The TRUTH About Loan Modifications

Confessions of a Modster

I did not get into the business of loan modifications by choice, I started assisting families with loan modifications with my company, Home Resolution & Credit Services, Inc. because there is a real need that is just not being met at the pace that it needs to be met. Many families initially came to me asking for help and came back months later when the lenders and organizations that I sent them to initially could not help them. I really was thrown into the loan modification because I saw too many people not getting the help that they needed and eventually losing their homes.

I have been a REALTOR® since 1986. I love selling homes, going through offers and showing property and believe it or not I even love holding open houses on occasion. I also love doing my real estate talk television and radio as I have been doing for about 15 years. It has been a passion of mine to educate the community and industry on the real estate market and everything that comes along with it. Loan modifications were the last thing on my mind and radar. Real estate as we knew it was alive and well, thriving and making millionaires everyday to those who invested wisely in it.

In the past couple of years I have studied loan modifications and know how they work. We have had so many successful and some unsuccessful loan modifications for clients that I now have stats and figures on what lenders do, don't do, who qualifies and who does NOT qualify. The loan modification business is a tough one. A thankless job filled with so much anxiety, fear and panic. People do not know who to trust, what to do or what to believe. We have had a lot of success handling loan modifications but it has not been fun or easy.

Recently, I made a decision to no longer offer services of a loan modification company because over the last 2 years I have been through hell and back working with lenders who have made it so difficult for everyone who has tried to get a loan modification. It literally has been like pulling teeth with no local anesthesia. We have been challenged at every step of the way, on every turn and I have spent hours per day every day just protecting my integrity every time a news story came out about a loan modification company closing down or a client who came in telling me that the lender told them that we had never called them or did anything even after we have had our communication log and documentation to prove otherwise. At some point enough is enough, this is a fight that can't be won when you have lenders running to politicians whom they support and contribute to leading to changes in legislation.

The main change taking place very shortly will be the passing of Senate Bill 94 which will prohibit companies AND attorneys from collecting advanced fees for loan modification services. Many people will argue that no company or attorney should take an advanced fee and should not get paid unless the client receives a loan modification. In theory, this sounds reasonable. The problem is, how can anyone overlook this, and what company is going to pay their staff for sometimes up to 6 months or more before they get paid for work performed? What attorney will work on a case without getting paid for 6 months or more? Who will perform months of work hoping to maybe get paid? Nobody will. Or very few will. Lenders and Government want you to go directly to lenders and non-profits. We have already seen how working with lenders works and the frustration and lack of assistance is what made companies and attorneys start handling loan modifications in the first place.

Case in point; about a week or so ago (September, 2009) I was dropping off some files to a lender contact that I have for a few of my clients. This is a major lender who tells people not to work with companies. While I was waiting for my contact to come out of a meeting 2 separate individuals came in asking for assistance for a loan modification. This is how it went down:

Homeowner: Hello, I am here to get information about a loan modification, who can I talk to?

Lender: Please go the the following web-site and fill out the paperwork and fax it to this number.

Homeowner: Is there any way I can find out if I qualify for a loan modification?

Lender: Yes, when you fill out the paperwork and send it in you will know in about 90 days if you qualify. It could be a little longer.

Homeowner: I have heard that it could be longer, more than 6 months. Is there any way I can talk to someone to see if we even qualify for a loan modification before I fill everything out?

Lender: No, you have to fill out and send in the paperwork.

Homeowner: Can I talk to someone today? I really need some advice and a sense of direction.

Lender: No, sorry. Please fill out the paperwork from the web site and send it in.

Homeowner: Can you please print it out for me? I don't know if I would do it right and would really appreciate it if someone were to just give me the paperwork.

Lender: Sorry, please go to the web-site. Thank you and have a nice day as I have to take these calls.

The above scenario is almost EXACTLY as it happened. The second person who came in had about the same results and both walked out frustrated and disgusted. But this is what lenders want. This is unfortunately what Government will be steering homeowners to do. I have to believe that lenders are wanting more than anything to just clear out the inventory of bad loans, loans in default or loans that they feel will go in default so that they can take back the properties, sell them and clean out their portfolio. This HAS to be one valid theory because I can't think of many other ones that would make sense.

I believe that lenders are about to get what they want. I also believe that Government will get what they asked for without knowing the consequences of what is about to take place. I do not believe Government is acting in bad faith, they are just acting without having full knowledge of what is truly happening here. As crazy as it may seem in this day of open and free information, I believe that Government is misinformed in many ways and is making some huge mistakes that will backfire. Its about to get really ugly, really fast. But maybe that is what needs to take place. Maybe at some point you have to stop fighting it and do some number crunching to see if it really makes sense to keep that home worth $200,000 with a loan balance of $600,000. Heck, if lenders do not want to help and you are running around in circles trying to keep your home that will not give you a profit for 15 years or more, maybe selling and buying a home in a couple of years at today's values is the answer. But that is a decision that should be left to each and every homeowner.

I have come up with a spreadsheet and formula that calculates what your gain or loss would be to keep your home, do a loan modification or just sell your home and move on. The numbers do not lie. If you are interested in seeing if it makes sense for you to keep your home, send me an email and we will set a time for us to meet to discuss your scenario.

Loan modifications have been around forever, they just have not been as popular as they are today. The market changes and shift in values has brought loan modifications to the forefront.

So what happened and how did we get here?

