American Home Mort Servicing, Option Arm - Loan Mod

[Joel Fraser]

Here's my story:Last year I married a lovely girl who knew very little about finance. In her previous marriage she was fortunate enough to buy a nice townhouse for $122k in 1999. The townhouse appreciated significantly over the past 9 years and several times over that period she and her ex pulled money out of the house, culminating in a $283k mortgage in 2006 based on a value of about $353k (80%). The mortgage was an option arm and my girlfriend proceeded to make only the minimum payments. so she negative amortized up to $300k by the time we married at the end of 2007. She also had quite a bit of credit card debt, which we have paid off completely over the past 7 months.I knew all of this before I proposed, and fortunately since our marriage she has been the model of fiscal responsibility.Since marrying her we have been making the full interest only payments to stop the negative amortization and over the past 2 months we have started to make principal payments as well. the loan is tied to the 12 month treasury moving average (MTA) and is set at 3.55% over that rate, which has been falling over the past 4 or 5 months and will continue to do so for at least 4 or 5 more.that's the background.Here are my issues. Other than this mortgage our financial situation is reasonable and will continue to be so at least until late this year. However in December we'll be having our first child and my wife will be taking a short leave and then return part time until august of '09. Things will be tight at that point. While the rate is dropping short term I am very concerned that it will start to adjust back up in '09 right when we see a drop in income and an increase in expenses. I would like to fix out our rate but unfortunately that is almost impossible conventionally. First, I am pretty certain that our loan is underwater. Even though it appraised for $353k in mid '06 we live in Miami and I'd be willing to be the townhouse has dropped by at least 20% since then and since she negative amortized the loan up another $17k there is even less of a chance that we still have any equity left. Secondly, there's a big prepayment penalty in place until June of '09.So really a modification is our only choice. Unfortunately (for that process) we have made all our payments on time and it will be very difficult to claim any hardship at least until my wife gives birth. I hate to wait until then to try and do anything however.I'd be willing to add my name onto any modification. My credit score is over 800 currently and my income is substantially higher than my wife's. I have no debt at all other than a $29,000 student loan at less than 0.65% interest which i am in no hurry to pay off. Right now i'd be happy to fix it at any rate below 6.50% fixed on a 30 year amortization.I guess my question is:Do i have any chance of a modification like that given that the loan is not in distress?