Why are Loan Modifications FAILING?

Mortgage and Lending NMLS #94045

Define 'modified'! $111 Billion in your Stimulus funds has gone to the Humongous Banks. Recently the $400 Billion cap was lifted. Our Major Banks now have an open ended blank check to draw upon!

Now get this: The HAMP and MHA guidelines apply primarily to Freddie Mac and Fannie Mae loans. Less than 50% of mortgages being funded today are Fannie or Freddie loans. So in effect, most VA, FHA, USDA and Portfolio Loans through non-TARP funded Banks, Savings & Loans and Credit Unions are not subject to the Making Home Affordable guidelines. How can this be? Loopholes, folks. It's their money and they make the rules. Since we are NOT funding them to help borrowers--unless they have very enlightened management (some do of course) then borrowers will lose their homes or be forced to sell, Meanwhile their neighbor with a Fannie or Freddie loan gets their payment cut in half. Is this fair? Of course not. I suspect this is one big reason the biggest banks are paying back their TARP funds as fast as they can so they can stop modifying loans.

What about the news of loan mod failures? We get releases from HUD and other media generated by official sources. These official sources are pretty much paid mouthpieces of the very companies taking our tax dollars. Now stop and think: why would Fannie/Freddie and our media want to point out that people are failing to meet their modified status? My guess is they are presenting numbers to hide their losses from their investors. They also have their own criteria: that is to FAIL the consumer. Meanwhile they get to appear blameless. If your mortgage was cut in half chances are you would do anything including move heaven and earth to pay it and keep your home. I doubt what we hear as 'statistics' on the news and so should every person in our industry.

So what can be done?  I heard someone say he was hoping that Obama had shamed his bank into helping him. That will be the day. People who succeed at loan modification are able to present a water-tight case for hardship and recovery. Period. You absolutely have the right to request your loan be restructured. The HAMP guidelines are designed to give homeowners breathing room: lenders will work hard to insure they get their original terms back within five years. Not all lenders use HAMP guidelines. In fact, there are many kinds of agreements depending on the loan type and your situation. A professional negotiator will work hard to get longer fixed terms. Especially for folks with sub prime ARMS or negative amortization loans.

Emotion needs to be removed from your negotiation. Banks are not social services. They are businesses. I read about a loan modification expert who is selling a CD relating the "6 secrets of hardship letters". Actually writing your hardhip letter is the easy part. Backing up your letter with solid financials is what really matters. Making sense of the situation is why loan modification is so difficult for individuals. By the time a person has experienced sincere hardship and struggled for perhaps a year or more, most are too worn down to make a sensible business case and stick by it. That is why we recommend an advocate who can make the case for you and be a neutral reality check. Ask around and find a legitimate source in your state. Some bankruptcy attorneys handle modifications as part of their settlement plans. The State Bar Association would be a good starting place.

Endless Workouts? Unfortunately a very high percentage of the loan modifications started up to a year ago are still in their trial workout period five and six months later. The reasons vary bank to bank. Unless their loan is converted to a permanent modification or terms a homeowner can live with, then we have all failed. What transpires during that forbearance (or workout) period is a constant harassment for MORE paperwork proving they are still working, etc.

Endless Paperwork? Since when do you have to prove you are still making the same money you did as when you applied for a loan six months later? If the person is PAYING their mortgage as per the workout agreement I say they are meeting their obligations. There are many possible reasons Banks are NOT converting their temporary modifications to permanent status: #1 might be they don't want to show their actual loss (of higher interest projected) on their books. The workouts are a sham and should be investigated. The few sucessful modifications which have converted to permanent status are a tiny fraction of those still in limbo.

Please tell anyone you know who is experiencing extended workout issues to contact their congressional representatives for help. http://www.congress.org  They may also make a complaint directly to their State Attorney General. most states have online complaint forms. They will investigate. In Washington, our State Attorney has successfully sued several large banks including Countrywide (now defunct) for predatory lending. http://www.atg.wa.gov

All the best in 2010!

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NMLS# 94045



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Comments (100)

Susan Templeton
Bellingham, WA


No offense taken. Just let's be clear that Loan Modification is rampant with scam artists making promises and THAT is illegal in all 50 states and territories. Would you care to share what the cost of legal action against a bank costs, how long it takes and who pays for this? Just curious!

