There is a new industry rising from the ashes of America's imploding mortgage industry and it's called Loan Modification.  Loan modifications have become a viable option for many distressed homeowners many of whom are considering abandoning their homes because they are upside down in their mortgages or just simply can't afford their payments. 

What is a loan modification?  A loan modification is as the name suggests a modification of your current loan without going through the process of refinancing our home or property.   The responsibility of a loan modification company is to act as a negotiator for you with your lender.    Because a new loan is not being written, many states have not instituted or modified their mortgage and banking laws to regulate the loan modification industry.    This means anyone can open a loan modification company, even those who have revoked mortgage and real estate licenses revoked or have multiple felony convictions. 

States such as Florida and California, two states still suffering from the fallout of from being at ground zero of the lending implosion, have begun to reign in loan modification companies by requiring licensing and background checks.  Unfortunately, in the rest of the country, it's still caveat emptor or "Buyer beware". 

Below is a list of questions you should ask when considering a loan modification company:

1.       Have you or any of your employees ever been convicted of a felony? 

You can follow this up with do you do criminal background checks on your employees?  If they have employees with criminal records or they don't do criminal background checks, look for another company.

2.       Do you have a background in mortgage lending?  If so what is it? 

This is always a good question to ask because it shows the level of their competency and how they operate their business.

3.       Can you provide references?

Don't be afraid to ask to speak to real people.  Some companies will post questionable testimonials on their site signed by "Homer S.", "Monty B.", "Ned F." or "Moe S." For all you know the owner or of one of his employees could have written these testimonials.

4.       Is your processing done in house or is it contracted out? 

This is a good question because it will tell you if the company is acting as a "middle man" and simply collecting a referral fee.  Some services are legitimately contracted out such as the loan auditing or fraud investigating.

5.       Do you have an attorney on staff? 

This is a great question for two reasons.  If they say, yes, then ask for their name and feel free to check them out with the state bar association.  Having an in-house legal staff also gives the loan modification company legitimacy because it means they can handle any legal situations that may arise during the negotiations of the modification.  If the loan modification uses outside attorneys, it's a sign that the loan modification company could be acting as a soliciting agent for a law firm which is illegal in most states.   Consumers also need to keep a watchful eye on attorneys who allow the loan modification company's staff  to use their letter head and fax cover sheets.  In most states this considered unethical behavior by the attorney.  If you suspect this do not hesitate to contact the state bar of where that attorney is a member.

6.       Do I need to be late in order to make this work?

No.  Although it may help expedite the process in certain cases, it is not mandatory

7.       How long does this process take?

It can take anywhere between two weeks to six months depending on the lender and the complexity of the file. 

8.       If I can't get a modification completed - what can be done?

There is a whole menu of resolutions available.  There is litigation (in cases of deceptive practices), short-sale, short-payoff, deed-in-lieu, or forbearance.

9.       Are there any guarantees?

Be careful of loan modification companies that offer or guarantee specific results because they don't know what the final terms will be.

10.   What are my costs and can you put this in writing?

There are two ways loan modification companies charge.  They either charge a flat fee or a fee based on a sliding scale depending on the size of renegotiated payoff or by the size of your first payment.   If they are unwilling to spell out the terms to you up front, keep shopping.  Also, don't be afraid to shop around.  New loan modification companies are popping up everyday which means more competition and better pricing.  A loan modification fee should not exceed $2500 and include a forensic mortgage audit.

Good stuff ,,,, but I KNOW you didnt use characters from the Simpsons as references ... HA

I have been trying to find a job in the new "loan modification" industry.. the usual route of monster.com type stuff isnot revealing anything. I have 5 years loan origination experience... allot of it in subprime..can you suggest another avenue to find employment in this industry??

thank you

dopawa1@yahoo.com

Words from a Very Outspoken and Opinionated California Litigation Attorney

Here in California, our Department of Real Estate website (dub dub dub dot dre dot gov) lists the companies that have DRE “permission” to modify loans… add to this list any licensed California attorney, and that is where you should begin your due diligence search when you seek help in California. Other states probably have similar laws, so check with your own state DRE and state bar.

My law firm has been getting more and more calls recently from homeowners that were victims of predatory lenders who put them into an unaffordable loan and now fell into the hands of those same people who sold the toxic loans but profess to be saviors… DON’T BE A VICTIM TWICE! What’s that they say, “Fool me once, shame on you, but fool me twice, and I’ll sue your butt!”

