP
    AL · Member since 2008 · 25 posts · 1 vote
    17y

    Caitlyn,
    I agree with the statement you made, "Sorry, but there's no mercy for you in the current environment nor, dare I say it, should there be."

    I did make bad decisions and I have been paying for them and will continue to as long as I can, which I hope is forever. I also feel there should be no help for anyone, except maybe people that were truly deceived when signing their mortgage. I don't even agree that people should get help because they sign an ARM, then the rate increases. I made sure I got and refi'd to a fixed rate mortgage long before mine adjusted. With the second one, I insisted on a fixed rate from the beginning.

    If we make a bad decision we should all have to pay what we promised to pay and we should have to give a little skin in the process. We should have to do without other things to continue to pay the loans we signed. Bankruptcy, short sales and foreclosures should all be stopped, except in cases of medical bills or "true" disability. We all know people that chose bankruptcy just because they didn't want to pay any longer. Many of them go on to buy again, later and then file bankruptcy a second or third time.

    I could probably prove my broker did something he shouldn't have when doing my refi. Was I aware of it at the time? No. Will I do this? No.

    I have put the second condo on the market. It probably won't sell, but at least I am trying. In the meantime, I will try to rent as much as possible. I work the rental part of it for a few hours everyday so I can continue to make my payments. I have rented each condo for 275+ days in 2008, so far. My other job will just have to continue to pick up the slack. If it gets to where it can't do that, then I will get a third job. We have held and paid for the first condo for 4 years; hopefully, we will be able to continue to do so.

    Anybody want to rent a week in newer a gulf front condo? I keep the rates competitive to keep it rented.

    Thanks for your answer to my question.
    dmj4

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  • Account Closed
    CA · Member since 2008 · 277 posts · 11 votes
    17y

    Unfortunately, if government lets the whole system just collapse--which is what you're suggesting above--the pain will be acute to the entire nation and the world.

    So certain priorities must be chosen and the priority is for owner occupant properties--not entrepreneurial purchases of real estate.

    Here is where your ability to put your life in perspective comes in. If the worst thing that ever happens to you is that you temporarily fail as a real estate investor and suffer a foreclosure, you will have lived a charmed life.

    Seriously.

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