I remember the day that the market started to shift. In the beginning of 2007,I was talking to a friend of mine who told me that lenders were about to drop many of their programs because they sensed some changes in the marketplace quickly approaching. I remember exactly where I was and where I was standing when he was telling me this and I remember asking him to have his rep call me as soon as possible so that I could better understand what their fear was. Although it may have taken a few months for the market to do what it did, it really started for me in an instant. It was as if I was in the middle of traffic and I could hear a pin drop. It was the strangest conversation, one that I had heard before. But this time it struck a nerve and left an uneasy feeling in my stomach.

Then, BOOOOOOOOOOOOM! Like a house of cards, the market came crashing down. A large part of the crash came as a result of speculation and fear while another part was the result of overzealous lenders who were running to offer people loans that just did not make sense. Why would they give people loans who really had no business qualifying? Because regardless of the risk that the borrower may have been, the reward was guaranteed, because even if the borrower defaulted after a couple of years there was already equity due to the rapidly rising appreciation rates that we were experiencing. Of course, agents were quick to follow because they knew that anyone could now buy a home and there were some big dollars to be made in commissions. And guess who followed? Consumers who saw how easy it was to get in on the new Gold Rush called the real estate market.

The race was on. First, it was easy qualifier loans with little down. Then no down. Then no job verification. Then no credit. Then bad credit was ok. So basically people were being given loans who had no credit, no income and no downpayment. No kidding! People who worked at fast food restaurants were buying $900,000 homes with no money down. And before you knew it we were in for some serious corrections. I will be the first to admit that never in my wildest dreams did I ever think we would be where we are today. With a lot of pride I can also say that none of my clients have come back to me because they bought over their heads. It was and always has been my duty to pre-qualify a client to see what they can afford and make sure that their lender does not put them in a loan and payment that they will not be able to make. The two past clients of mine that have been in danger of losing their homes were the result of them losing their jobs.

As the market got worse and lenders tightened up on their programs, the timing could not have come at a worse time as many homeowners who had bought with exotic loan programs were now needing to refinance as their short term fixed rates expired and their payments shot up. It created a panic like I had never seen. Everyone was trying desperately to save their homes and all of a sudden I began to get callers on my shows asking me what they could do to save their home because they could no longer afford their payments and could not refinance. I sent them to non-profits and told them to call their lenders. After a few months they were calling me on the air and telling me that nobody was calling them back and they were on the verge of losing their home, so I offered to help a few people for free. Before you knew it, the line to my office wrapped around the building with people wanting help with their loan modifications. Because of this and the scams and fraud that was rising, I decided to tackle the business of loan modifications because I knew how they worked and had done many of them for clients already. But they are also a lot of work and volunteering to help everyone with their loan modifications is just not a reasonable expectation. We went to the DRE and obtained permission to use an advanced fee agreement so that we can charge clients legally to assist them with their loan modifications. Since the beginning, I always believed that doing things legally and according to the law is how you should always conduct your business. So here I am today discussing the most popular topic in real estate; loan modifications.

There appears to be a tremendous amount of talk and stories about loan modifications. The local and national networks have all done stories on them, politicians push them and lenders say that they are doing what they can to accommodate consumers and assist them with their loan modifications - sure they are, NOT. Just Google “loan modifications” and you will get about 3,340,000 results. With all this information out there, how do you know who to trust or who to believe? All of a sudden everyone is an “expert” and everyone knows how they work. Which leads me to believe that there are even more people who don’t know how they work than those who do.

Add the thousands if not millions of scams out there and you will see that these are dangerous times for those needing assistance. Click here for a recent story on 20/20 regarding loan modification companies. *This is merely a link to the story by 20/20 and by no means do I state that the company is fraudulent as I am unaware of any charges or convictions.

Because of the scams that exist everywhere consumers are being warned to stay away from loan modification companies by the media, government agencies and funny enough, lenders! (More on lenders and their continued role in this mess later on in this story) I am the first to say that I love my President, I would take the shirt off my back for him. I am proud to have Obama as our leader and think that he is on the verge of even greater things then we can even imagine. But he is missing the boat on this one when he tells consumers to just call their lenders because their lenders are just not helping at the rate that they need to. Somewhere in some board room or jail cell, these lenders are laughing because they see consumers continue to get lied to and continue to lose their homes while everyone runs around pointing fingers at each other. The warnings about foreclosure rescue scams are real and should be taken seriously because there are people everyday being scammed by someone. These con-artists are pretty good at their game.

But not all companies are scams. There has been a witch hunt going on that is dangerous and can do more harm then good. What I mean by this is that consumers are being told that loan modification companies are scams by the media, many agencies and the actual lenders themselves. This is creating a panic and flooding law enforcement agencies with complaints that really are not valid and it is making it tough to get to those that really are legitimate complaints in a timely manner. Why? Because people are being programmed that if they paid someone to do a loan modification they got scammed and in many cases, this is just not true. There are some very legitimate companies out there with proven results. And again, there are a lot of scammers out there too. The media and agencies in my opinion have a responsibility to alert consumers about the con-artists that are out there, but they also have a responsibility to let people know that there was real help out there for those that are able and willing to pay for it and not lead people to believe that all companies are crooks. It is everyone’s responsibility to report the truth.

