Loan Modifications - Some facts and why you need to be careful!

Loan Modifications:  you read about it them in the newspaper, on-line, letters in the mail, emails, and in the Police blotter!

"What are they? Who can help me? Can I do it on my own? I want answers!" - a worried home owner.

What is a Loan Modification?

A loan modification is simply a re-negotiation of the terms of your current mortgage with your lender.  After all, your Promissory Note is just a contract and contracts (all kinds) get re-negotiated all the time. 

What part about my loan can be modified?

It varies from loan-to-loan and lender-to-lender but the most common modifications are changes in interest rate (usually lower), changes in the term (perhaps taking a 30 year and extending it over 40 or more years), changes in the feature (stabilizing an adjustable loan for a fixed loan) or even the principle balance (reducing what you owe to the lender).  I have also seen lenders remove some of the borrowers obligations tied to the property (a secured loan) and turning them into an unsecured debt (like a credit card).

Who qualifies for a Loan Modification?

There aren't any set guidelines but generally the borrowers have to have some sort of financial hardship to potentially qualify.  An increasing mortgage payment, unexpected life changes (death in the family, loss of job, etc.) or other intangible factors may qualify you.  Rental properties may also qualify.  It is best you speak with an experienced and licensed professional who can review your unique situation for analysis.

How long does the process take?

I have seen a successful Loan Modification take a few weeks but as long as 60 days.  Be patient.

Must I be behind in my payments?

Not if the lender you are dealing with actually owns the loan. However, if you are trying to work with a Servicer the situation is different. A Servicer is merely collecting payments for the actual lender. The Servicer has a contract with the lender spelling out the Servicer's duties. The contract does not allow the lender to modify the loan if the borrower is current.

Your Servicer may have said that you must be behind in payments before it can consider a modification. That is true.

Should I purposely stop payments?

I would NOT recommend this.

Can I do this on my own?

Of course you can do it on your own.  However, the reality that an unrepresented and unsophisticated (in the eyes of the lender) homeowner has a slight chance of obtaining a reasonable workout.  The lender has negotiators and in-house lawyers whos agents will sense your desperation or lack of understand and take advantage of it.  They will most likely not offer you favorable terms and will instead offer a solution that has their best interest in mind, not yours.

Check out this ABC news report from January 22nd 2009: http://abcnews.go.com/video/playerindex?id=6704983.

"The average American trying to negotiate a loan modification will not be able to get it done," said Waters. "It will be impossible for them to get in touch with the right person, and even if they get in touch with a so-called counselor, they have a cookie cutter kind of direction that they go in." Congresswoman Maxine Waters (D-CA.)

If I want to hire someone to do it for me, who can help?

I can't speak for the rest of the Country but here in California the ONLY people who can legally accept money from you in exchange for representation is a licensed agent with the Department of Real Estate (DRE) who's employing Broker has their contracts approved by the DRE or an Attorney.  However, if a major portion of Attorney's business is Loan Modifications (defined as more than 12 client in a year) then they ALSO have to have their contracts approved by the DRE. For your reference, a list of these approved individuals and companies is found here: http://www.dre.ca.gov/mlb_adv_fees_list.html.  This list gets updated periodically and I am proud to say that I am one of the few Brokers approved in this manner.

I was approached by someone who says they are a National Loan Modification Company and don't need to be approved by the DRE, can they help me? or

I was approached by someone who says they have a staff Attorney and can help me, is this OK?

NO!  There is no way around the legalities of this issue.  There isn't a National licensing for Loan Modifications nor can you pay a non-Attorney even if they are 'on staff'.  That actually doesn't make much sense to me!  Your payments can be made to an approved Broker or Attorney directly.  That's it.

Can the outcome of a loan modification be guaranteed?

Of course not.  The final decision is ultimately up to your lender.  Anyone who promises you the final terms is lying to you.  My Grandmother always said "if it seems too good to be true, then it probably is."    As I stated above, its best for someone to preview your situation before even claiming they have a chance at success.

What is a forensic loan audit and do I need one?

A forensic loan audit is a thorough audit of your original loan documents.  The purpose of this is to find lender mistakes such as RESPA and TILA violations.  A majority of loans were created, funded and sold so quickly that a good portion of them contain inaccuracies and some contain serious Federal violations.  You do not need an audit but a successful one will provide you with some serious leverage with your lender negotiations.

If you are in the State of California and have some questions about your home loan would like some advice, please give me call directly for honest answers.

Michael Wolff (818) 776-9272