Renegotiating a Mortgage: One Man's Quest

I'll be very interested to see what the outcome of this is. It sounds like a reasonable proposition but will the bank be too bureaucratic to make a move?

Posted by: guest at October 10, 2007 9:47 AM

Don't mean to sound impolite, but please get a clue. The writer states he is not in financial distress and is looking to give the bank an opportunity to keep his business by giving him an attractive fixed rate loan for the remaining term. The current rates for a 5 year ARM are higher than what the writer is paying. The fixed rates for a 10, 15, or 30 year fixed rate mortgage are higher than 5.75%. Why would the bank agree to lock you into a below market rate when the alternative is for them to get their money back today? As to any relationship the you think may be valuable here, the odds are high that the mortgage had been securitized and no one cares about any continuing business relationship. Nothing in the writer's letter gives MORTGAGECO or INVESTMENTBANK a reason to do anything. The letter says I will continue to pay the mortgage for the time being and if you don't give me a better deal, I will refinance and give you your money back. Where's the incentive?

Posted by: guest at October 10, 2007 9:53 AM

I can't see the lender doing it...their motive for doing loan modifications is to save the $ they would have to spend on going through foreclosure--hiring lawyers, sending notices etc. It's not in their interest at all to modify a loan that's performing well.

Posted by: guest at October 10, 2007 9:56 AM

This is a very weak plea. As earlier stated, there is no compelling reason for the bank to do anything. You have to show what competing offers are and why it is to the mutual benfit of both parites -- show that you have done your homework (looks like you haven't). I woudl trash this letter if I got it.

Posted by: guest at October 10, 2007 9:58 AM

A little knowledge is dangerous...I agree with 9:53. This person thinks he's a know-it-all, but he clearly hasn't thought through his negotiating power. The first rule of war (debate and negotiation too): Know your opponent's position.

Posted by: guest at October 10, 2007 9:59 AM

The writer's reference to "INVESTMENT BANK" in the letter implies that the loan has in fact been securitized. Once securitized, it's hard for servicers to even do modifications for those loans that are delinquent. This guy is dreaming if he thinks they will even consider modifying a performing loan!

Posted by: guest at October 10, 2007 10:09 AM

Rates on a 30 year mortgage (bankrate) are well above 5.75%, so I don't see that op's bargaining position is very good.

Question, though: who is in a better bargaining position given that the existing mortgage is a 5-year fixed? OP is going to have to refinance in a year or so anyway. The bank is going to potentially lose this customer in a year or so anyway. No one (except the What) knows were rates are going to be in a year or so.

Posted by: guest at October 10, 2007 10:09 AM

A contract is a contract. What would happen if the mortgage wrote you a similar contract wanting to raise the fees?

Posted by: guest at October 10, 2007 10:15 AM

A new fixed rate loan with a mortgage rate less than 5.75% is worth less than par to a mortgage company given today's rates. (assuming it is in their portfolio which is unlikely). The mortgage company would rather be paid back par with a refinance.

Most likely the loan is securitized though, and typically the agreements underlying securitizations only allow mods in default situations.

Posted by: guest at October 10, 2007 10:19 AM

Its a bit pointless to cover this guys attempt to renegotiate when he appears to be fine even at market rates.

His rental income is 30k (taxable) and a market rate mortgage on a lump of 650k (he doesn't say what his equity is) is over 45k (deductible) and he has two incomes total over 100k.

So whats his problem, exactly?

Posted by: guest at October 10, 2007 10:44 AM

9:53 nailed it...can't disagree with any of the points made, and 10:15 makes a good point too; that any borrower would balk at the lender trying to renogotiate after a contract had been signed.

any bank would laugh at this...sorry, but this won't fly...just get the 30 year fixed, pay the refi fees, and get on with your life. be happy your place is worth more than you paid.

