Starbling Loan Modification Series: Part IV

Headlines: First Family Home to be Sold Via Short Sale…If Only the Lender Had Listened

It’s early April, 2010, and I have received an email from Jeff Starbling. You may remember the story, no, the saga.  For those just tuning in, here is a quick recap.  Jeff and his wife purchased a townhouse in Florida for $200,000 at the height of the housing boom. Bank of America (BOA) held both the first and second mortgage, $160,000 and $40,000, respectively.  It was the classic ‘no money down’ purchase with a higher interest rate of 8%.

After purchasing the home, the Starbling’s welcomed a new baby to the family.  Soon after, Jeff’s wife lost her nursing job. They began having problems paying the mortgage due to the lack of income and certainly couldn’t sell the home, as the market values in the area had dropped by 30%. Instead, the Starbling’s decided to apply for a loan modification, widely touted as the answer for many struggling families.  After 5 months of negotiations, the news from the lender was not what they wanted or expected to hear.  The Starbling’s were rejected – due to the home being listed for sale. After exhausting every option available, the Starbling’s gave up on BOA and decided to move out last fall.

The Starbling’s home is now under contract to be sold via short sale for approximately $118,000.  Bank of America stands to lose over $90,000 once commissions & fees are paid.

Had the lender taken the time to listen to the Starbling’s situation, BOA may have avoided a significant loss.  The Starblings weren’t looking for anything but a way to lower their monthly mortgage payment. They were prepared to deal with the fact that the house was underwater and understood it would take years before their home would regain enough value to break even. They wanted to do the right thing, but after being rejected on a technicality, the Starbling’s faith in the ‘system’ has been seriously tested.

As for Bank of America, the process would have been easier and certainly a lot cheaper. All they needed to do was lower the interest rate from 8% to 4%. This would have cut the Starbling’s bill in half and would have allowed them to stay in the home they purchased to start a family.  Even at low Fed rates such as 4%, BOA still stood to make a profit.  Instead, a new family is without a home and a lender has a loss on the books.  I don’t get it.

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