Dec 30, 2009 05:18 AM
Robin Basichis
Rosen Company West/Diversified Real Estate Consultants L.L.C - Las Vegas, NV

Your right there are scam artists all over the place and it is a hinerance to those who are legitimately trying to help.  I will share the cost of legal action with you by the end of the day.  I have to run out on an appointment and after that I'll get back to you.  Thanks - Robin

Dec 30, 2009 05:22 AM
Beverly of Bev & Bob Meaux
Keller Williams Suburban Realty - West Orange, NJ
Where Buying & Selling Works

WOW, this is a very good read from the blog to the comments. I won't add anything meaty to the discussion. I'm just glad to read on the sidelines. I do wish the homeowner Valerie well.

Dec 30, 2009 09:22 AM
Michael Werbick
Castle Pines North, CO


Like I stated before, I have not run across anyone with a 8%ARM as you mentioned before.  If I did I would do what it took to try and refi them.  I also just had a conversation with one of my wholesale channels yesterday and there is a product that will allow a 125% full money purchase refi or CLTV refi with subordination of 2nd.  AND, if some cases, without an appraisal or credit check based on original loan information - as long as the loans are owned by Fannie or Freddie.  To top it off, no MI if there was no MI to begin with

There are great products out there.  BUT, two things need to happen.  You need an LO who can broker out loans o many places to get the products and TWO - a borrower that is willing to work with his LO.  When I say work with his LO, I mean do not shop him for $200.  

Dec 30, 2009 09:46 AM
Susan Templeton
Bellingham, WA


Glad to hear you found a lender offering the Stimulus DU Refi's rolled out in March '09. (I'm impressed you have a lender willing to fund more than the home's value...in this market!?) 

Fortunately with the new RESPA rules landing January 1, nobody will be quoting $200 origination except the Big Box Banks who can hide their costs. Hopefully you can snag a few clients willing to pay for your expertise!

Dec 30, 2009 10:46 AM
Susan Templeton
Bellingham, WA

Hey Bev,

Drop by anytime! Sharing good will and good ideas is what I love about Active Rain.

Dec 30, 2009 10:47 AM
Robin Basichis
Rosen Company West/Diversified Real Estate Consultants L.L.C - Las Vegas, NV

Only five percent of those who pursue Loan Modifications actually get one. They usually fail because the financials the homeowner submits doesn't work for the bank.  Normally what the bank does is run a NPV (Net Present Value) to determine if it is worth it to them to modify your loan or foreclose on the property. They use amortization schedules and actuaries that factor what they will make over different periods of time - 1 year - 5 years - etc.  To give an example if asking for a rate reduction is current on their loan and is paying $4000 a month on a home that was purchased at $650,000 and is now worth $275,000 the banks may will probably take the gamble that the owner will not default and ruin his or her credit.  They will continue to collect nearly $50,000 a year.  If the owner continues to pay for a year or more the bank has made a wise gamble. No matter what happens they are way ahead of the game - not  taking into consideration what the buyers may have put down at closing or how many $4000 payments they made before the market declined.  Our Fees... If we aid a client in getting a fixed modification without any legal help it cost between $300 to $500.  If we take the legal route we retain our attorney to the file and the cost is about $2500.  Usually the attorney does not have to go to court, but if they do the client is covered for a full day of court costs.  If we sue in Federal Court and bring charges under UCC guidelines that is costly and can run the client between $8,000 to $12,000.  When you hear miracle stories about the court awarding the property back to the homeowner it usually happened in Federal Court. If the client decides to do a Short Sale we negotiate everything with the lender and accept the Lenders commission as compensation - there is no charge to the homeowner.   


Dec 30, 2009 12:20 PM
Susan Templeton
Bellingham, WA


Thanks for sharing your range of fees. Does the State of Nevada have any say on what you charge? We are allowed up to $1,500 per loan in Washington for what amounts to six months of work in many cases. 

What percentage of your clients achieve the 'quick fix' vs the full blown Federal Court route? It is our experience that a beleaguered home owner who can't pay their mortgage now could not consider the legal route you describe, either financially or mentally. Your method sounds more like a strategy based on what will make a lender cave. Interesting. We use pretty boring negotiations on what makes sense. That's about all we find mitigators capable of. Of course, attorneys are more adept at strategy. Guessing the Banks pull out their big guns if you go to Federal Court?

So you handle the Short Sale and get a commission. Hmmmm. Could that be an incentive?

