That is entirely up to the bank. Most loan docs have a clause that allows the Bank to modify the note as it sees fit, obviously within certain parameters. Usually, that modification tends to be in there favor. However, I recently had an experience on a home I own in Texas, through HSBC. It was a 5 year, interest only ARM, set to mature and re-amortize this March. I called last March (2009) and told them that although I have a tenant, if I was not able to extend the interest only option, I would have to consider giving them the house back. That was on a Friday. The following Monday, a representative from their "Retention" department called, and without any begging, offered to lower the interest rate from 5.4% to 4.9% and extended the interest only period for an additional 3 years for a one time payment of $400. Furthermore, they re-amortized the loan and dropped the payments the following month, 11 months before the ARM matured. Now, from this month forward, I have 3 years. You have to ask, and ask, and ask. They have the power to do this for free if they want. They weigh the options and the property value. Obviously, if you are severely upside down, the Bank will most likely not want to carry your note on their books any longer and may try and force a foreclosure by not negotiating with you.
The Rudel Company
Mar 5, 2010