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Ask the Real Estate Lawyer - September 6, 2009
By Ilyce Glink and Samuel J. Tamkin
Most ARMS obtained during the last five years generally fell within a couple of categories. The first category fixed the interest rate for an initial length of time and limited the increases on the rate during the remainder of the loan term.
If you had a 5/1 ARM, the interest would have been fixed for five years and at the beginning of the sixth year the interest would reset to a new rate. That new rate would be based on the one-year Treasury interest rate or the one-year LIBOR (London Interbank Offered Rate) plus a margin of about 3 percent.
That is to say, if the Treasury rate or LIBOR rate were 1 percent, the new interest rate would be 1 percent plus 3 percent for a new rate of 4 percent.
Your mortgage documents almost certainly limit how much the new interest rate can change. For example, your interest rate may not be able to fall below a certain threshold, nor can it rise more than 5 or 6 percent above the initial rate. Typically, your ARM cannot go up or down by more than 2 percent each year.
There were some mortgage loan products offered several years ago that allowed a borrower to lock in an interest rate at or prior to the end of the initial adjustable rate period. If you have one of these loans, you would have to see what rate the loan would lock to. You might not end up with the current rate you have with the lender, but rather the rate set forth by formula in the loan documents.
If your loan doesn't give you the right to lock your rate, you might be out of luck, especially if your loan is serviced by a national servicer but the loan itself is owned by investors. With those types of loans, the only way you can move from an adjustable rate loan to a fixed rate loan is to refinance your existing mortgage.
If you're lucky to have your loan serviced and owned by a local bank or savings and loan, that bank may have a program that allows you to fix your interest rate. However, most lenders in these current economic times have eliminated some of these plans and now require borrowers to refinance their loans from an adjustable rate loan to a fixed rate loan.
Q: I applied for a loan modification through the
Since I put in my loan modification application, my lender has reported my account delinquent to the credit reporting bureaus. I was told the loan modification process would take 30 to 90 days.
I had an optional mortgage insurance payment included with my loan payments, and now that insurance has been cancelled. I have to reapply at 58 years of age for insurance but have been unable to obtain insurance and other creditors have dropped my accounts.
The lender stated that they would notify me once the loan modification is complete. What should I do?
A: President Obama's Making Home Affordable Plan is likely the plan that your current lender is considering for you for your loan modification. Unfortunately, lenders are taking way too long to process the paperwork for their borrowers under any and all loan modification plans.
While you are working with the
Keep a log of each call you make, with the time and date of the call, the name of the person you talk to, their position at the company, their representative number, if they have one, and the office location you are calling.
Also, remember to write down what you asked and what they answered. In some cases, loan modifications have been lost or misplaced and need to be sent and resent to lenders. If that's the case, make sure you keep a copy of all of your documents and verification of how and when you send the documents to the lender. You should also follow up to determine if they have received the documentation.
Savvy borrowers who are trying to work on a loan modification under the Making Home Affordable Plan will closely monitor their file with the lender and call them every day or every other day to make sure their file is looked at.
Unfortunately, not all lenders are created equal when it comes to loan modifications, and it's up to the borrower to be on top of the situation. If NACA is doing your legwork in making sure the loan modification application is being processed, make sure you follow up and know exactly where the lender stands.
If you don't get a direct answer, or you feel that it has taken too long for you to get information from the lender or NACA, call the lender directly.
As for the cancellation of your mortgage insurance, this isn't the worst thing that could have happened to you. Mortgage credit insurance is basically an expensive policy for a declining liability. The policy typically pays off your mortgage in case you die. But over the years, as you pay down your loan, you're still paying very high premiums for less coverage.
Usually there are cheaper options available by obtaining term life insurance. When I have had clients offered mortgage insurance, the cost of that insurance has been up to three times higher than ordinary term life insurance. You might still be able to get term life insurance quite a bit cheaper than your mortgage insurance. Only you know whether at this time of your life what monthly or yearly expenses you can afford before you obtain your loan modification.
As for your credit history, if you were delinquent on your mortgage before you applied for the loan modification, the lender can continue to report you as delinquent until the trial modification has been made permanent. If you were current with your payments, the lender must continue to report you as current.
If you were current on your mortgage and the lender has been reporting you as delinquent, you should dispute the information with the three credit reporting bureaus,
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Samuel J. Tamkin is a Chicago-based real estate attorney.
Ilyce R. Glink's latest ebooks are "Save Your House From Foreclosure" and "The Clutter Collector: How to Get Rid of Clutter Everywhere In Your House," which are available at her Web site, www.thinkglink.com. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11 am-1 pm EST. You can also write to Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022
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