It sounds like if your brother is scraping to get by, its only going to get worse once his principal kicks in (assuming it hasn’t) or rates go up on an ARM?
I have no personal experience in this so the suggestions I’m putting forth are based on what various mortgage and loan related folks have said. From what I understand, you have 1 shot at this. You need to be current on your mortgage with a loan mod verus a short sale. You have to prove financial hardship, but also prove that you have the income (steady paying job) in order to pay for the new mortgage once it gets written down. I believe there are a number of brokers /services who “specialize” in these negotiations. How you figured out which ones are better than others, I have no idea. There are also HUD approved counselors that will do the same thing for FREE. The problem is not all of them do this, so your brother should look on the HUD site for ones in the LA area and start calling. They all offer varying degrees of services.
He should start evaluating his finances. When you’re trying to do a short sale or short refi, you’re doing the opposite in terms of painting a financial picture from when you were qualifying for a loan. Which is to say you need to pencil out your monthly / annualized expenditures (gas, food, utilities, cleaning supplies, healthcare, car payment, car maintenance, phone, student loans, etc) and show that you WILL have a difficult time paying your mortgage at some point and this will inevitably lead to default. Putting things down in your budget like vacations isn’t probably going to be viewed as necessary, so I think your brother should take care to properly budget and forecast what he’ll be spending. The banks like to see that you have some money left over to save after you satisfy all of your necessities plus paying your mortgage, insurance, property taxes. This cushion will be there for you in emergencies. Your car breaking down or someone getting sick should not put you into default. Gas prices and food prices increasing shouldn’t bring you to the brink of not being able to make your mortgage payment. I believe the banks want to see some existing debt and not too much in the way of savings.
I think the likelihood of your brother achieving a successful negotiation depends highly on who’s doing it and how its being “sold”- I wouldn’t advise doing it himself – and also who owns the first and second loans. He should get his loan docs together.
