There has been a lot of news lately about loan modifications. And, guess what? As usual, the sharks come out to see who they can bite. So, you need to be aware of some things if you want a loan modification so that you don’t get screwed. First and foremost, legally, it takes a real estate license to negotiate loans, so ALL of these companies that are coming out of the woodwork offering to help modify loans? Well, there are MANY companies/individuals operating these businesses illegally. I will say that some of them really do want to help people, and may even have good intentions, but regardless of good or bad intentions, technically some are running illegally. A lot of people stating that they help with loan modifications do not have a real estate license.
Another KEY point is that it is ILLEGAL to charge ANY upfront fees to help with a loan modification. Even if they say they just charge for paperwork and charge $5, that is ILLEGAL! So, basically, the 2 real key points just right off the top is that someone needs a real estate license to help with a loan modification and can not charge even one penny in upfront fees. Disclaimer: As far as I know, this goes for EVERYONE, except for possibly some attorneys may be exempt. If there are ANY exceptions to this rule, go ahead and email me the law from a legal source that supports the activity is legit and I will update my blog. Otherwise, don’t bother emailing me without supported legal documentation to argue this point.
So, I have heard it all. I heard that one person charges one month’s worth of mortgage payment which goes to an escrow account. If the homeowner gets the modification, the one month mortgage payment is her fee. If she doesn’t, she supposedly reimburses the client the whole amount. I have heard stories of clients being charged up to $6000 in upfront fees for the modification. Logically, if someone has $6000, then they should PAY THEIR MORTGAGE! I have heard of $92 upfront fees, a percentage of the mortgage payment upfront, etc, etc. If the person is legit, they can help you with a loan modification and if the modification is successful, then charge a fee at the end, but no UPFRONT fees are legal.
The bottom line is that really, it is fairly simple. You just call your lender, ask the customer service person for the loan modification department. They will either send you a form to fill out or tell you how to get it online. You fill it out, write a hardship letter, maybe need to send in some information like bank statements, pay stubs, tax returns, and then you wait for an answer. It is pretty simple.
The people that want you to pay them make it sound like it is impossible to do it with out their help, but it really isn’t that hard. Yes, it is sometimes frustrating to be on hold or be switched to different departments when the customer service person sends you to phone forwarding hell, but really, it is not worth a full mortgage payment or anything near it to do it yourself.
Obviously, if you are struggling with your mortgage and making ends meet, is it really logical to spend $1000 or more for help with doing something you could do yourself? And, truly, if you know anyone in the business of selling real estate, I am sure they would be more than happy to help you with any questions. I surely am more than happy to let people know what to expect and what to ask for and such. And, I have a real estate license and give the advice for FREE!
The moral of the story is if you are struggling to make your mortgage, don’t pay even more money hiring someone that may very well be illegally operating a business when you can just make a simple call and spend maybe an hour or so gathering some information. The people that do the as a job make it sound like there is tons of paperwork and they package it the way the lender likes to see it.
Well, newsflash, for example, Washington Mutual sends out a one page form to fill out, asks you to write a hardship letter, give your current bank statement, 2 current pay stubs, and if you are self-employed then tax returns. Once you get the form in the mail, you can call customer care, give the person the info verbally, she plugs in your numbers, tells if you if prequalify for a loan modification. If you do, you fax in your documentation and wait anywhere from 30-90 days for an answer and it is a good idea to maybe check up on it every week or so.
If you truly have a hardship and late on your payments and such, sometimes that is an advantage in getting a loan modification. So, if you are late and struggling, don’t feel like there is no hope in getting one. Although, I am not advising you to stop making your payments so that you can get a loan modification. I have also heard people not getting a loan modification because they were late on their payments, so it’s case by case, there are no real general rules and regs. Also, if a lender does agree to a loan modification, there should be no consequences to your credit. A loan modification is like a refinance in a sense. However, if you are 30 or more days late, of course, that will go on your credit.
Just as a couple of examples of success stories. I heard of one guy upside down on his home. He owes $604,000 in loans and his home is worth in the $400,000’s. He had a 6% interest rate with GMAC. His rate went down to 1%, they amortized the loan over 40 years, rather than 30 years, and now his payment on $604,000 is around $1500 per month. And, I heard of someone going from 7.5% to 2.5% rate. And, a few other stories. So, it can be a major change!