Truth About Loan Modifications

Three years ago if I were to tell you about a loan modification, you would've stared at me as if I were speaking a foreign language. However, today we are surrounded by the term. Your neighbors, co-workers, family and friends are all talking about this new concept. Radio, television, and newspaper advertisements are everywhere. Loan Modification Companies are forming out of thin blue air to provide you a "service". Well I think something smells. These companies claim to have years of experience at renegotiating the terms of your mortgage with your lender. The first alarm for me is, how is it even possible to have "years of experience" given we are roughly two years into this market decline? They claim to have the ability to reduce your rate, principle and payment. If you're a struggling homeowner, this sounds like your prayers are being answered. But like any other crooked industry, they are simply praying on the weak.This bandwagon industry sprouted up faster than the dot com boom of the late 90's and early 2000's. These companies offer to act as your negotiator with your lender for a fee. Those fees are typically paid up front and can run from $2,000 to $8,000. Folks, I'm not making these numbers up, these are fees some of my clients have told me they paid. What I hate the most about these companies is they are charging a fee to do something you can do yourself. You can call the lender, you can tell them what your hardship is, and you can request a rate/principle/payment reduction. You can do everything they do, just without the crazy fees. I am hit with no less than 10 spam emails a day and visited by a door-to-door salesman at least once a month trying to recruit me into referring loan modification leads to their company. They offer huge commissions. Some upwards of $1,500. That is a lot of money for basically no work. However, my integrity and values keep me from exhorting money from people in bad situations. Now look. This post isn't a solicitation for a bunch stories on how a loan modification company helped you or someone you know. Obviously if they're in business they have had success. My point here is, they will have the same amount of success you will if your situation/hardship falls within the lender's guidelines. If you're situation doesn't meet those guidelines, it doesn't matter how many thousands of dollars you pay to a crooked company, your modification will not get approved! If you want to throw money away, I will put a bin in front of my office for you.Before I go further I must stand on the soap box for a minute. If you are earning 3-4 times your mortgage payment and have limited debt, you don't need a loan modification even if your buddy got one. Lenders are only willing to negotiate a loan modification if there is a chance you are going to default on your mortgage. They do it to save them money by avoiding the foreclosure process. They certainly don't do it because they're nice and want to save you money. They are taking huge losses and are simply trying to hold back the damn. My point, if you don't have a hardship, don't waste your time. A few months back a client told me he was advised by one of these crooked companies to go out and buy a car/boat/vacation/etc. to increase his debt load. Essentially he was being told to create his own hardship. I told him to run as far away from that joker as possible. The saddest part is the joker was partnered with a very well known and respected mortgage broker in Vacaville. Shame on him.Read that last paragraph again! Here is the best advise I will ever give. CREATING MORE DEBT WILL NOT HELP YOU GET OUT OF DEBT! I've heard a lot of crazy ideas in my day, but that takes the cake by far. Not only were they giving out horrible advice, they were going to charge $3-5K for it!If you need a loan modification because you have fallen on rough times, got stuck in a bad loan, or are facing a large payment increase, call your lender. Almost all lenders and loan servicing companies have loan modification departments. They may have different names, but they all do the same thing, mitigate loss. They are going to send you a package to complete. It is in-depth and will take a few hours to complete, but you can do it on your own. Be overly detailed and be sure to include all of your expenses, big and small. They add up, especially if you have kids. Remember, they are doing this to avoid having to start the foreclosure process. If you can't convince them of your hardship, then you won't get the modification approved.And one last thing. If you have lost your job and aren't receiving income, you will not get a loan modification. You have to prove your ability to pay after the modification is complete. If you can't afford the new payment, the lender will not bother with a modification. I know that sounds harsh, but sometimes reality is just that. We aren't out of the woods yet with this market decline. So if you are offerd the world by a loan modification company and it doesn't smell right, let me know. We can apply the sniff test together. I'll give you the honest truth, even if you don't like it. Just please don't be vicimized!