Below is a great article on Loan Mods... I tried to help clients, I worked hours, days, weeks, on files for free.  I have now given up and I'm telling everyone to call HOPE NOW.  When I tell them this, they almost know there is no hope for them...  I wish I could help, but more and more servicing companies are making it impossible for third party assistance. 

http://mandelman.ml-implode.com/?p=35

Adding Insult to Injury – Homeowners Told to Walk Away From Loan Modifications

The fact is, in terms of the foreclosure crisis in this country, the government has failed us at every level and at every turn.  Now they’ve apparently decided to tell the public that the companies that have formed to help distressed homeowners get their existing mortgages modified so they can keep their homes, are to be avoided.  Why?  Because they charge a fee for their services, that’s why.

Well, isn’t that nice.  After two years watching the housing meltdown, two years seeing family after family lose their homes to foreclosure, two years of watching the Keystone Cops in congress stand around debating the rules about transporting monkeys across state lines and whether GM pays too much for retiree health plans… and the last so many months watching Washington shovel money into Wall Street banks… the private sector has finally come up with a meaningful solution for many people, one that helps people stay in their homes… and now we’re being told that we should forego that solution because there’s a fee?  Oh, dear God.  From insult to injury.

President Obama even said it, during his speech that introduced his version of a housing rescue program: “If you have to pay, walk away.”  Excuse me… but that’s one of the most ridiculous things I’ve ever heard a president say.  Don’t worry… the government is going to help me for free?  Does he think we’re all six?

And, to make matters even worse, here’s what it says on the front page of the US Treasury’s Website that is dedicated to helping homeowners, well… at least the homeowners that qualify for Obama’s program, so maybe there’ll be twenty or thirty in every state.  It says:

BEWARE OF FORECLOSURE RESCUE SCAMS - HELP IS FREE!

Beware of any person or organization that asks you to pay a fee in exchange for housing counseling services or modification of a delinquent loan.  Do not pay – walk away!

Now, before anyone starts getting all fired up about the loan modification companies that, according to the media, are defrauding distressed homeowners left and right, I want to be very clear that I think that those seeking to defraud homeowners in jeopardy of foreclosure are justification for keeping the prison at Guantanamo Bay open for a few more years.  Ripped off a homeowner with a loan modification scam… Waterboarding for $200 Alex.  Talk about a deterrent… that’s a damn deterrent. 

I also understand that, largely as a result of how this whole mess unfolded, we were bound to see the unscrupulous opportunists come out of the woodwork to prey on those desperate for an answer.  According to National Public Radio (NPR) on March 9, 2009:

California seems to be the epicenter for this new industry. Jeff Davi, the director of that state’s Department of Real Estate, says officials started getting complaints about loan modifiers last summer, and now they have more than 200 open investigations.

 

Is it just me?  Or does that sound like an incredibly small number of investigations?  The California Department of Real Estate started getting complaints last summer and nine months later there are only 200 investigations going on?  And that’s supposed to seem terribly high in a state with 36 million people, and literally millions of distressed homeowners?

Look, I’m not defending that number as being just peachy either.  Understand, all I’m saying is that when you take into account the chaos that has given birth to this industry, it doesn’t seem outrageous by any means.  Like, if it were 2,000, maybe outrageous, but 200, not so much.

For politicians, however, even 200 investigations become a veritable onslaught if there are cameras in the picture, and considering from whence we came, I suppose it only makes sense that our elected representatives and regulatory agencies would decide to go after the only people that have actually managed to help address the plight of homeowners.  What’s next?  I know, let’s send the fire department out to burn down people’s homes.

The point that politicians seem to be making, along with state regulatory agencies is that if you need a loan modification, you don’t have to pay for it… you can handle it yourself, or you can call a government program and they’ll help guide you in the right direction.

I have to say that the whole idea that just because a company charges a fee for its work… it should not be trusted, offends me.  If there are unscrupulous operators victimizing consumers then put them out of business, regulate them, jail them if need be, but don’t tell people that simply because a company charges for its services, that in itself makes it bad. 

I understand that I can handle my own loan modification.  I also know that I can prepare my own tax return, or sell my own home, or change my own oil for that matter.  There are lots of things I can do on my own instead of paying someone.  It doesn’t mean that I want to, or even that I should.

Not all homeowners are comfortable negotiating their own loan modification with their lender or mortgage servicer.  They’re intimated, unsure of themselves, they procrastinate, get emotional, they panic.  And all too often, at the end of the day, they agree to terms they should not agree to.  In something like fifty percent of cases in which loan modifications were handled by a homeowner and bank, the homeowners end up back in default less than a year.  This was supported by data published by Credit Suisse and UBS earlier this year. 

Effective loan modification companies, on the other hand, report much higher sustainability rates on loan modifications.  One I interviewed in Irvine, California, for example, reports that over 80% of the loans they modified one year ago are still paying as agreed.

