BLIND LOAN MODIFICATION is a term I've heard for the first time, when my client brought me a Loan Modification Letter from his lender.  He was about 2 months behind on his payment.  His monthly payment was $3,200/mo, and interest rate was 10.12%.  Fair Market Value of his house was about $360,000, although we are not sure if we can sell at that price in this declining market.  He owed about $310,000. 

Just like many of my other client, he was suffering from the decreased income because of the housing industry meltdown.  I had already pre-qualified him for loan modification program I offer, based on his financial, however, he was still contemplating whether to hire my service to do the loan modification. 

Before he took any action with the bank, the bank gave him a "BLIND LOAN MODIFICATION".  According to the bank, this letter was system generated (computer generated) by their investor without regard to his current financial situation.

The letter sounded really good.  It offered to bundle all back pay, penalties and late fees back into his principal, and if he accepted the offer and paid $1980 within a month, they will call everything current, and make his interest rate fixed at 6.95%, with monthly payment of $1980 from thereon.

They also took out the escrow, and made it his responsibility.  It was fine with him, and he liked the interest rate, and monthly payment, except the part that said that the new principal will be amortized over the remaining term, and he will owe a balloon payment of whatever is outstanding at that point.

He had 24 years remaining.  We thought how bad could it be, maybe $2,000, or can it be as bad as $100,000?  The letter didn't say.

I went home and calculated the new principal with the new interest rate, and found out that at the end of 24 years, he will owe a whopping $214,000. 

This was a shock to both of us.  As this time he hired me to renegotiate on this offer.  I only had a few days before the offer expired.  However, when I called the bank, I hit the brick wall right away.  First of all, since he was only 2 months behind, I was not talking to the Loss Mitigation department.  I was with the Early Intervention Team.  I don't know if that meant talking to idots.   They did not have the loan modification letter.  "Because it was system generated".  They called it a BLIND LOAN MODIFICATION, and they didn't know what I was talking about.  They also assured me that there is not negotiation on BLIND LOAN MODIFICATIONS.  You just take it or leave it.

I said based on 6.95% fixed interest for the next 24 years, if he paid $1980 every month, what would be his baloon payment at the end of the term?  They said they cannot generate such schedule because he has not yet accepted the loan modification.  They have no idea.  I was only trying to make sure that my calculation was correct.

Secondly, when I asked if there is any pre-payment penalty on his loan, they could not answer it.  They did not know.  When I called back to speak to another rep, the guy said, "Yes, he better stick to his payment schedule.  If he pays a penny less or a penny more, there will be penalty accessed."  I said, are you sure?  It just doesn't sound right.  Then he went to his supervisor, 10 min. later, he came back and said, "I take it back, there is no pre-payment penalty."  So, I said, OK, great, then, that means that if he refinances, or sells his house in the next few years, he does not have to pay any penalty, right?  He said "Oh, no, then, he has to pay penalty."  I said, "But you just told me there is no pre-payment penalty."  He said, "That situation is different than paying more on the loan."  I said, I need to speak to the supervisor.  I left a message with the Supervisor, and she never called me back.

I went through a whole bunch of shenanigans afterwards, and eventually confirmed my calculation was correct, and that there was no pre-payment penalty on his loan at all.  I got the assurance of no pre-payment penalty.  I was also able to comfirm that the new fully amortized payment figure I came up with (about $2250/mo), would in fact fully amortize within 24 years, so he would not owe anything at the end. 

However, they would not produce a new amortization schedule aruguing that if the customer is to be late again, the schedule would not be the same.  But, they were only willing to give me an estimated amount at the end of the term based on 6.95% fixed interest, and $1980 monthly payment vs. $2250 monthly payement. 

My calculation was only verbally confirmed, but my client was happy knowing what he was signing.

This is the kind of trap that banks are trying to put the consumers in.  If my client did not come to me for advice, he would not have been able to fully understand what he was signing, and at the end of his term, he would have owed over $200K, when he might have thought he may owe $2,000, and that could be covered by appreciation.  

This is a horrible tacktic by the bank.  The monthly payment is intentionally set lower than necessary in order to pressure the homeowners to sign. 

Beware of tacktics like this that the banks are playing on the homeowners, and it is impossible to talk to the bank when they act so ignorant.  I see why so many homeowners are desperate because the banks are so ignorant.  They just don't know how to help you.  We actually need to help them.

Yoko Kashima
Counselor, American Loss Mitigation Agency of Raleigh
Realtor, Newcom Realty
Office: (919) 342-5670
Fax: (866) 929-3739
www.MODI-FI.com
Yoko@MODI-FI.com