Loan modifications are becoming big business these days because of the overall state of the economy and the housing industry. There are literally hundreds of new loan modification businesses around the country being set up each month to "help" you. I receive at least ten emails a day either to help me set up a loan mod business or to refer clients to an existing loan mod company (they will pay me a commission if I do).
Let me make it clear, almost all are bogus.
For the record, a loan modification is a request to your lender to modify your current loan to reduce your payment, defer the amount in arrears, lower the interest rate or lower your principle balance and rewrite the loan with new terms. It could be one, some or all of the preceding. They will only do any of those with just cause and it would have to be to their benefit. If you are not in arrears and are capable of making the current payment without duress, you will not get a modification, even if you own more than the house is worth.
First of all virtually all of them are illegal. And it is something you can do without their help what so ever. Most are illegal because if they collect a fee, they have to deposit the fee in a trust account and itemize the draws and the purpose. These guys are getting shut down almost as fast as they open.
Next and more important, most of them don't work and you lose your money. The reason is you can't qualify for the new terms. They aren't going to tell you that until you've spent your money. Don't do it.
If you are in trouble, or heading for trouble, with your mortgage, you need to be proactive and make contact with your lender ASAP. The lender is going to want proof that your current mortgage payment is a financial burden and that if they were to foreclose the lender would lose a substantial amount of money. That's right they are looking out for themselves not you. There is absolutely nothing that a loan mod company can do for you that you can't do for yourself. They know that, they just won't tell you that. In fact virtually every lender that gets a request from someone other than you calls and explains that you could have done this yourself, all you had to do is call them.
To modify a mortgage loan you will have to prove the reason that the loan is no longer working for you. The biggest reasons are usually a substantial increase in payments (you were on an ARM that adjusted several points and raised the payment to a point that you cannot make it and pay your other bills as well) or you lost or reduced your income. If it is a lost income and have no prospects of a remedy in the near future, the lender probably will not be interested in working anything out. They are going to be seeking a permanent solution not something that may be a band aid and have to go through this again in a few months.
For a successful modification the lender is going to need, in writing, the purpose (reason) a modification is needed, your current income documented, your current liabilities (other bills), what caused your income or the payment problem and what solution can work for you. Threatening them with a take it or leave it option will not work. The people in the lenders loan modification department are trained and willing to help you work out the problem and will do everything in their power to help make a permanent solution work for both you and them.
Here are some of the reasons a loan modification will not work:
- You lost your income and have no immediate prospects of regaining employment
- Your income has been reduced and you cannot qualify for a new lower payment
- You got divorced and your income cannot support the current or any new payment arrangement
- Your home is worth less that what you owe, but you can make the current payment.
- You want to reduce your interest rate because the current rates are less than the rate on your loan, but you have no problem with your loan.
- There are more but these are the most obvious.
There is no reason for you to spend $1,200 to $4,000 to have a "loan modification company" do what you can do yourself. I have helped many people successfully renegotiate their mortgage for the right reasons, and it didn't cost them a dime. I am not a loan modification company and have no interest in becoming one. My business is helping my clients obtain financing for a purchase or refinance. I just happen to know what the lender needs to modify a loan. I have no dialog with a lender in a modification and will not do so. All I can tell a client is what the lender is going to require considering modifying a loan.
If you are in need of a modification, before you spend any money that you cannot afford to spend, call me. Just because you spend the money for a loan modification company, it doesn't mean you have any chance of getting new terms, it just means that you spent the money you couldn't afford to spend.
About this Author
As always, let me know what you think. You can email me or I have also posted this on by Blog that you can view from my main website, just scroll down the page and lick on my Blog and leave your comments on this posting.
Don Davis can be reached at 360-652-9994 or email him at dond@htlnw.com
or visit his web site at http://www.HTLNW.com for other contact information.
Don specializes in residential and commercial lending mostly in and around Snohomish County, North King County, Skagit county and generally in the state of Washington.
Don has spoken at numerous workshops and events and written articles regarding credit scoring and related topics and has helped many people substantially raise their individual credit rating.
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