Well, I’ve spent this past month interviewing loan modification companies, law firms, borrowers that have had loans modified, borrowers that have tried to do it themselves or through government programs, and other “experts”.  Here’s a 10-point summary of my conclusions:

1. This past week I did an on-camera interview with a woman by the name of Cheryl Beckam of Moreno Valley, CA.  She is a civil servant working in the Riverside County Property Tax Department.  She had owned her home for over ten years before she found herself in trouble and went to seek help.  She had always had a fixed rate loan, but a couple of years back, she needed a new roof, and when she asked her bank, they said sure, and to pay for her roof, refinanced her into an adjustable rate loan that ended up doubling its payment after a year, and included a prepayment penalty that made it impossible to refinance before it doubled.  (Nice, huh?)
2. Ms. Beckam first tried to contact the HUD assistance programs.  Let me add some detail to that sentence… she tried to contact HUD for help with her mortgage for FIVE MONTHS, before giving up.  Frankly, I wasn’t at all surprised.  It’s a common refrain, one that I’ve heard time and time again.
3. Next, Ms. Beckam tried contacting her lender, Chase, directly.  Three more months of phone calls, sending documents back and forth, waiting for calls and things in the mail that never came.  At one point, Chase even told Ms. Beckam to stop making her payments, as she was in “the process” and should expect to receive her documents in the mail in the next few days.  Again, weeks passed and nothing came.  At this point her mortgage payments were taking up her entire income.
4. Now desperate, Ms. Beckam was told by her mortgage broker that she might try calling a company he’d heard of, a private company that helped people negotiate loan modifications… and she did so the following day.  Ms. Beckam’s demeanor changed at this point in the interview, and she recounted her experience with that private company.  She said everything went so smoothly from that point, saying: “I never had to call and bug them, they were very nice and very professional.  They didn’t make me feel badly about what I had done, and less than six weeks later, they got my mortgage payment back to where it was at the beginning, before it started adjusting AND they got me back on a fixed rate loan!”
5. Of course, the downside was… the company did charge for their services… about $3,000, as a matter of fact.  Was she unhappy about the fee?  Not even a little.  In fact, she thought it was quite reasonable, and she’s recommended that company to several of her friends since then.
6. I contacted the firm that helped Cheryl modify her mortgage, and subsequently met with the firm’s Chief Operating Officer.  He was very forthcoming and provided me with his firm’s internal production reports every day over a one month period, and the reports showed a company that had roughly 2,900 inquiries, accepted 2,200 as clients, and was getting 300 mortgages modified each month.  If the firm accepts you as a client, and fails to get your loan modified, they refund some or all of your retainer payment, depending on the specific circumstances.
7. Additionally, he talked to me about the firm’s sustainability record.  Statistically, one year after his firm modifies a mortgage, there’s a 94% chance that it is still paying as agreed, which is so much higher than other published statistics, it’s in another league. 
8. I asked him about the fraudulent loan modification companies that the media seems to be having a field day going after… and he said that they’re his biggest problem.  His feeling is that the industry needs to be regulated to prevent fraudulent operators, but that the government’s answer, “If you have to pay, walk away.” would only lead to more foreclosures.  There simply isn’t a comprehensive government solution available… no one organization has the bandwidth to handle all of those in need of assistance. 
9. Government programs are what they are.  They’re frankly overwhelmed by the volume, as are lenders and servicers.  As would any single entity.  There are millions of homeowners struggling to keep their homes today, and you can only imagine the number of calls being made every day.  And loan modifications aren’t magazine subscriptions… they’re more like hand made cars… each situation is different, each lender has different requirements, and as a result each modification requires a somewhat unique approach.
10. Telling people that they can handle their own loan modification is equally troubling to me.  Yes, it’s a true statement, but there are countless things I can do myself that I may not choose to do myself.  Many of the homeowners I’ve had the opportunity to speak with expressed their reticence related to contacting their lender to negotiate a modification of their mortgage. The bottom-line… and this one even applies to me personally, many people aren’t comfortable handling their own loan modifications.  And that shouldn’t surprise anyone, in my view. 

The government has failed us at every turn, as related to the foreclosure crisis.  Now, President Obama’s plan may help some… some.  But, especially in states like California, the loan modification companies that are helping consumers get their loans modified are clearly part of the solution… not part of the problem.  Branding them as being bad simply because they change a fee for their services strikes me as a less than well thought out response.

And just to wrap my thinking on this up with a bow… I’ll say this: I would prefer to pay a reputable private company to handle my loan modification than depend on help from a free government hot-line type of program.  That’s right… if I was in jeopardy of losing my home to foreclosure, I’d much rather pay a company $3,000 to handle my loan modification than I would sit on hold with HUD, hoping the government was about to do something right for the first time in my life… how’s that for blunt truth.

I’m 47 years old and I served in the USAF.  I know how the government operates.  I can just imagine waiting on hold and then having some government employee or worse, some volunteer tell me that something would be arriving in the mail… yeah right.  I’d wait… about 30 seconds… then I’d get my checkbook out and start writing.