Dec 30, 2009 01:49 PM
Robin Basichis
Rosen Company West/Diversified Real Estate Consultants L.L.C - Las Vegas, NV

As far as fees the Mortgage Lending Division doesn't know what end is up. They wrote a bunch of legislation on Loan Modification last year and they continue to revise it.  To be compliant with the MLD you have to post a $75,000 bond and submit license applications which include more fees.  Your right about the full blown court route.  This is a way to go for someone who can afford it.  We are seeing people in expensive homes take this route because they no longer want to pay on a depreciated property.  The Federal Route is not for everyone.  The quick fix does work if you have all your ducks in a row and get the lender to agree in writing to reset the loan permantly after a 60 day trial mod.  The bank will do everything it can to get out of the deal but if the homeowners makes the payments on time during the trial period they do convert.  When we do Short Sales we really work for our money - it's a lot of effort for a 3% commision. Take care - Robin

Dec 31, 2009 03:29 AM
Susan Templeton
Bellingham, WA

I'd like to thank everyone for contributing such great questions and ideas on this post. The facts are clear that loan modification is not well understood, nor are fair offers being consistently awarded to deserving, distressed homeowners. 

Until we get bank examiners and overseers in place to actually INSURE a fair and equitable response by lenders to homeowners who can demonstrate sufficient ability to manage a lower payment and RECOVER financially, then we will continue to see massive foreclosures and short sales. This afffects everyone in our industry by lowering the collective pool of people who can actually buy a home (based on credit destruction) for at least 3-7 years and putting many homes on the market at fire sale prices. Modification is a crude tool because it relies on a business to be 'fair' and that business (banking) has never had fairness as it's chief motivation.

Please speak up to your elected officials! http://www.congress.org  

Jan 01, 2010 12:08 PM
Wayne B. Pruner
Oregon First - Tigard, OR
Tigard Oregon Homes for Sale, Realtor, GRI

Hi Susan, This is a great post with great comments. I read some point of views that I had not considered before.

Jan 04, 2010 04:05 PM
Susan Templeton
Bellingham, WA

Hi Wayne, I was pleased to provoke some challenging questions. The person I actually refer to is terrific (and overworked). Thanks! Susan

Jan 04, 2010 04:27 PM
Connie Tebyani
Platinum Home Staging, Inc. : RESA-Pro - Calabasas, CA
Platinum Home Staging, Los Angeles and Ventura County

Jim, (#53)  In all the cases in which I speak of, the Home Owners were dealing DIRECTLY with the Bank or company who held the loan, not some side-shot "loan modification" company.  Chase, Aurora & the late Countrywide ::EACH did this to three different people we know. 2 of the 3 were able to pull rabbits out their ars to accommodate these insane requests. The 3rd let the bank have the house.

Jan 06, 2010 12:24 AM
Jim Pirkle
Harvest Realty LLC - Dahlonega, GA


Were there a lot of payments missed or a huge 'upsidedown' factor involved?  Just curious.  I'm in the middle of my 3-month trial payment period with Wachovia right now and honestly, it couldn't be going smoother and a down payment was never involved.

Jan 06, 2010 12:50 AM

I have read this blog and it caught my interst immediately. It seems that everyone here has good knowledge about loan modification. I applied for loan modification through bank of America in February 2009 and it has been approved. I have received the written approval letter in July stating that my loan modification has been approved and my trial modification payments has been set for three months. I already successfully made more than the three months trial payments required and I was advised by Bank of America to continue making the trial period payments until the permanent modification letter is receivced. As of now I  have made six trial period payments and waiting for the permanent modification. However, when I log in to my Bank of America mortgage profile it shows my workout loan modification status as follows: Can you guys please advice me of what can be the possible outcome. Will this loan modification get denied and  what might be the reasons for the denial.


