Mortgage Modification - Is It Real?
Several weeks ago, a highly respected friend brought information to me regarding a new industry - Mortgage Modification. He asked my opinion and assistance in building a company based in this industry. At first glance, it seemed too good to be true. After about an hour of drilling him on the truth, legality, and history of Mortgage Modification, I could not believe that I was not previously aware of the value, scope, and resolve of this program.
This may be an opportunity of a lifetime I told him. An opportunity for professionals to earn money, something we’re all interested in, but there is a bigger picture. We can help 25 million Americans who were caught up in the subprime and predatory lending practices of the last four-plus years.
For the past several weeks, I’ve been in due diligence regarding this important industry. One that promises so much for so many, I have stepped slowly for the fear of the old adage, “If it looks too good to be true, it is!” The following are the results of my study. I will uncover the good, the bad, and the ugly. But most of all, I hope to uncover the truth, as I want more than anything for Mortgage Modification to be real and for it to help those who, for the first time ever, are faced with the threat of losing their homes.
What is a Mortgage Loan Modification?
A loan modification is an adjustment to an existing loan made by a lender in response to a borrower’s long-term inability to repay the loan. Loan modifications typically result in a reduction of the interest rate, or an extension in the length of the term, or a reduction in principal, or any combination of the three. A lender may be open to modifying a loan because the cost of doing so is less than the cost of default or foreclosure. Typically, a loan modification can save hundreds of dollars monthly on mortgage payments.
It is important to understand that this is not a refinance and thus loan modification is available to everyone regardless of credit history or equity position. Even if more money is owed than the home is worth, Mortgage Modification can possibly help reduce the mortgage payments. Lastly, a loan modification has NO effect on credit scores.
With the passing of President Obama’s Financial Stability Plan on March 2nd, 2009, anyone who can demonstrate a hardship is eligible to take advantage of and participate in Mortgage Modification. Go to the Government site, Making Home Affordable Program, http://www.MakingHomeAffordable.gov/, which offers a self-assessment tool using a questionnaire to determine qualification for Refinance or Mortgage Modification. There is also a very informative video in which the government strongly suggests personal negotiation with the mortgage lender or the use of the free services of a HUD approved housing counselor. The site further suggests that if one or more mortgage payments have been missed, an immediate call to the lender or a HUD-approved housing counselor at 1-888-995-HOPE (4673) is imperative.
I personally called this number and was connected to a well-spoken support person. I told her that I was doing research for an article. She politely answered my questions regarding mortgage modification and directed me to. She said that if I were a homeowner seeking assistance, my call would be forwarded to a HUD counselor stating that the HUD counselors were very busy and patience would be needed. When I asked her what the approximate wait time would be, she said, “I do not know. However, these lines are open 5 days a week from 9:00 a.m. until midnight EDT. I might consider calling late when there is less traffic.”
The above sites and counselors offer the following two options to homeowners who qualify:
· This is a good option if the home value has not declined. Many individuals seeking assistance have uncovered that their home is worth less than the current mortgage. Therefore, the refinance value would be less and not cover the pay off of the existing mortgage.
· As of April 6, 2009, refinance of existing loans can be made even when the loan amount exceeds the home value. However, full doc loan application will be necessary.
· Debt to income ratio is the same or better than when last mortgaged. We know this to be a problem for 25 million Americans.
· A strong credit history is a must as a fully documented loan application will be taken.
While assistance in refinancing is welcome, it is not probable for most who find themselves in the ‘long-term inability to repay’ category.
Mortgage Modification –
The Government set out a plan to assist homeowners who are ‘upside down’ in their home mortgage; that is, they owe more than the home is worth. Said plan allows the lender to modify the existing loan to better suit the borrower’s current financial position resulting in a reduction of the interest rate, or an extension in the length of the term, or a reduction in principal, or any combination of the three! In my 38-year real estate career, I have never seen anything that offers more help to the consumer. It’s a win/win for the troubled borrower, the mortgage servicer/lender, and our current US financial market.
To qualify for Mortgage Modification, the applicant must have income as a fully documented loan application will be taken. This applies to jumbo and commercial loans as well.
Yeah, what about, “If it’s too good to be TRUE – It’s probably not!”
Yes, that’s what I said when it was brought to me on the 5th of March this year. Since that day, I’ve been deep in due diligence to uncover not only the truth about its promises but the pitfalls the plan has relative to a new industry that has sprung up around it - that of Mortgage Modification Services.
Pitfall #1 – Lack of Manpower and Systems
The government’s published information strongly suggests that the borrower negotiate directly with their lender/mortgage servicer. With the current state of the financial institutions, they, like most companies, have greatly reduced their staffs. They simply don’t have the manpower or systems in place to handle the millions of calls they are currently receiving leaving the consumer on hold and out in the cold.
To top this off, homeowners are living in fear with ‘Toxic Loans’ and are just not savvy enough to negotiate with lenders. It’s a no win situation.
Option #1 – Understanding that this will take time and patience, free access to HUD-approved counselors (1-888-995-HOPE (4673) is offered. They are more than willing to help negotiate with lenders, as it is their job to do so.