Who’s scamming who?
The latest scam involves the actual lenders themselves who contact borrowers and send them letters that they are pre-approved for a loan modification and then request that the borrowers send in money ranging from about $1,500-6,000 or even more in order to complete the loan modification. Once the borrower sends the lender a check and it is cashed, a short time later the borrower gets notified that their loan modification was denied due to low income or a number of other “excuses”, but they keep the borrower’s money. Lenders continue to prey on desperate homeowners and do so without a conscience. At the same time they pose with Government officials and non-profits saying they are helping and tell borrowers to not use the services of a private party and loan modification companies are a scam. But in the end, who’s scamming who?

Today, foreclosures are on the rise and more people will lose their home this year and for a few more years to come if lenders keep giving band-aid loan modifications of 1-2 years. This brings up another issue; Homes that are being foreclosed on are selling at tremendous prices which means a lot of opportunity is out there, yet it is not reaching those who should be able to take advantage of these opportunities. Why? Because they are being sold to investors who are coming in and paying cash or buying with large down-payments and turning these properties into rentals which eventually drives property values down. What's even sadder is all the families who want to be homeowners but can't because they can't compete with investors who have big pockets. But these big pockets are not getting lenders more dollars, they are just closing quicker and getting the loans off the lender's books faster. It is common knowledge in the industry that investors can buy a property for much less than a family who wants to buy a property as a primary residence because they have cash or large downpayments.

Think that lenders care about you? Think again. There has to be a solution for this by putting a limit on how many REO properties can be sold to investors. This would mean that lenders still get true value for their properties, only these properties are now going to proud homeowners who will care for and maintain their home while realizing the American Dream and maintaining property values which helps everyone in the long run. But that is another story for another day!

Back to loan mods....

A few months ago Wells Fargo began closing business accounts of companies that performed loan modifications. What were they afraid of? Why do they as well as other lenders have a problem with consumers going to someone to assist them with their loan modifications? Let me tell you why....

Aside from my earlier comment about lenders wanting to liquidate the bad or troubled loan from their portfolios, the loan modifications that they do want to do they want more control of the rate and terms. Usually, the method that determines what rate you will receive on a loan modification is based upon your income and a formula which is used by many lenders. Lenders know this formula, but most consumers don't. Knowledgeable and experienced loan modification companies do too. Get it?

See, if you have an interest rate of 7%, and based on this formula you would qualify for a rate of 2.5%, the lenders many times will offer you 4-5% and you will think that it is a great deal, when in reality you should be getting a much better deal. Is this all starting to make sense? 

Pay attention to what I am about to share with you as this will be a complete synopsis of what loan modifications are and what to look out for.

The following is a “tell all” about loan modifications. From what is a loan modification, how they work, who can do them and what to look out for when considering a loan modification company. This information comes from experience by my company, Home ReSOLUTION & Credit Services, Inc., a company that has or is currently negotiating hundreds of loan modifications with tremendous results. As I mentioned, we are no longer taking new loan modification clients, but we will begin a campaign to teach consumers how to do their own loan modifications. More info on this at the end of this story. It also comes from the experiences of thousands of consumers that I touch everyday via the number one real estate show, my daily 2 hour radio show in Northern California, “Hablando de Casas”. This show is in Spanish on the largest Spanish Radio Network in Northern California, 1370AM, KZSF. In case you are not aware of the statistics, over 70% of Notice of Defaults have Hispanic last names. These are huge numbers and I am sending the message out to most of the segment that is affected by this crisis. I also get the message sent back to me by this powerful community. I hear it, I feel it and I see it. Bottom line, we are in the trenches for this is not a disease, it is an epidemic.

The following information is straight-forward with no punches pulled. If you or someone you know is in need of assistance with their loan, please read this and forward this to anyone needing this type of advice.

First things first - Why pay when you can get it for free?
With the passing of legislature we feel in coming on or after October, 2009, in California this will be a mute point as loan modification companies and attorneys will not be able to charge anyone for loan modifications upfront. But before this happens, it is legal to charge someone an advanced fee if you are licensed and have an approved contract by the DRE or are an attorney.

The following is something that you will see I have a strong opinion on, your choice to seek free assistance or your choice to pay someone to assist you. Loan modifications can be complex and confusing. Most people need some type of assistance to navigate through the maze of the loan modification process. The lender and investor guidelines change often making it impossible for anyone to be a so-called “expert”. I believe that very few people know as much about loan modifications than we do and yet we are not experts. You cannot master a constantly changing field, but you can be pretty good at it.

Many people, the media, non-profits and others think that you should never pay for something you can do yourself or have free assistance for. But the facts are as follows:

Try doing it yourself. You may be successful and you may in fact get a pretty good deal. But if you do, you are the exception. Yes, you really can modify your loan yourself, it is possible. It is true that you can also go to court and represent yourself. But should you? I tell people everyday to try it themselves because it is your right. Just as you can sell or buy your own home without an agent, change the brakes of your own car or replace your roof on your own home.  Just make sure you know what you are doing. Click here to see what a Congresswoman found out when she attempted to do a loan modification for a couple of citizens.

Did you know that you do not ever have to pay for gas again? You don’t. Buy a bicycle and take it to work everyday. If you have a family and kids, get one of those bikes with seats on the side. You will have to get up early and it will take you longer to drop off the kids and get to work, but at least you will not have to pay for gas.

Did you know that you never have to pay for food? You don’t. If you are willing to stand in line for assistance, you will get fed. Don’t get me wrong, if The Cheesecake Factory, Morton’s Steak House and California Pizza Kitchen were offering free breakfast lunch and dinner everyday, I would be the first in line. But there are places where you can go for free food. In this Country, nobody should ever go hungry.