President Obama… I really don’t need you to tell me to forego a proven solution by waiting for something that’s never been done, doesn’t exist today, and may or may not work.  “If you have to pay, walk away.”  That’s not helping anything or anyone. 

Government can’t abdicate its responsibility to protect its citizens by simply telling them don’t pay for something, just because you have to pay for it. 

Remember the Hope4Homeowners program Bush finally put in place?  Remember his rescue bill?  Bush made $300 billion available for rescuing homeowners and there was lots of fan fare… woo-frigging-hoo.  I tracked it for a year or so, and as of last October, the program had helped a staggering number of homeowners; 79, and that’s according to the Bush fan club at Fox News.

If you can’t figure out how to properly regulate the loan modification industry, then put someone with a brain on it, okay?  There are many experts out there, I’ve managed to speak with dozens of them and I’m not the President of the United States.  I know you’re just inheriting this mess, but I for one have lost my patience with inept government responses to a crisis that is putting families on the streets, living in tents… children are being forced to leave the safety of their rooms, God damn it. 

You like to talk about long-term benefits… what do you suppose the long-term impact on our nation will be as a result of the millions of children that have had to endure the unimaginable horror of being forced to leave their homes?

Clearly, we can spend weeks outraged over $160 million in AIG bonuses.  Congress was apparently so outraged it passed legislation, albeit unconstitutional legislation, in 24 hours.  Amazing… so things CAN be done quickly over there, and rules can be broken… even constitutional rules… huh?  Who’d of thought?  Go figure.  I wonder what we citizens should learn from watching that.  Hmm… interesting.

I, too, have started providing loan modifications for free after watching so many people getting scammed.  The reason why most homeowners are finding it easier to walk is because the lenders are choosing to lose money rather then negotiate a good deal with the borrower.  Take a look at this example:

My client owes $400K on a home.  Instead of negotiating with my client and lowering his payments (he's got excellent credit..or had so before the lender told him they could not do anything until he was actually late in payments), they would rather foreclose on him. This would cost $25K to foreclose.  The home is worth $250K now so deduct another $150K.  Commission would be approx. $15K plus closing costs approx. $10K.  Rather then adjust this guys mortgage to $300K, payments to approx. $2500/mo, the bank is choosing to suffer a loss of almost $200K!!  Real smart bank!!  Wouldnt you walk away too?

I agree 100%, and if that all is not enough. To get a qualified candystriper to do your open heart sugery sounds like an Obama, or who ever's recommendation because that would save the health care reform defecit. Funerals, at $200,(SSI benefit) would be a heck of a lot cheaper than keeping someone alive and healthy.

I just hope people are smart enough to know better than to listen and trust everything that this new, almost nearing Socialist system says, get an attorney and pay them to save your house people!!!! 

Kamal Randhawa:

My client owes $400K on a home.  Instead of negotiating with my client and lowering his payments (he's got excellent credit..or had so before the lender told him they could not do anything until he was actually late in payments), they would rather foreclose on him. This would cost $25K to foreclose.  The home is worth $250K now so deduct another $150K.  Commission would be approx. $15K plus closing costs approx. $10K.  Rather then adjust this guys mortgage to $300K, payments to approx. $2500/mo, the bank is choosing to suffer a loss of almost $200K!!  Real smart bank!!  Wouldnt you walk away too?

IN MY OPINION, Customers such as you described are part of the problem.  If he has/had good credit then that shows that there was no financial hardship caused by his mortgage.  So why is this customer ENTITLED to a re-negotiation?  Answer:  He's not!  There are Millions of customers that are underwater on their mortgages, and are continuing to make their payments as agreed.  The housing crisis is being exacerbated by borrowers such as this and LO's such as yourself telling them it's the best thing to do......Will he enjoy renting as much as he did owning a house?  If he bought an SUV in 2007 that is worth nowhere near what he paid for it, should the finance company reduce his balance and payment?  Fearful that he doesn't just walk away from it and buy a hybrid instead?  SERIOUSLY!  (emphasis on disgust intended)  With all due respect, if you are encouraging a customer to NOT make payments or to "walk away", in my opinion, you are engaging in unethical behavior.

Curt,

I certainly understand and in some cases agree with the ethical basis in which your argument is rooted. In addition, I would never provide advice to my clients either for or against "walking away" as my role as a loan orginator is not to gauge or police my client's moral compass.

I would also say that I do not begrudge one for making a decision to walk away if it truly in the best interest of their family. After all, none off us are getting out if this life alive so when the rubber meets the road you must do what is best for the most important people in your life. Thank God I do not find myself in that situation and I will readily admit that I am incapable of understanding the distress in knowing that one's greatest investment is in the tank.

On a personal level I do think there are folks using the economy as an excuse to shirk their obligations, but it is a difficult balancing act lacking a "one size fit's all" approach.