Philip Wakefield is a fellow attorney. He does personal injury law and DUI and criminal defense. By the way, he does excellent work, and I highly recommend him.

When the economy tanked in 2007 and 2008, legal revenues dropped. Phil got behind on his HomEq loan.

Philip owed $500,000 on his first mortgage and $120,000 on his second with GMAC.

The HomEq loan was a 2/28 ARM, meaning that it was fixed for the first two years. Thereafter the rate was based on the 6-month LIBOR plus a 7.0 point margin. While the LIBOR is currently under 1.0%, it typically ranges from 4.0 to 6.0 points. So this was a really dangerous loan. When the economy returns, the rate could shoot up to 7.0 + 6.0 = 13.0, except there was a 12.99 cap on the rate. This was truly a predatory loan. I can assure you that Phil’s loan officer made a killing by jacking his margin up to 7.0. The typical margin runs 2.25 to 3.25.

HomEq put Philip into a modified loan at 2.0% for five years, based on a 30-year amortization, with 1.0% step-ups each year after that until it levels out at 5.0% for the balance of the loan.

Because Philip is self-employed, a lot of work went into reviewing his income and expense and getting the right profit and loss statement.

At the same time Phil – with my coaching – was able to negotiate a $10,000 payoff on his $120,000 second mortgage with GMAC. Philip was able to borrow the $10,000 from a relative. For GMAC this was not an unreasonable outcome because the house was worth less than what was owing on the first mortgage.

It is rare to get a principal reduction on a first mortgage but feasible to get a principal reduction on a second mortgage, provided you know how the game is played.

Philip Wakefield is a happy camper.

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