This is a good question and will depend entirely on your lender and your scenario.
As the the housing industry rapidly deflates, and the lending industry becomes increasingly restrictive, lenders are slowly realizing that this sort of negotiation may be in the best interest of the investors that funded their loans. This is the first thing to understand. Loans are securities that are supposed to perform a certain way when traded on the financial markets. It is up to the companies that “securitized” or “turned the loans into saleable securities” to fetch the highest return on investment for the investors that have purchased these “ mortgage backed securities” or MBS’s
This concept is, was, and always will be of utmost importance to your lender when it comes to mortgages that are securitized (which is most of them). If you hear someone say, “the country is in trouble and lenders are finally starting to help by offering these modifications,” I’m sorry, but they really don’t care about you as much as they care about their investors. Their mission is to maximize stable profitibility for their investors, end of story, period.
So no government urging, or special guideline creation, etc…, will make the lenders do anything they wouldn’t do already. Unless the government flat out FORCES lenders to renegotiate terms with struggling borrowers, they will always continue to act in their financial best interest. That said, lenders are starting to realize it may be in their financial best interest to negotiate work-arounds like this.
It all comes down to determining what’s going to cost them less money and acting accordingly. For example, if you can blatantly convince your lender that if they don’t modify your rate and payment that you WILL end up foreclosing or filing bankruptcy, their impetus to work with you will be high. In fact, if you have indeed “convinced” them, the only thing standing in your way could be a company policy that prohibits the modification for your situation.
The unfortunate part of convincing a lender of this is the statistical probability of the following. You are much much much more likely to default, foreclose, or file bankruptcy if you have been and currently are severely late on your payments. It’s a statistical fact that ON AVERAGE, lenders will collect more money from people who have not paid late yet. As such, there is little, if any evidence you can provide that will convince them to negotiate with you until you are late (although it is possible).
The question is: what is the best way to present this case to the lender? What might come as a surprise to some is that you should be blatantly honest with your lender. If you cannot afford your payment increases, call them and let them know why. What would the payment have to go down to for you to feel like staying in your house? Ask them to set the payment at this level. Tell them, honestly, that if the payment is at a certain level or above, that you’d rather sell, short sell, foreclose, or file bankruptcy than keep paying it.
They will likely have procedures in place to handle your inquiry. Whatever the case, you increase your chances of success by knowing the details of your scenario and by being able to provide them in a concise, yet thorough manner verbally and in writing. If you are facing a bona fide financial emergency that prevents you from making the payments, you should be able to document it.
Again, they will do whatever they believe will get them the most money possible. If they think that lowering your payment and keeping you on board will get them more money over time than foreclosing on you and selling the house, that is when you are likely to be able to have your loan modified. It’s all business to them, even though it can be very personal to you. Convince them in no unspecific terms that renegotiating your payment in the best business decision they can make.
So yes, you can renegotiate your adjusting payment, and it is becoming more and more common. It depends on the factors discussed above in addition to the internal policies of your lender. Finally, keep it civil. The people you will be talking to are used to dealing with clients that lose their temper and are overly emotional. Approach them with respect and in a calm, friendly, businesslike manner. The human element is the last variable. If you can appeal on a personality level to them, your attempts to appeal to their superiors on a logical level may be heard just that much louder.
This is a challenging time for many homeowners right now. I wish you well and offer my solidarity. A good primer on Short Sales that includes even more education on related topics can be found here.
I don’t think that it will be easy to renegotiate your interest rate. The federal government is trying to get lenders to come up with a plan to do exactly what you ask. But for most lenders, the loans have been bundled up with many other loans, so it is difficult to figure out who to go after and how exactly to help out the borrowers.
Although, I agree that it is in the lender’s best interest to hold onto a good loan at a reasonable rate, rather than risk the loan to foreclosure.
Good news, there is a brand new program available now that is backed by the federal government and is designed to help the borrowers who have a good payment history in the past, but now that the rates have started adjusting, can no longer afford the payments.
For example, let’s say that you have a 2 year arm loan with a perfect payment history when the rate was 6% for the 2 years. But now the rate has jumped to 9% and you can no longer afford the higher payments. The program will allow you to refinance to a reasonable 30 year fixed rate loan, if you can document your income to show that you can afford the new payments with an interest rate of let’s say 6.5% to 7%.