  • Loan Modification
  • Hide Details

    Workout Status Detail: Your Loan Modification has been approved, and all collections activities have been suspended as a result of this approval. Next steps will include a call from a workout negotiator who will explain the terms and options of your approved workout including all conditions required for the final completion of the workout, such as upfront funds. You will also receive a package of documents in the mail. These documents are time sensitive and must be signed, notarized and returned to us in 10 days, including any required upfront funds. If you have not received your workout package and/or a phone call from your negotiator by 02/01/2010, please contact us. Please do not call back before 02/01/2010 as that may delay the process. Please respond promptly to any calls or requests that you may receive from Home Retention Department during this time period. Lack of response will cause your workout to be delayed or cancelled. Thank you.
    Information as of: 12/03/2009
    Workout stage: Approved

     Loan Modification


    Workout Status Detail: Your request for assistance has been received and will be reviewed for potential Workout Assistance programs. Please be advised that all collections activities are continuing for your loan, as your loan has not yet been pre-qualified for a Workout Assistance program. We expect more information to be available on . If your status remains unchanged after , please call and speak to a customer service representative. Please do not call back before as that will delay the process. Please respond promptly to any calls or requests that you may receive from Home Retention Department during this period. Lack of response will cause your workout to be delayed or cancelled. Thank you.
    Information as of:  
    Workout stage: Referred
    Jan 13, 2010 02:29 PM
    Susan Templeton
    Bellingham, WA


    Some loan modification companies are just as legitimate as an honest Realtor, if just as hard to find. Ask around. They work very hard for their money,  which in the State of Washington is $1,500 per loan. Not a bad fee to save your arse.  Most buyers haven't much hope of navigating the complex new system successfully unless they know the rules of the game.

    Jan 14, 2010 12:26 PM
    Susan Templeton
    Bellingham, WA


    I tried to answer earlier but the site was not letting me login

    Your experience points out the stamina required to navigate a successful loan modification and then what? Are you approved or not?

    Most are left hanging well into their three month trials...way past that time frame. To have your file labeled 'Referred' means it has or will be sent to yet another department for review. There are no dates on this, and only the person who issued that can interpret their findings. Good luck finding that person...they have likely handed off your file to the processing department who may or may not still have it. Have THEY STOPPED sending out collections notices? That's a good sign.

    Banks use words like 'potential' as loop holes in case the person reviewing your file decides to reject it at some later point. If they do reject it, you must immediately ask for a detailed reason, fully itemized and explained in layman's terms. I assume you are being asked for monthly income documents during your trial? You could be denied for three reasons that come to mind: having not enough income or making too much income or missing a payment.  

    Best of luck to you!

    Jan 14, 2010 12:36 PM


          Thanks for the quick response. I am no longer receiving any collection notices. Previously on bank of America's website in the referred status section it stated to contact the lender after January 14, 2010 if no further updates are made. However on January 14, 2010, the original date of January 14th was removed from the workout status. There are no dates appearing on the workout status anymore. I am very anxious to know what will happen next. What is the minimum income required for loan modification to get approved? Also, none of  my trial period payments were missed or late. I submitted all the required documents and also I have confirmed with BOA that they have received them as well. Also, my original monthly mortgagae payment was $3600 and the modified trial period payment was 1938.00. In this case what is the minimum income requirement and what is the maximum income.



    Jan 14, 2010 02:19 PM
    Susan Templeton
    Bellingham, WA


    The HAMP and MHA guidelines state 31% Debt to Income Ratio for your housing costs including insurance and taxes, plus MI if you have that now. Which means your gross income will establish how low the payment should be. For jumbo loans (depends on your area what is considered conventional these days) banks have a kind of floor payment they will accept so 31% is often exceeded. Expect a graduated scale for 5 years with a fixed rate for the remaining 25 years.

    Whatever you are offered be sure and read the fine print. Have a lawyer or CPA look it over before you sign and send back. Don't miss any dates. Send your documents certified mail. Keep a copy. Be sure what you agreed to is what they extend. It is not unusual to be denied after several months in trial and have to start over. It seems the system is designed to set people up for failure. To say loan modifications are 'not working' is to admit the process is new and very flawed. All the best to you.

    Jan 16, 2010 05:36 PM
    Susan Templeton
    Bellingham, WA


    It is pretty difficult for homeowners to navigate the bank/mitigation departments because they are unfamiliar with the underwriting mindset and their process. There are way too people involved along the way and you will never get to speak to the actual investor who makes the final decision. Your clients need to be very cool and professional as well as prepare a watertight financial package and keep great notes, while dogging their case past countless people whose names change weekly.

    Complaining and demanding puts you on the bottom of the pile and your file will be 'lost'. Be prepared to swallow your pride, check your emotions and be constructive or risk alienating the one person who could help: the debt mitigator is a person just trying to do their job.

    Jan 16, 2010 05:42 PM