AGAIN - We will no longer be taking new loan modification clients and will no linger be charging client for loan modification services. We will give advice and teach people how to do them, but we will no longer be charging or taking advanced fees. I just wanted to get my point across. :)

The Loan Modification Bottleneck

In the beginning of July, 2009, there was a story that came out stating that loan modifications had increased and the system for loan modifications was improving to a rate of about 180,000 loan modifications in the past quarter. Everyone was walking around giving each other "high fives" because there appeared to be light at the end of the tunnel. However, let's do some math; It is estimated that about 9 million people need or will need help with their mortgages. At the "improved" rate of 180,000 loan modifications per quarter, that means that we should be out of this mess in about 12.5 years. Ummmm, ok....

Recently, I did an interview for a major newspaper about loan modifications and the reporter informed me that Chase which also owns WAMU and EMC was behind on their files by 155,000. The good news is that they have 3,000 people helping them with these files, the bad news is that even with this amount of people it will take almost 3 months just to open up a file and begin working on it. Many people just do not have time to wait.

Many people try calling lenders and get nowhere. Not only that, but I have been on the phone with clients when they talk to their lenders and I am shocked as to how they treat consumers. I have heard lenders tell clients that they are free-loaders and ask them why they think they can live in a home for free. They tell them that they will be foreclosing on their home knowing (or probably not knowing) that the consumer has rights and they are just plain nasty to them. Of course, there are exceptions. I have talked to many lenders who are in fact professional.

I called a lender the other day for a client and the voicemail said “beware of loan modification companies that charge because we work directly with borrowers at no charge”. Because of the history that I have had with this particular lender, I did not know whether to get angry or laugh. Many lenders just do not get it. If this lender was really helping everyone as their voicemail states, their clients would not be coming to us. To me it is an insult to your intelligence to state that they are so willing to assist you with a loan modification. I have spoken to so many of their local reps that time and time again failed to follow through on their promises and did little more than drop the ball and lie to my clients and myself time and time again.

I can’t tell you how many times we have sent, resent and resent modification packages to lenders only to have them tell us each and every time that they never received it even after numerous proof of receipts from them. Half the time they lose our documents and entire files and have us send them again while telling our clients at the same time that we never sent anything. They call and tell our clients that they have never heard from us after we have had and documented numerous discussions and names of individuals. Many lenders receive our complete package that comes with property and neighborhood information along with other financials in a comprehensive and detailed report, then after reviewing our report they tell us that there is no assistance available at this time and call the client to negotiate the loan modification right after they got off the phone with us. Believe it! They then ask our clients why they hired someone to do something they can do themselves and my clients respond by telling them that they HAVE been trying for months themselves and never got anywhere. I would love to be a fly on the wall when lenders get that response.

It is a complete joke and embarrassment the way lenders are continuing to get away with the things they are getting away with. It is just as bad that we continue to allow them to do so and consumers continue to trust and believe these lenders.

Many lenders have no ethics or integrity. Many of them that are telling you these things are the same lenders that put you into a loan you never should have received in the first place and now they are your “friend”. Make no mistake about it, it’s all about the bottom line. If it makes sense for a lender to foreclose instead of reworking your loan terms they will do it. They know what they want and they have leverage over you; your home. I thought I had seen it all until I experienced this crisis and now very little surprises me.

We had one client who tried several times with WAMU to get a modification and was denied several times. They came to us and we got denied several times also but kept submitting and resubmitting while each time WAMU would tell our clients that we were not doing our job, that they had not heard from us, etc. Of course, the client got upset and at one point did not know whom to believe. But it gets better….

On a Wednesday afternoon, they received a call from WAMU telling them that their modification was denied and that they were going to foreclose on their home. The client came in the office in a panic and I sat with him to try and calm him down and make numerous phone calls to WAMU. The very next day he received his loan modification approval documents where he would pay a rate of 1% (no, not a NegAm loan) and the lender waived half of his mortgage for 5 years. His mortgage payment on a $700,000 was less then $500 per month. Their monthly property taxes and property insurance was more than their mortgage payment. But what was just as amazing was the fact that WAMU had already approved his modification probably weeks before they were calling the client directly to tell them that they denied his application and they would be losing their home. There was actually an article written about loan modification companies which also featured our company and this particular case. Click here to read it and a few other related stories.

Another client came to us because they really needed some help with their mortgage that they had with EMC. They were not late, but their finances were tight. We did our initial analysis and determined that they had a good probability of getting a loan modification. After completing their application and sending the lender the packet along with their financials, we were finally assigned a negotiator and when the negotiator decided to start working on our file, he decided to call the client directly and went on to say that they should have never paid anyone to assist them with a loan modification because anyone would have been able to figure out that they did not qualify for a loan modification. Upon this being brought to our attention, we decided to send a letter drafted by our attorney and resubmitted the request in hopes that we would receive a different negotiator. A short period of time later we were successful in obtaining a loan modification with a savings of almost $1,000 per month. Needless to say, the client first doubted our services too when they first heard with their lender had to say. But after we delivered the goods, they were ecstatic and has even asked us to come to her company and share our story with the rest of her employees.