Posted by: guest at October 10, 2007 10:51 AM

This is probably not relevant to the current market, but about 15 years ago I managed to refinance my original mortgage with the bank that originated the loan, despite its having been securitized in the interim. I first tried to refinance and was told that was impossible as my mortgage had been sold to "a securitized mortgage pool." The bank said I'd have to get an entirely new mortgage, with closing costs that would have made it impossible for me to do the new kitchen I was hoping for. I managed to track the mortgage's sale through four different intermediaries, and located the securitized mortgage pool it had been sold into, which was run out of California. When I got the manager of that pool on the phone, he told me it was the first time in twenty years of managing such investments that he had ever heard from a consumer affected by the resale of a mortgage. He wasn't very sympathetic to my plea about my kitchen, but then I told him I knew an attorney who had just finished working on the NYPIRG litigation that had won settlements from banks that were redlining minority neighborhoods in NYC (this is true; I'd already given him the paperwork and he was interested). I took a guess, and told the pool manager that I presumed these securitized mortgages were being resold based on both the borrower's credit rating AND the zip code of the property in question, and that these resales were undoubtedly affecting minority neighborhoods on a disproportional basis, and were therefore illegal. So I told him cheerfully that if he didn't jump into his pool, pull out my mortgage, and send it back to the bank for refinancing, and replace it with some other comparable mortgage, I was going to file a class action lawsuit based on my theory, with backup from NYPIRG. The manager suddenly got very sympathetic and cooperative, and my mortgage was returned to the originating bank within three days. I refinanced at a better rate with no closing costs, and got a new kitchen. But that was before the whole subprime mess, so I'm assuming that securitized mortgages are sold so broadly that this type of targeting would be very hard to demonstrate today.

Posted by: guest at October 10, 2007 10:51 AM

Is that a sign of the times.......Madam or Sir
I always thought it was Sir/Madam

Posted by: guest at October 10, 2007 11:02 AM

This world if filled with morons. This guy is one of them. Apparently, he doesn't read the NY times, wall street journa or have a clue.

Posted by: guest at October 10, 2007 11:18 AM

If I was the recipient of this letter, I would completely p.o.-ed by the smug, entitled tone of the writer. Especially the second to last sentence. "I would sincerely hope that MORTGAGECO and INVESTMENTBANK look at my request as an opportunity to re-negotiate the terms to benefit both parties and not an opportunity to "make a buck" with fees." Great touch -- insult the people you're asking a favor of! I completely agree with all the comments above. This guy has provided zero reasons for the bank to cut him a deal. As our beloved borough president would say, "fuggedaboudit."

Posted by: guest at October 10, 2007 11:36 AM

First, I work at a bank and agree with all the problems people have posted. However, my mortgage lender recently did a refi for me in order to retain the relationship. I had a 1 year ARM and they offered (I didn't ask) to fix it for 3 years and a rate lower than the 1-yr reset was going to be. There were no closing costs. I was baffled at the time and read the documentation carefully and I'm still not sure why they did it.
Perhaps this writer should look into some compromise such as extending the fixed rate period by a few years rather than asking to fix for the life of the loan. The mortgage recording tax alone makes refinancings very expensive if you have to use a new lender.

Posted by: guest at October 10, 2007 12:18 PM

The fact that this letter was submitted by a brownstoner reader confirms my earlier suspicion - many brownstone readers are flat out nuts

Posted by: guest at October 10, 2007 12:36 PM

I work on behalf of banks and finance companies selling portfolios of loans into securitiaztion programs. we have sold $11 billion of comemrcial and residential loan portfolios over the last 5 years.

That said loan servicers are all too familiar with borrowers who look at the current environment and think they can take advantage. The first thing the loan servicer will do is look at their loan to value. You received this loan 3 years ago when rates were low and the real estate market had not reached its peak. If you live in one of the boroughs, i would guess that you have some equity in your place to protect (if you live in FL, then skip the rest of this.) The bank will see this and either call your bluff and not give you an extension based on the fact that you will do everything you can to protect your equity. If you decide to stop paying in order to force their hand, they will either (i) retain a firm such as ours to sell your now distressed loan to another firm which will aggressively go after the equity in your home via foreclosure or (ii) do exactly what a loan buyer would do which is accelerate your loan (calling it due today), impose a default rate of interest (i.e. your low 5.75% rate becomes 10.57% per the terms of the note), proceed with foreclosure, take back the property and sell it for a full payoff (i.e. loan balance+regular interest+default interest+attorney fees).

