Three Reasons why Loan Mods Cost So Much

Many homeowners interested in reducing their monthly payments are turning to their trusted real estate agent, lawyer or mortgage broker to help them modify the terms of their mortgages and won't blink an eye when learning that the average loan mod fee is between $2,495 -$8,500. (Actually, the fee in California may be even higher - the maximum allowable fee is 10 percent of the loan balance.)

Hold on a minute. If you stop to think about it, ten percent of the loan balance is a lot of money! If the loan balance is $500,000, for example, ten percent is $50,000! That's a lot of money!

So as Joan Rivers would say, "Can we talk?"

Why is a loan modification fee so high? I believe there are three reasons, but I bet you already know the answer to reason one.

Reason One: This reason is incredibly simple. Everyone knows it. The reason a loan modification specialist charges so much is because that most homeowners expect to pay an exorbitant amount. After all, many modification firms are headed by attorneys, and we all know that an hour spent with an attorney doesn't come cheap. By the way, do you know the definition of an attorney? An expensive lawyer. ;-) Also, most mortgage specialists will tell the owner that he should skip a few mortgage payments to show the bank that the owner earnestly needs help, so the owner will have ready money to pay the loan modification specialist's high-priced fee!

Reason Two: The second reason the fee is high has to do with kick-backs and referrals. Did you know that loan modification companies typically pay referral fees of between $500 -$1,000 to real estate agents and others who refer clients to them? It's true, yet most people don't know this. Most owners simply want to have a lower house payment so they'll blindly follow the recommendation of a local authority (real estate agent or accountant) to help them come to the right decision. Advertisers have known about the "expert factor" for some time now. That's why they use actors who play doctors on TV. So if your local tax preparer or real estate expert suggests that you contact Steinman & Sons law firm to modify your home mortgage, you may do so because that's what a local knowledgeable person advised you to do - not knowing that the "expert" would then be paid a referral fee of between $500 to $1,000 dollars!

Reason Three: The third and final reason that a mortgage modification fee costs so much is because homeowners have been led to believe that modifying a loan is difficult and that a homeowner cannot possibly do it by themselves. Not true. The truth is that loan mods are not all that difficult and if you do your own modification you can be assured that your best interests will be represented. After all, even the top-ranked attorney loan modification company cannot guarantee a 100% success ratio. And in a worse-case scenario, if an owner signs an agreement with a law firm to modify the owner's mortgage and the law firm cannot modify it, the owner will now owe an attorney money PLUS be billed by the lender for his back payments! Ouch. That's a double whammy!

A better approach is to just do it yourself; then if that fails contact a lawyer or modification specialist. The reason that many owners don't initially do this is because most people are often motivated by the fear of losing something than the thought of gaining something. They are more afraid of doing something wrong than just trying. Remember: even the top-rated loan modification company cannot guarantee with a 100% certainty that they will be able to get you the payment that you want.  Plus, if you do your own modification you may be able to request that the lender reduce your loan by the amount of the high-priced modification fee. Who knows? Your lender may be willing to give you a break.

There you have it. Three little-known reasons why loan modifications cost so much. An often quoted passage, "the truth shall set you free" should be revised to "the truth shall help set you financially free" because many homeowners are saving big money by doing a loan modification themselves - without having to hire a high-priced specialist. Who knows? Maybe you'll be next.