American Home Mortgage Servicing Inc. is a reasonable company to work with. AHMSI has signed onto the HAMP or Making Home Affordable Program.

Doug got behind on his first mortgage with AHMSI after a water pipe broke and flooded his house. Insurance covered the damage but not the cost to repair the pipes. The entire house needed to be replumbed. This set Doug back.

Doug fortunately had a regular job making around $5,000 per month. His unmarried partner of many years made around $3,000 per month. His partner was not a part owner of the home, nor was she on the mortgage.

Doug had other debts, including a second mortgage. In order to show him as having enough money to service his debts, I needed another $1,000 in income in addition to his own $5,000.

So I used $1,000 per month of the partner’s income by having her pledge to pay “rent” of $1,000 per month, but no more. Why didn’t I use her entire $3,000 per month? Because it would then have been hard to show Doug had a “hardship.” Also because Making Home Affordable payments are calculated as 31% of gross income, his modified payment would have been higher. Or he might not have qualified for a modification at all.

Doug’s first mortgage had a balance of $180,000, and his rate was a fixed at 7.30% for a few more years. Thereafter, it was to be adjustable based on the one-year LIBOR plus 5.3 points. If you go to Money Cafe you will see that the one-year LIBOR has been as high as 7.4 in the last decade. That adds up to a 12.7% rate. The cap on his loan was 13.3%.  So, this loan could escalate to an out-of-sight interest rate.

I multiplied Doug’s gross income of $6,000 per month by 31%, the ratio used under the Making Home Affordable program, yielding a total payment, counting principal, interest, taxes, insurance and HOA of $1,860. Note, only the first mortgage enters into the calculation. I then subtracted taxes, insurance, and home owner association dues, a total of $329, leaving $1,531 available to pay Doug’s principal and interest payments.

The problem was that $1,531 was more than the $1,400 Doug was currently paying on his 7.3% interest-only loan. Doug had a relatively small loan and a relatively high income. So instead of getting a 2.0% rate for five years, AHMSI gave him a 2.0% rate for the first year, increasing a point each year, and capping at 4.75%.

It is my experience that all adjustable loans are modifiable.

I also helped Doug settle a credit card debt. His mother lent the money, and I prepared a note and deed of trust to secure her. It is my believe that when you borrow money from friends and relatives you should not be less formal about it; you should be more formal about it. You have an important relationship to lose.

Doug also has a second mortgage, a HELOC with Beneficial. It remains to be seen how negotiations on this will play out. Doug has stopped paying on the second and is banking the payments so they will be available if Beneficial should foreclose. We are hoping that a cash out payoff settlement can be worked out with Doug’s mother putting up the payoff money. It may take months or even years for this to be resolved. Doug paid my fee in advance, and I will be available as long as it takes to assist him.

Doug is a happy camper.

Click here to read the modification agreement which AHMSI gave Doug.


A.M. got behind when he had an interruption in employment. He did not have a reserve account, and he got two years behind on taxes. He was stuck in a 2/28 ARM, fixed for the first two years at 9.2%, and adjustable thereafter based on the one-year LIBOR index and a high margin of 5.6. The LIBOR is under 1.0 now, but in ordinary times it rises in to the 5s and 6s.

A.M. did not get approved for a Making Home Affordable modification, but AHMSI give him an in-house modification with exactly the same terms: The back tax and interest payments were added to the loan balance. The interest rate was set at 2.0% for five years, then 3.0% for one year, then 4.0% for one year, then 5.0% for one year, and then a permanent rate of 5.05% for the balance of the loan.

A.M. is also a happy camper.

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