The thing is, a defaulted loan with good equity for the lender is worth more today than a below interest rate loan. Said differently, I can get a 10%+ ROR on a defaulted loan vs. a 5.57% ROR on your performing loan. The return on a defaulted loan is capped by the amount of equity currently in the property. Lack of equity or negative equity is where seling loans at a discount comes into play.

I would consider for a moment that you are not the smartest person in the room.

Yes, our business is booming right now.

Posted by: guest at October 10, 2007 12:40 PM

10:51,

Great story, but the point remains... You were able to refinance at a better rate because the prevailing rates were "BETTER"

the OP is trying to get the store to take back the shoes he bought, and resell them to him at a lower price than he bought them. Not to mention that the shoes are now being sold at a higher price that he originally bought them.

OP doesn't have a shot in hell!

Posted by: guest at October 10, 2007 12:56 PM

I'm sure the customer service rep in Bangalore will get right back to you. That type of letter goes straight in the round file, or gets passed on to the retail sidefor a sales call.

Some advice, worth what you paid for it:

Don't waste time with letters or expect a lender to offer you a loan at other than market rates. Call your customer service rep or go a branch to see what rates are being offered, and ask if they will modify at the going rate (highly unlikely); otherwise you have to refi. For all practical purposes either a mod or a refi will be processed the same; appraisal, verifications, etc. You may get a slightly better deal on fees if you refi with your existing lender and it's a halfway-professional outfit (e.g. Chase or Wells Fargo.

Posted by: guest at October 10, 2007 1:10 PM

I would love to read all the outraged posts if the mortgage holder wrote to this homeowner saying something to the effect:

"We were happy to serve you by giving you such a low rate on your mortgage 3 years ago but circumstances have changed and in order for us to stay in business and keep many middle-income employees employed we would like to renegotiate your loan at a higher rate effective immediately. We arent looking to make a buck, we are simply hoping that you ill renegotiate so that we all can benefit as a society by keeping our hard working employees employed."

Posted by: guest at October 10, 2007 1:18 PM

So much bloodless talk about the bank's "interest" and "incentives." What about the moral imperative? What about this gentleman's value to the community? Surely we owe him support for not taking his human capital and literal capital to the suburbs!

Please post your social security number and contact information, good sir, and I shall wire you a donation forthwith!

Posted by: guest at October 10, 2007 1:21 PM

This guy is on drugs, very potent ones. I'm having a party this weekend and my guest could benifit from whatever you are on, perhaps you'll be so kind as to sell some to me and you could use the money to offset the fees you WILL have to pay to refinance your mortgage.

Posted by: guest at October 10, 2007 1:50 PM

OP here,

I approached this with admitted naivete and also didn't feel like I had anything to lose posing the question. In light of these comments I have taken every pill in my medicine cabinet and expect to soon meet the fate I deserve.

But seriously, thanks to those who offered helpful suggestions and insights.

Posted by: guest at October 10, 2007 2:37 PM

Most of above comments are written as if in response to a polished edited refi request to the bank, which this letter is not. It is a draft and the writer/borrower is seeking comments.
The writer should amend his sentence to read "I am asking that MORTGAGECO extend me as low a rate as possible, fixed rate mortgage, for a term of 30 or 20 years. Everyone is accurate in that with a positively sloped yield curve, fixed rate borrowing out 20 years has a higher cost than a short term 5 yr ARM. So, the request should not be for a "lower" rate fixed rate mortgage so much as "as low as possible a fixed rate mortgage". This latter edit will highten the credibility in which the writer will be held by bank and achieve the beginning of a dialogue versus a flat-out rejection.

Posted by: guest at October 10, 2007 4:29 PM

4:29 makes a good point. If you're asking the bank to provide a competitive fixed rate for the remainder of the term and save some of the fees that you would normally have to pay on a refi, you have a credible proposal. You have a chance of not paying for new title insurance and mortgage recording taxes and fees which will save you quite a bit.

Posted by: guest at October 10, 2007 5:04 PM

Thanks for several good chuckles, OP and snarky commenters alike. Good stuff - keep it coming (better than gawker!)

Posted by: guest at October 10, 2007 7:42 PM