The above is what we dealt with on a daily basis. Most of the homeowners are scared, worried and on the verge of depression and to make things worse, they have the media and agencies telling them that they were ripped off and taken advantage of and in many cases, they were. It is tough to deal with everyday but we do. I spend many nights thinking about the family that came in to see me the day before after having been taken for their last dollar and lost their home. One of the toughest things to do is to tell someone that they can’t be helped because they just do not qualify for a loan modification and really should have never bought a home in the first place. It is a heart wrenching thing to go through. I can’t help it, I care. You have to have a tough skin for the lenders but a soft heart for the homeowner because you are dealing with two separate variables.

Lenders need to do one thing or the other; Really help people by actions and not words, or let someone else step in and help. But don’t say you are going to do one thing and do another then not let someone else fix the problem. Lenders continue to be the problem. They have the solution for this housing crisis in the palm of their hands, but for whatever reason they are not doing something about it other than asking for and receiving billions of your tax dollars and not having to be accountable for where they spend it. It is a complete shame. Shame on the lenders.

Non-profits are a tremendous help to people but they are limited in their resources and manpower. Non-profits hold a soft spot in my heart because most of them are good people with the best intentions. They are not in it to make millions, many of their workers dedicate and sacrifice higher pay in other fields because they want to give to their communities. I have actually founded a non-profit and have volunteered for many non-profit agencies. They are tremendous resources, but again, the amount of people needing assistance at this time is a lot greater than the help that exists. Many of our clients come to us because the non-profit that they went to is not as responsive as they need them to be due to the demand and lack of resources or manpower. This is not to say that they won’t help, because they will. I always encouraged everyone to try the non-profit option first and if they can’t get the help they need for whatever reason to contact us.

Non-profits need more help. Billions of dollars are being given but not reaching the actual non-profits and families who need it the most. Too much politicking and posing is being done without much real action. Government and lenders need to do more infusion of funds to non-profits who are excellent solutions and less talking about it, not sending it to the lenders who continue to be part of the problem. But people need help today and can’t always wait for this to happen.

Finding the needle in the haystack - a good loan modification company….
So how can you find a reputable loan modification company? Ask around and talk to people who have had their loan modified about their experience and their recommendations. Their are several questions you should ask as follows:

Are they licensed?
Make sure that the company is licensed and the counselor taking your financial information is licensed. If a company or individual is licensed, it is regulated by the state and is subject to rules and tight enforcement. My company HRCS (license #01850705) is licensed and is under the microscope of the California Department of Real Estate (DRE) to make sure we are doing things right. Although I may not always think so because of the stringent rules and guidelines that apply, I think that this is a great thing because the DRE needs to know what everyone is doing. Without the DRE and their governing of licensed companies and individuals, it would be a free-for-all of activities. Those companies or individuals that are not licensed are not subjected to the same strict guidelines that licensed ones are with very few people to govern them.

Do they have an approved contract and does the state you live in allow private party loan modification assistance?
If charging an advance fee, whether it is $10 or $10,000, in many states it is mandatory that the real estate broker have an Advance Fee Agreement that is approved by the Government agencies. Why? Because they check the contract to make sure that there are no misleading statements in the contract and that all terms are fair. Make sure that the company that you have hired has an Advance Fee Agreement approved. 

Why charge or pay an advanced fee?
Again, check to see if your state allows for a company or attorney to collect an advanced fee to perform loan modification services because if they don't, this is a mute point. For HRCS, the explanation was simple. The time that it took to complete a loan modification did not make it possible to collect the entire fee once the modification has been completed. Some modifications are done in less than 30 days. Others have taken us many months with some as long as 10 months while the lender gave us the run-around and took their time in responding to us. In some cases we have had to have our law firm intervene because a lender was just unresponsive. With the volume of modifications that we were doing, it was not possible to have a staff of 50+ perform work for which they will be paid in 6-10 months. An Advance Fee allowed us to pay ourselves in stages after each phase has been performed. The funds were placed in a trust account and could only be transferred when work was actually performed. A company with the volume that HRCS had cannot survive for months without being paid on work it had performed, it was just not feasable. When you have your home remodeled and it is a 3-6 month project, it has to be paid in phases because expenses will come up and manpower has to be paid.

If you have a Notice of Default and are involved in foreclosure proceedings, your state may prohibit paying any advanced fees. Do not pay a real estate licensee in advance for a loan modification befoer checking if this is legal in your state.

Talk to me
Ask the company how they will communicate with you and what reports will be sent or available to you should you request it. What if you have questions or need a status, who can you call? Who will be your point of contact? There should be a clear plan as to how you will receive updates and what happens when you receive letters or phone calls from your lenders. You should be able to walk in at any given moment and ask for a report or communication log between the company and your lender. You should be given proof that the lender has received your package. Communication by all parties is crucial. Being kept in the dark is not a comfortable feeling.

Show me the money!
Ask to see a list of some of the loan modifications that have been approved. If possible, ask for names and phone numbers. A good loan modification company will have no problems giving you this information. Ask the company what the average time and rate was per transaction and who the lenders were. It is easy for a company to toot their own horn, but what are their clients saying? Ask them for a minimum of 50 closed loan modification examples and list of clients. If you are about to get brain surgery, do you want a doctor who has performed a few successful operations or someone who has performed a lot of operations? I want a doctor who does more than anyone else because they know from experience what they are doing, not by reading a book or recently graduating from Medical School.