Option #2 – A borrower may contract with an attorney-based Mortgage Modification company that will mitigate for a fee.
Pitfall #2 - The Offer of Forbearance
When contacted by borrowers seeking help with mortgage modification per the government’s instruction, lenders are currently reverting to the old way of doing business, which is an offer of forbearance. Forbearance simply means they will forgo the borrower’s payments for a period of time, let’s say three months, to help relieve the pressure and add (re-amortize) these payments back into the mortgage payment later. That’s right, the borrower gets three months reprieve so they will have bigger payments later. How in the world will this help? If they can’t afford the payments they have now, what makes the lender think they can make bigger payments later? So the offer of Forbearance only delays the inevitable!
Do not accept forbearance, it is not in the best interest of the borrower and only delays default or foreclosure.
Pitfall #3 - The Offer to Refinance
When a borrower reaches their lender by telephone, the first question is “Are you currently in default of payment?” If the answer is YES, they are deferred to another department and have to go through another waiting period. If they answer NO, the person answering the phone is instructed to say, “It looks like you may qualify for refinancing.” They verify the contact information and then say, “Thank you for calling. The refinance process of your existing loan #----- has been requested and you will be contacted shortly. Due to a large number of calls regarding this program, our officers are very busy. Please be patient with us. If you haven’t heard from us in ten working days, please feel free to call us back. Again, thank you for calling.”
With no response in ten working days, the homeowners call again and find themselves back in the same broken feedback loop they started on day one. This looks and sounds like a stall to me. Can you imagine the number of loans that are now in this ‘possible refinance’ hopper? This alone could end up being backlog hell. Again, this is only good if the borrower can qualify (see Refinance above); however, most cannot. The homeowner may not know or understand that this process will stall the inevitable - default or foreclosure.
Option #1 - Accept the offer of refinancing if:
· The current home value is higher than the mortgage balance.
· The current credit score is solid enough to qualify for a new loan.
· Personal income is the same or higher.
· The annual interest rate offered (for refinance) is significantly lower than your current rate.
· The new payment PITIA (principal, interest, taxes, insurance, and association fees) will be lower than the existing PITIA payment.
Option #2 – Reject the offer of refinance
Pitfall #4 - Telephone Communication with the Mortgage Lender
The information provided by the government regarding Mortgage Modification tells consumers to contact their current lender by telephone and negotiate a Mortgage Modification. In other words - ‘do it yourself’. Picture this, hundreds, if not thousands, of calls to mortgage lenders have already stressed their phone systems by those seeking to refinance. When their phones are answered, it is by Understaffed, Under-Qualified, Under-Enthused, and Over-worked employees. The stressed caller has just spent hours on the phone listening to Muzak, or a commercial advertisement, “Which card do you not have in your wallet”, or worse, “Your call is very important to us. Someone will be with you in a moment. In an effort to improve our service, this call may be recorded…” Oh please, if this last statement was true, there would be enough recordings to fill the Library of Congress! Just in case you don’t believe how difficult it is to talk to someone in regard to Mortgage Modification, watch this January 21, 2009 ABC Nightline video interview with Congresswoman Maxine Waters. It’s a real eye-opener. If a US Congresswoman can’t get through, the consumer doesn’t have a chance.
Hire an attorney-based Mortgage Modification Company whose knowledge base is the ‘how to’ of Mortgage Mitigation. Their job is to stay in contact with the lender/service company until the offer to modify is received or rejected. These Professional Mitigators usually require an upfront fee or deposit, which they hold in escrow until the loan is approved for modification or denied. Ethical (see below) companies offer a 100% money back guarantee. This means that if the borrower or loan does not qualify for a mortgage modification, the upfront fee will be returned in full.
Pitfall #5 - Predatory Modifiers
It was only last summer that the government launched HOPE, the Homeowners Foreclosure Prevention Program. According to a January ‘09 article by Les Christie, CNNMoney.com staff writer,in the five months since it (HOPE) has been in effect, HOPE has helped exactly one homeowner avoid foreclosure. This, despite Congress making $300 billion available to back these loans and estimates that the program would benefit as many as 400,000 families."As it stands now, we've only gotten 752 applications," said Federal Housing Authority spokesman, Brian Sullivan, "and only insured one loan. Needless to say, the program isn't working terribly well."
Before it was revised by Congress on March 4, 2009, the modification plan was only available to those who were behind in their payments and possibly under the threat of foreclosure. The announcement of this program brought out a plethora of waxed mustached, suede shoe, fast-talking rip-off artists to prey on those in distress. Many of these unscrupulous cons collected upfront fees from the homeowners then instructed them to ‘stop making payments’ so they could qualify for a modification.
You can imagine what happened next; they kept telling the homeowners that they would have an answer soon. Then after collecting a bunch of money, they disconnected the phones, changed names, and moved their offices! And, of course, the homeowner’s upfront money was lost, along with their home, their pride, and the efficacy of the program. This crime was so often perpetrated that authorities could not prosecute the offenders fast enough, thus leaving a swath of devastation in their path.
