I recently heard of a process that some investors in my local area are utilizing called “loan modifications”. Bear with me as I don’t totally know the process ???, but from what I’m told it starts as a normal investment opportunity.
The investor is contacted by a seller,typically early in the foreclosure process.
the investor offers to help by contacting the bank to modify the terms of the mortgage to bring the debt current.
the bank requests certain documents from “seller” and looks to see if they meet a certain criteria.
If “yes” the loan is modified and the debt becomes current. seller keeps the home and the investors is paid a “fee” for what i assume is his brokering of the modification.
If the seller does NOT meet the criteria the investor can suggest a SS or other techniques.
My question is: IS THE LOAN MODIFICATION ETHICAL? Is it right to charge 2k just to contact the bank to modify the “seller’s” loan? I have heard the argument that we are being compensated for our knowledge, but are hearing from other people. the process took about 20 minutes and 4 faxes to be completed. This is more a question of interest then me personally deciding to pursue this option. An opinion is Appreciated!!!
$2k seems a bit steep. i’ve heard of charging one months mortgage payment - so it varies.
but i’m told often times, a loss mitigation dept. will not negotiate with a homeowner who has stopped making payment or continuously makes them late, but that if you call they will negotiate with you.
Fanniemae.com (I think this is it) has a great article that explains the different options for stopping foreclosure - explaining they are ready to work with homeowners to avoid foreclosure.
So investors negotiating loan modifications are common practice? The $2k did seem a bit much, especially if the homeowner already isn’t able to pay their mortgage.
I have never heard that. HO has the legal right to reinstate up to the time of the sale. I don’t understand how they couldn’t work with the homeowner. Their job is basically to “save the company money”. LM reps are paid bonuses based on their numbers. The HO is the key. If you ever know of or hear of a particluar lender that has this policy please post it. I would love to know.
but i'm told often times, a loss mitigation dept. will not negotiate with a homeowner who has stopped making payment or continuously makes them late, but that if you call they will negotiate with you.
Yes, there is nothing wrong with getting paid for helping the HO save their home. Forebearances and loan mods can take a lot of time, faxing, consultations, tracking down the homeowners, making sure the get their docs in to the lender on time, etc. $2000 seems extremely high, but maybe that was based on the monthly payment?
Thoward,
Those working the preforeclosure market, (Stop Foreclosure! signs, etc.) help homeowners with loan modifications or forebearance agreements when the homeowners want to keep their home, as an alternative to buying the home from them…some charge and some don’t. Those who don’t know they will be in 1st position to buy should the HO later not be able to pay and need to sell quickly at a later date. I’ve heard that a large % of these HOs don’t make it.
Often the Homeowner facing foreclosure doesn’t understand that there are options or they are in denial about the whole situation - that they will lose their home if they don’t take action. An investor can go in and hold their hand through the process. I have one investor friend that actually looks at the persons finances and helps them get back on track with a budget to move forward. He always trys to help the homeowner keep their home if that’s what they want. He does charge 1 months payment and he does spend a lot of time with them and the bank.
Again, that article on the FannieMae website is really good at explaining all of the different options available to stop foreclosure.
Well said. Wish more investors worked like your friend. I also agree, most HO don’t keep thier forebearance or loan mod going after a few months. We work with a lot of lcients months down the road because they couldn’t keep up with their plan. Same goes for bankrupcy!
There are such places as HUD Approved Housing Counseling Agencies which have the ability to neogiate loan mods on behalf of the client and do not charge a dime for the service, so I don’t see why a homeonwer would pay some foreclosure consultant, especially when they are in a finanical hardship and strapped for cash. Check out Colorado House Bill 06-071. Which will require some new standards for “Foreclosure Consultants.”
The borrower can contact the lender themselves and attempt to obtain a forebarance agreement. It is not rocket science. However, some people are not confident enough to tackle it on their own and that is why you people who do it for them. There is nothing unethical about helping the helpless.
So what sort of procedure is it when asking for a forebearance agreement or loan modification. Is it just as simple as calling and saying “Hey, Mr.Smith can’t make his payments because [fill in the blank]. Here are some documents to prove it, lets see if we can work this out…”. I’ve done that before with my credit cards but something tells me the banks won’t budge as easy as Visa…
Well how did you sort it out with the mortgage company? Did they require some sort of paperwork from you like in a short sale package? I would imagine with the amount of foreclosures in most places, the lenders would be used to “working things out” and have a specific process for the whole situation. Am I wrong? :eek2:
I don’t think charging someone for to do this when they could really do it themselves makes it unethical. If that’s the case, restaurants, maids, laundry services, taxi cabs, etc., are unethical. After all, most people are able to do their own cooking, cleaning, washing and driving–so it is wrong to charge them for it, right?
I do have a problem with Loss Mitigation Specialists (what these folks are typically called) charging someone exorbitant fees for making a couple of calls and sending a fax. Heck my lawyer could do it more inexpensively than $2000, and would probably be a lot more impressive.
That said, it is a legal business, although some states are working hard to monitor the activities of these businesses. And rightfully so as there are people that will take advantage of homeowners in trouble.
Sometimes in life, we pay for services. Some people go to court and act as their own Attorney. I do not always recommend this. If you try to negotiate your loan modification on your own and you miss something, such as restructuring your loan package out of an Adjustable Rate Mortgage, you just might be upside down again within 2 years. Why would you try and gamble with the most important asset you have - your home?
Fact: Loan Modification is not a refinance. We do not need an appraisal. We can modify investment portfolios all at once.
Negotiating Rate and Loan Balance/Principal Reduction does involve a series of repetitious faxing, emailing, phone calls, follow up etc… There is a reason why professional services are set up. We are expert negotiators. We have been in finance for over 10 years. The people that are in need of Loan modification are typically upside down on their finances or are in some type of strain. $2,000 is a small price to pay for loan modification to save your home from foreclosure.
If you are experiencing some type of stress from the list below, you may be in need of loan modification.
Adjustable Rate Mortgage Reset - Payment Shock
multiple properties with late payments
Illness
Loss of Job or anticipation of loss of job
Reduced Income
Failed Business
Job Relocation
Death of Spouse or Co-Borrower
Incarceration
Divorce
Marital Separation
Military Duty
Medical Bills
Damage to Property (natural disaster or unnatural)
2k is a small compared to the home’s market value. homeowners can do modifications themselves, but the lack of experience and knowledge could cost them their home. your home is not something that you want to experiment with. hiring a professional loss mitigation company can save you a lot of stress and time.
Loan modifications are important for those individuals who are experiencing a temporary hardship . . . if the hardship isn’t going away, then a loan mod will not be the answer.
A short sale is next.
A deed in lieu is the last option.
In our short sale business we never charge an up front fee: We only get paid if we perform a success short sale transaction. This means we also have to be selective in the cases that we undertake so that we are not spending resources on deals that have little chance of success.
We also direct potential clients to meet with a HUD counselor to review their options before we work with them. It’s important to have a third party that isn’t a business to explain what those options are. Just a couple of suggestions that separate our business from so many others.