In my office, I offer free advice on loan modifications and review approved documents that were sent by lenders to consumers who tried it themselves. Many of the offers are good offers, some are not. I let people know if they have a good one and also let them know if I think that they can do better. See, we do not need to do everyone’s modification, just those who truly need our assistance. We have helped a tremendous amount of families that were about to lose their home and just had no money or time at no cost. We have saved a tremendous amount of homes that were just about to go into foreclosure and negotiated with the lender to keep the family in their home while they reviewed their documents and did not charge one penny. Why? Because it is all about community and making a difference. Of course, we need to be paid for our work because nobody can work for free and in most cases we do charge the client a fee to negotiate a loan modification. But we also recognize when a family has no other choice and is running out of options and time and we will make certain exceptions. We would not turn our backs and allow someone to lose their home if they really did not have the resources to pay for the service. The funds that we received from families who do pay made it possible for HRCS to help those who were truly unable to pay. Families who did pay understand this and walk away with a smile knowing that they not only helped themselves but also someone who needed help but were at the end of their rope. They gave back and we gave back to our communities and those in need.

So let’s get to some key points about loan modifications, what they are and how they work.

What is a loan modification?
First, let’s discuss what a loan modification is NOT. It is not a refinance and not meant for someone who does not like the rate and terms of their mortgage. You have to qualify and have a need for a loan modification.

A loan modification is a restructuring of your existing loan. It can be a modification of your interest rate, your payment, your loan balance or all of the above. It is the same lender(s) that you currently have changing the terms of your loan so that you can afford to make the payments.

Who qualifies for a loan modification?
You have to show some type of hardship to qualify for a loan modification. You can either be late on your payment or show that you are on the verge of being late on your mortgage payment because your income does not support a healthy debt ratio. For example, if you are making $6,000 per month and your mortgage payment is $4,000 per month, you are clearly in a mortgage payment that is too high for your income. Even if you are on time, you are hanging by a thread and are in danger of missing a payment in the near future. You are probably borrowing money from credit cards, friends or family or are missing payments on other debts just to make your mortgage payment on time.

If you are making $15,000 per month in income and you have a monthly mortgage payment of $3,500 per month and you are having a hard time making your monthly mortgage payments without any hardship, you may not qualify or need a loan modification but instead need a financial modification. Meaning, you need to do some restructuring of your debt and budget.

Who does not qualify for a loan modification?
Individuals with lots of assets, equity and income typically do not qualify for a loan modification. You can have some equity in your property, but not much more than 10-15% equity. Lenders seem to think that if you have good equity, income or assets, that you will do whatever you need to do to make your payments and typically want to concentrate their efforts on those in danger of missing payments or losing their home.

I am not saying that a lender will not give you a loan modification if you have good income or assets, because I have seen some strange things happen in regards to some of the decisions that lenders have made, but your chances are very slim in these circumstances.

What are lenders looking for when doing a loan modification?
They want to see the following:
•    Past 30 days of pay check stubs
•    Past 2 years of tax returns
•    2-3 months of recent bank statements
•    Mortgage Statements for ALL properties and loans
•    Rental agreements of you are renting rooms or have other income properties
•    Completed Financial Statement

Basically, lenders want to see that you truly do need assistance and will absorb much less of a loss by restructuring and modifying your loan than by foreclosure proceedings. It’s all about the bottom line for lenders, plain and simple.

Lenders also want to see that you have the ability to make the modified payment and will not grant you a loan modification if you can’t afford it. If you really are making $1,500 per month and have a $700,000, you will not qualify for a loan modification as lenders will spend more money when you miss future payments and eventually have to foreclose on your home. There seems to be a feeling that property values may drop a little more throughout 2009 and maybe even 2010 which would make the loss greater if they have to take back the property later than taking it back now. You would be shocked to know that more than 50% of consumers fall behind again AFTER their loan has been modified.

What should I put in my financial application?
The truth. I get this question all the time and I always have said and will say today and tomorrow to tell the truth in your financials or loan applications. There is a reason why there are debt ratios and a reason why lenders do not like to go higher than they should in granting you payments. Plus, you will receive a payment based on your ability to pay and showing more income than you actually earn may get you a higher payment, while showing a lower income may have your modification denied in its entirety. By telling the truth, you will get a true assessment of your ability to pay and a payment that you can live with.

Plus I always believe that you should be truthful in all facets of your life including finances and applications. When you do not tell the truth you end up getting terms that really are not meant for you and you can even be in danger of committing fraud. HRCS is committed to being truthful to clients and lenders, no exception. Let’s face it, not telling the truth is what got  lot of people into this mess!

Do I have to be late to do a loan modification?
Most of the time, no, you do not. Many people have said that you have to be late but we have negotiated modifications for people who have never missed a payment. Some of the lenders who have publicly stated that they will not do loan modifications of the borrower is not late have approved our clients without them being late. However, we have encountered a few lenders who have told our clients that unless they are late, they will not consider a loan modification. If your lender is telling you to be late before they consider a loan modification, keep trying. But if at the end of the day they will not budge on this, that is something that you will have to decide on your own but do not let anyone tell you to be late on your mortgage to make your loan modification easier. It may be easier for the company, but it will hurt your credit and cost you more in the long run.

If you are not late, your loan modification may take a little longer then those who are late, but it is worth it because you will not damage your credit by being late. I always tell people that if they can make their payments to make them. Being late damages your credit and can even cause you to lose your home. Anyone who tells you to be late just to get lenders to listen to you is giving you bad advice.