Just like bad in every profession, dishonest Mortgage Modifiers have darkened the door of the good guys causing the media, and our government, to tell the consumers to avoid those seeking to help negotiate the modification of loans. There will always be those who prey on the uneducated, scared, and helpless. When the average citizen finds themselves upside down in the mess caused by the predatory lending practices of the last three years, they become even more vulnerable. Mortgage Mitigation is a lengthy, involved process filled with the interpretation of legally binding agreements and government mandates. It does not happen casually. The following is a checklist to assist in identifying a respectable mortgage modification company:
· Are they attorney based?
· Do they have correspondent attorneys in your state?
· Do they employ professionally trained mitigators?
· How large is their staff and how many cases are they currently processing?
· How many cases have they successfully mitigated?
· What percentage of applicants has been rejected? A good rule of thumb is about 25% or more.
· Do they contractually have a 100% guaranteed refund on the up-front fee if the case cannot be mitigated?
· Do they provide references?
· What is their projected timeline for rejection or completion?
· How, and how often, will they be in contact with you?
Don’t assume that because they give references that they are on the up and up. Professional Mortgage Modification Companies have nothing to hide. Professional Mortgage Modification Companies must be transparent because, at this juncture, they are not regulated. Attorney-based companies involved in mortgage mitigation are very concerned that they operate within the confines of the law and do everything they can to remain transparent. Because of a large number of borrowers who have found themselves in trouble, it is obvious that the Mortgage Modification Industry will soon be regulated. Only those who help create the rules will survive - another reason to work with attorney-based companies.
Pitfall #6 - Upfront Fees
The Predatory Modifiers in Pitfall #5 have made everyone look bad. Even President Obama said, “If you must pay, walk away.” This leaves the consumer to believe that they must negotiate Mortgage Modification on their own. As we learned in Pitfall #1 -#5, this is easier said than done.
While doing it yourself is an answer, it’s not the only answer.
Some of us enjoy, and have the time, to do many things ourselves like changing the oil in the car, cleaning our gutters, reroofing the house, or cooking three meals a day. Others of us feel our time is more valuable, so we pay to have these things done.
Money upfront is not the norm when it comes to labor; however, it is when it comes to attorney fees. Unless you have a case that will generate a large settlement, most attorneys request an upfront fee or retainer.
For example: Recently I got a ticket for speeding, the first in years. Here in North Carolina, the court date is printed on your ticket. It happened to be a date that I was scheduled to be speaking out of town. I called the courthouse. They informed me that the solution was not to show up and then come in on another day, give the reason I had not made an appearance on the scheduled date and then plea my case. That just didn’t sound right, so I called an attorney. He said that it was true and agreed with me, though the Judge would not look at this in favor. I told him that I was guilty of 56 mph in a 45 mph zone and only wanted to reduce the number of miles over the posted speed, as the officer suggested, so it would not affect my insurance.
He said that he would take over from here and assured me that the number would be reduced and, with court costs, the ticket charge, and his fees, it would be $350 paid up front and I could forget about it. I did as he requested and sure enough, it was done.
Attorney-based Mortgage Modification companies must have their money up front because if they don’t get it now, how are they going to get paid after the mitigation is successful – there is no closing or funding. However, the prepaid fee must be 100% guaranteed. If mortgage modification is not approved, 100% of the fee will be returned.
Mortgage Modification is a Giant Win for ALL - the Consumer, the Lender, Real Estate Agents/Brokers, and the Economy!
President Obama enacted law and allocated 700 Million Dollars to cure the ills of predatory lending (sub prime) practices that initiated the melt down of our economy. Lending institutions, overwhelmed with requests, cannot handle the projected 25% of homeowners who are in possible threat of delinquency or foreclosure and are seeking the cure of Mortgage Modification. The public needs help. Yes, the government has stepped up but the mortgage lenders cannot keep up. Professional help is a necessity and a relief. It is without doubt that America will survive this economic fracture and President Obama has designed a solution that will work. It will work only if our American Dream of homeownership survives. And it will - with professional help.
Who is in a better position to help the homeowner than the real estate professional?
Real estate agents and brokers havea direct line to the twenty-five million homeowners who are eligible for mortgage modification. They are our past clients, customers, friends, neighbors, and family with whom we’ve established trust and communication. We can assist in education, knowledge, and help in keeping their home - and getting back on their feet. Attorney-based Mortgage Modification companies need assistance in directing applications, verifying and collecting data, and delivering the package to the mitigation department. Attorney-based Mortgage Modification companies have already asked for assistance and are more than willing to share their fee and pay for our services. Of course our fee disbursal will be predicated on completion of the loan modification.
I believe that this involvement would further our client – customer - community service and take our 100 year legacy of helping Americans build their dream to a new level.
The satisfaction an agent/broker would receive in assisting homeowners in keeping their property is awe-inspiring and no one could fault us in collecting a fee for what we’ve been doing for over a century - helping homeowners.
If you have any questions or comments, please e-mail the author at MtgMod@RossiSpeaks.com. For more information on ROSSI, go to http://RossiSpeaks.com.
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