A modification is when the borrower or a professional consultant submit proof and evidence to the existing lender that the home is less valuable than the payoff and/or the rate has adjusted and the client can no longer meet the obligation and there is zero or negative equity in the property due to bad lending practices or a declining market - and the lender agress to change the rate and/or terms of the existing loan.
Many people claim to be "certified loss mitigators" but there is no industry designation by that title. Real loss mitigators work for the lender and mitigate the risk of the lender's investors. Late night internet "loss mitigators" paid $1500 to take a course from some ingenious marketer promising them this is the next great piggyback ride to millions in the bank. So here are these thousands of people who took an internet or live course and are now calling themselves Certified Loss Mitigators. They have no professional licensing, no errors and omissions insurance, probably no professional insurance, and almost certainly no audited financials or bonding to back them up in case they screw you.
Loan modifications are made using the existing lender and modifying the existing loan. No new loan is necessarily created. No fees are paid to the broker or attorney in relation to a new loan. The fees are paid directly by the borrower for the service of loan modification negotiation. Which, by the way, requires several hours of research on the part of the negotiator and the part of the attorney. Yes, you can request your own loan modification and not pay anyone anything. What you pay for is all the research and papwerwork time and professionally submitting your requests/demands by a licensed attorney.
Practical Example (I love those):
Say you borrow $10 from me to buy a chicken and you are going to sell the eggs to repay me. I based the loan on the chicken's eggs being worth 10 cents each and you being able to give me a nickel for every egg you sell. The caveat is that you can give me a nickel per egg for the first 3 months but after that it may go to 7 cents per egg. It is an adjustable rate in other words.
If the value of the eggs stays the same that means now you are only making 3 cents per egg - not enough to feed your family on. The loan officer told you not to worry about it because the value of eggs was going up at least 10% per year and before the 5 cents payment became 7 cents repayment they could to to another egg-backed funding and refinance that loan into a long term, fixed rate.
But what happened is eggs went down to 8 cents each and you're paying me 7 of those 8 cents. Additionally the cost of chicken food went from $2 per gallon to $4 per gallon and your income stayed the same. Plus have you seen all of those broken eggs just laying around all over the place?
So you call me and tell me that story and prove it all in writing and ask if I will go back to 5 cents per egg and let you sell 2 eggs without paying me anything from them. I see, because of your pages of data, you are correct and I agree. Besides, I recognize the name of the attorney who submitted it to me.
We just modified and did a forebearance on your chicken loan but I didn't give you a new loan to do it. Besides, now you can't qualify for a new loan because I don't lend 100% of the future value of eggs anymore and even though a professional egg evaluator assured me your eggs were worth 10 cents at the time, because of all the broken eggs in your barnyard, your eggs are now worth only 8 cents each. And because you didn't pay the farmer on time your credit smells rotten.
Why did I do it? I don't want to take care of your chicken or sell the eggs. I just want my money back. Besides: Interest is front loaded. (But that's another farm animal story for a later time.)
See you at the polls in November. I dare you to vote for inexperience in a time like this.
THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.
EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.
Copyright©2008 Ken Cook. Georgia and Florida real estate investment loans, FHASecure and FHA Home Loans, nationwide commercial hard money and small business loans, non-recourse loans for real estate investors
Novation Mortgage, 2501 E Piedmont Road, Suite 201, Marietta, GA 30062 Georgia Residential Mortgage Licensee 20014. Florida Mortgage Broker Business MBB 0703760 FHA Lender - Equal Housing Lender
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