Do I have to be on time to do a loan modification?
No, you do not. In fact, if you are already late, it may send you to the front of the line. But do NOT miss payments just to get lenders to listen to you. See the above advice.

What if I have bad credit?
Credit usually has nothing to do with you qualifying for a loan modification. Lenders may check your credit, but only to verify your debts as per your financial information.

Does a loan modification hurt my credit?
No. Missed payments and foreclosures hurt your credit.

How long does a loan modification take?
It all depends on the lender and the negotiator that is assigned to your file by the lender. We have had some loan modifications approved in less than 30 days and others have lasted as long as 6-7 months. The latter is the exception, but not a surprise in some cases. The average time is somewhere between 60-90 days. Don’t be surprised if it is approved a lot quicker and don’t be disappointed if it takes a little longer. Be patient. But also stay in touch with your lender and those who are assisting you with the modification. It appears that more and more loan modifications are approved sooner as time goes by and lenders all start to get with the program.

What if I have other properties?
If you have a lot of equity in other properties, it could hurt your chances of a loan modification. However, having other properties with little or no equity typically does not hurt your chances. It can complicate matters and most of the time just means more work and information gathering.

If you have several properties with plenty of equity, it probably will hurt your chances of getting a loan modification. When I say plenty of equity, I mean $200,000+ in equity. $10,000 – 50,000 in equity is not that big of a deal because if you had to sell your properties or refinance them, there is not enough equity to have monies left at the close of escrow.

Can I do a loan modification on a rental property?
Absolutely! We have had many loan modifications on rental properties even with lenders who have told us that they do not do income properties.

The following is a typical synopsis of how lenders place importance and attention to loan modifications:

1.    Owner-occupied homes where there is one or more missed payments.
2.    Owner-occupied homes where there are no missed payments.
3.    Non owner-occupied homes where there is one or more missed payments.
4.    Non owner-occupied homes where there are no missed payments.

All of the above type of properties can receive a loan modification if the borrower qualifies for the most part. There are still a few lenders who may balk at or make it tougher on numbers 2-4, but most will eventually end up granting a loan modification to qualified borrowers.

Are lenders modifying for 30 years?
Yes, they are. We have negotiated fixed rate loans for up to 40 years. Not all lenders offer 30 years, but many do.

A loan modification for 1 year is just not reasonable in our opinion. Short-term modifications are nothing more than renting the property for a short period of time as you will find yourself needing another modification when the term ends. Especially a property that is heavily upside down in equity because when the short term ends, you will not be able to refinance. It is better to do it right the first time. 5 years should be the minimum time that you should accept.

What is a step mod?
A step mod is a loan modification that starts at a low rate and gradually increases over a period of time. For example, we negotiated one for a client who had a mortgage of about $740,000 the following:

•    1% fixed rate (no, not a neg-am loan but a FIXED rate) for 2 years
•    3% the third year
•    4% the fourth year
•    5% the fifth year
•    Half of their mortgage was forgiven for 5 years meaning they only owed and made payments on less that $400,000 with monthly mortgage payments of less than $400. No kidding. My advice to the client was to make payments of $2,500 per month which would dramatically reduce his principal in a short period of time.

*This client and case was featured in a story on loan modifications by the San Jose Mercury News. Click here to read this and other stories featured by local and national media featuring my company, Home ReSOLUTION & Credit Services, Inc.

A step mod is not a bad deal depending on the value of your home and your immediate and future plans. As you can see with this client, and the constant visits that they give us bringing us food and more clients, this deal made sense.

What is a Trial Mod and why is my lender requiring me to make several monthly payments before they grant me a loan modification?
Sometimes a lender will grant you a Trial Mod and ask you to make payments at a reduced amount close to the amount that they will probably approve to make sure that they can make the payments prior to the lender spending time and resources restructuring their loan. This will generally be a 3 month Trial period. Because many loan modifications end up in default and end up costing lenders more money in lost payments, time and future equity, they want to know that you can in fact make the adjusted payment before investing more money in preparing your final loan modification.

If you receive a Trial Mod, chances are you are on your way to getting a loan modification. Before they make the final decision and grant you the actual loan modification after your Trial Mod, the lender will verify once again your income and all other financial information. They want to make sure that nothing has changed and that all the information that you put in your initial application is verified. The 3 month Trial Mod is not a guarantee that you will get a loan modification, but it is a good indication that they think you will qualify. During your Trial Mod:

Do NOT be late. EVER. If the monthly payment is due on the 1st, pay it before the first. Being late on your trial mod is the kiss of death. Lenders will know that you can't complete the initial step and will most likely not grant you a loan modification.

If the 3 months expire and you have not gotten your final loan modification, contact your lender asap and let them know. If you cannot get a hold of them, continue with the monthly payments that they gave you each following month until the final loan modification is granted.

What happens if I am denied by my lender for a loan modification?
We have had many of our loan modification requests denied the first, second or third time. Most of the time the lenders were telling us that they want the request structured differently based on their guidelines that may have changed. Just because a lender says no, it does not mean no period. It many times means no right now, no this way or no because. Sometimes it’s not what you say, but how you say it.

What if I do not like the terms that the lender has offered me?
If you do not like or approve the loan modification that the lender has offered, you have a right to deny it and request better terms.

Why is my lender calling me?
If you are late in making your payments, your lender may continue to call you requesting payment. Do not ignore your lender, let them know what you are doing.