Do your homework and THOROUGHLY investigate any firm before hiring them to save your biggest asset and the place you call “home.” Scammers are popping up like dandelions on a freshly mowed lawn in April. They advertise on the Internet, freeway billboards, radio, television, and print media everywhere, not to mention spamming your email box with those third-world widows needing someone to receive three million dollars for them. Make no mistake, in many cases, these “loan modification experts” are the exact same loan officers and mortgage brokers who fleeced homeowners the first time around. After losing their jobs with the crash of the mortgage industry, they have found a new way to make ill-gotten profits from hard-working homeowners through loan modifications.

In California, with very few exceptions (and attorneys are one exception… no coincidence there… attorneys make the laws), it is against the law for anyone to take money up front for helping a homeowner who is in default. Don’t trust a company that begins its relationship with you by breaking the law.

HERE’S THE BOTTOM LINE!

Hire an attorney – and not just any attorney either - one with experience in mortgage law, not just one with real estate law experience but one with experience in both FEDERAL and STATE litigation against mortgage companies, one who doesn’t also do family law, criminal law, admiralty law, and immigration law as well, one who limits the practice to mortgage law (or at least a great majority of it), one who has the experienced staff, training, and know how to take on the big lenders and their top notch lawyers (lenders have attorneys – and darn good ones – check out their counsel on the web – big names top schools, shouldn’t you have a lawyer too?).

We are not talking about a refund on your broken television here, we are talking about hundreds of thousands of dollars and your HOME – if you don’t think this is the time to hire a highly educated and experienced professional instead of a weekend schooled, almost out of work, broker slash loan officer slash “expensive water in a wine bottle with alleged magical curative powers” salesperson, I don’t know what would make you take things seriously.

Of course, this is one obnoxious lawyer’s totally biased opinion, but one based on many many distressing calls to my office every day. And, yes, my firm loves taking cases against loan modification companies who have violated laws. This field is quickly becoming one of the fastest growing sections for our mortgage law firm.

- Paul J. Molinaro, Esq.

Paul Molinaro:

Hire an attorney – and not just any attorney either - one with experience in mortgage law, not just one with real estate law experience but one with experience in both FEDERAL and STATE litigation against mortgage companies, one who doesn’t also do family law, criminal law, admiralty law, and immigration law as well, one who limits the practice to mortgage law (or at least a great majority of it), one who has the experienced staff, training, and know how to take on the big lenders and their top notch lawyers (lenders have attorneys – and darn good ones – check out their counsel on the web – big names top schools, shouldn’t you have a lawyer too?).

We are not talking about a refund on your broken television here, we are talking about hundreds of thousands of dollars and your HOME – if you don’t think this is the time to hire a highly educated and experienced professional instead of a weekend schooled, almost out of work, broker slash loan officer slash “expensive water in a wine bottle with alleged magical curative powers” salesperson, I don’t know what would make you take things seriously.

Unfortunately, most consumers treat their mortgage and home shopping just like they do when they buy a toaster. They buy based on price first and need second. IMHO if people took their often largest financial investment more serious than we wouldn't be in this problem in the first place. But old habits die hard. When shopping for a mortgage people often think they are paying for a rate instead of thinking about what kind of advice and service they are getting.

From what I have heard in regards to loan modifications it is the same belief system that is getting in the way. Consumers don't value service and true professionalism so they treat all loan modification specialist as the same commodity. Therefore placing price over service and professionalism once again.

It's like my grandpa always told me, "you get what you pay for." 

Mike King:

It's like my grandpa always told me, "you get what you pay for." 

I just wrote an email to a client who called me whining about attorney fees and why an attorney is charging them a $2500 retainer to bring a cause of action against their lender in federal court.  I told them,  "What did we learn from the OJ Simpson murder trial in 1995? You may have the right to justice, but it doesn't mean justice is free.  When it comes to attorneys you get what you pay for.  When OJ Simpson's trial was going on there was another murder trial going on in the courtroom next door.  That guy was accused of killing two people just like OJ.  That guy had a public defender,  OJ had $500 an hour attorneys.  The other guy is now sitting on Death Row in San Quentin and OJ was aquitted."

The fact that so many people believe OJ was innocent (true or not) shows he had great attorneys (measured by success of the case).

Yes, it is a shame that people are willing to pay some twenty two year old "mortgage guy" with two loans under his belt 20 to 30k to get a neg am loan (3% on the front and 3% on the back for the 3 year hard pre-pay - I've seen many) that they had no way to ever repay. Yet, when an attorney or truly experienced mortgage professional wants a couple grand to provide real help, they get cheap.

But that is the system and the way to fight it is through educating the public about what rights they have, who can offer real help, and making them understand that, absent qualifying for legal aid, lawyers cost money.

- Paul 

Stephen Ames:

But OJ wasn't guilty!                                     <tic>

Never said he was or wasn't.  The other guy could have been not guilty as well.  The point is that if the other guy's public defender had access to the tools OJ had he could probably been found not guilty as well.