My lender tells me that they have not heard from anyone.
Many lenders are overwhelmed and not too organized at the moment. We have had lenders tell our clients that they have not heard from us AFTER their loan modification was approved. We always had a detailed communication log that covers conversations and names of individuals that we have spoken to including proof that the lender has received our modification request. This is a common problem with lenders due to the massive amount of consumers needing assistance and the lack of personnel to handle and assist each request.

What lenders are doing loan modifications?
Just about all lenders are doing loan modifications. Very few are not. Depending on your loan and the investor who holds your note, it may be possible that your loan servicer may not allow a loan modification on one loan and allow it on another. Ultimately the investor makes the final decision. Most loan servicers are not the investors and are only in charge of collecting payments for the investors. Investors make the final decisions.

What happens if I just do not qualify for a loan modification? What are my other options and how much time do I have to stay in my home if I can no longer make the mortgage payments?
As I stated previously, not everyone will qualify for a loan modification. Many people unfortunately really should not have qualified to buy a home in the first place. If you want to know if it makes sense to keep your home or do a loan modification, contact me for a consultation.

The following are some options if you cannot qualify for a loan modification and can no longer make your mortgage payments:

Short Sale - A short sale is the sale of your property where your lender forgives the amount needed to be able to sell your home. For example, if you owe $500,000 on your home and it is worth $300,000, the lender(s) will have to forgive the $200,000 plus closing costs needed to sell your home. You may or may not have tax or lender consequences. On owner occupied homes with the original loans, you will not, but always seek the advice of an attorney or accountant before making this decision. A short sale does not hurt your credit as much as a foreclosure and in many cases is the best solution.

Deed in Lieu - A deed in lieu is the giving back the property to the lender and simply walking away before they foreclose. Many people think that a deed in lieu saves your credit but that is simply not true. Most lenders look at a deed in lieu as a foreclosure. However, it may be your only option other then the actual foreclosure. But lenders do not need to accept a deed in lieu and in many cases want to see you try and sell your home yourself before they take your home back.

Foreclosure - This is usually the worse case scenario. A foreclosure is when the lender has exhausted all other efforts to get your payments and decides to take your home back. Similar to a repossession on a car, they take back ownership of your home. Foreclosure has devastating consequences to your credit and also to your community. But sometimes there is nothing you can do and have no other options. Many people do whatever they can to avoid foreclosure but in some cases it is inevitable. Although you may be ashamed of having a foreclosure, there is no shame in being caught up in this market and having the eventual outcome be a foreclosure. Millions of family are going through foreclosures and if you have to go through it, you will survive.

What is a Notice of Default and how much time to do I have to stay in my home?
A Notice of Default (NOD) is the lender’s first step in initiating foreclosure proceedings. The NOD is sent via Certified Mail and also becomes a public document. That is why people who have received an NOD suddenly receive a wave of “foreclosure specialists” knocking on their door offering assistance and in many cases where the door to fraud is opened. Be careful of “foreclosure specialists” and people who are knocking on your door offering assistance or pretending to be representatives of your lender. Your information, including lender name, loan amount and other information is public information and most con-artists have this information at their fingertips.

With an NOD, you typically have 90 days to bring your payments current along with typical attorney fees to stop foreclosure proceedings. The lender HAS to stop foreclosure proceedings if you can bring your loan and fees current. If you do not and cannot get current, the lender will at the end of the 90 days send you a Notice of Trustee’s Sale which means your home is being auctioned off within 22-30 days. The NOT contains the date that your home will be auctioned off. This is the time when you really need to start making moving arrangements.

What happens next? Once your home has been sold at a public auction or the lender has taken the property back, you need to be ready to move out of your home before you get evicted. An eviction is also devastating to your credit as it is also a public record and an actual lawsuit. Many landlords will not rent a property to someone who has had to be evicted from their home.

Can I still get a loan modification if I have a Notice of Default?
Absolutely! We have successfully modified loans for families even if they have had an NOD. In fact, we have even stopped Trustee Sales the day before it was to be sold at a public auction. It is almost never too late to save your home.

If you have an NOD, do not pay anyone to modify your loan until the work has actually been performed, it may be illegal.

You do not have to lose your home if you qualify for a loan modification. Take a step in talking to someone about your problem or potential problem. There is help out there whether it be your lender, or a non-profit. Whatever you do, do something. Statistics show that up to 50% of people who lost their home never reached out for help. Don’t be a statistic, remain a homeowner if the terms are right and you can afford to do so.

You should also recognize when you just cannot own a home at this time. Too many people are in love with being a homeowner and sometimes love is blind. Sometimes it just does not make sense to be a homeowner. Sometimes finances or the timing is not right. Being a homeowner comes with certain responsibilities. It is not a right, but a privilege. Meaning, if your finances do not support you being a homeowner, maybe home-ownership is not for you at this time. Home-ownership is the American Dream, don’t allow it to be a Nightmare. Make sure that you are making sound and sensible decisions based on reason and not emotion. But if you truly do have the resources and income to be a home-owner, fight for your home. With the right information and people behind you, you will be surprised what you can do!

If you are in need of assistance or just want to see if you may qualify for a loan modification or want to know if it even makes sense to keep your home, please contact us for a free “mini-analysis” to see where you stand.

Robert Aldana
President - CEO
HRCS
Licensed REALTOR since 1986
DRE # 00921165
800-882-7896 ext. 800
robert.aldana@myhrcs.com