Predatory Upfront Loan Modification Fees
Jillayne Schlicke on 08 21, 2008
I’m troubled by a trend that I’m seeing. Recently I’ve noticed that mortgage brokers/loan originators have become interested in learning about loss mitigation techniques. When I ask why, they say that they’re hearing there’s good money to be made doing loan modifications. What? Wait a second. I thought loan modifications were done by the lender for free.
More and more spam is popping up in my spam bin advertising loan modification services, offered by loan originators so I decided to call one of these LOs today after sending an email late last night asking for more information and receiving no reply.
This particular person goes by the title of ”mortgage planner.” On her website, she advertises a wide variety of mortgage products including the pay option ARM and the hybrid ARM (are those even available anymore?) but there’s nothing on her website about loan modifications. None of the staff bios show any experience in doing loan modifications. Here’s what I found out. The upfront fee charged to the homeowner is $3500. But the LO assures me that all the work is handled by attorneys, she says. The borrower’s up front fee is placed into escrow. If a request for loan modification is accepted by the lender for loss mitigation (statistics were offered that 93% of loans are being modified) the full fee is due. If the loan does not get modified, $2,000 is refunded and the remaining $1500 is not. I asked the LO why a homeowner wouldn’t just work directly with an attorney. She said that she works with a network of attorneys with a high loan mod approval rate and homeowners are always free to hire their own attorney and not work with her.
I asked her how much of the $3500 goes to the attorney and how much of it she gets to keep. Her response was, “why are you asking me that?” To which I replied, “because if the attorney is doing all the work, then I’m wondering how much of that fee is going to you.” She said “Well I work with the clients. I put a package together and follow up with the lender.” I said, “but a few minutes ago you mentioned that everything is handled by attorneys.” Of course at this point the conversation has turned a tad bit adversarial and she starts to probe deeper into my true intentions. My intentions are only to get closer to what’s really going on here. I need to know if this sort of gig is something that is a viable alternative for Realtors to know about when counseling homeowners in financial distress. My intentions are to be able to help other loan originators evaluate whether receiving a referral fee on a loan modification is going to get them into trouble. If I were to guess, I’d say that the LO earned $2,000 for a successful loan mod and the remaining $1500 went to the attorney. There are forums out there confirming my guess.
In some states, including Washington State, Mortgage Brokers and their LOs now owe fiduciary duties to consumers. Fiduciary comes from the Latin word fiducia, meaning “trust.” A fiduciary is a person who has the power and obligation to act for another under circumstances that require complete trust, good faith and honesty. Fiduciaries are obligated to avoid self-dealing and conflicts of interests in which the real or potential benefit to the fiduciary is in conflict with the best interests of his or her client. All fees earned must be disclosed to the consumer. The fact that this mortgage planner/LO felt uncomfortable discussing his portion of the $3500 and the actual work performed is a big red flag.
We must realize that not every homeowner is going to be as aggressive as I am with LOs over the phone.
Consumers reading this blog:
Loan modifications are performed by a lender with no fee to the homeowner. HUD-approved Housing Counseling Agencies perform loss mitigation/loan modification services for free. These agencies are supported by our tax dollars.
I suppose the argument is this: “Well the loan servicing departments are really busy and by paying our $3500 fee, you have a 93% chance of getting your loan modified.” But doesn’t the homeowner still have that same 93% chance going at it alone or with the help of a housing counselor?
If I had $3500 to spend, then I think I’d rather spend the whole $3500 on legal counsel, instead of just $1500.
Loan originators, a fee for services rendered is fine, but what are those services being performed? This particular person shows zero experience in loan modifications and admitted to me that the attorneys are doing all the work. Is “gathering papers together” worth $2,000? A fee earned that is not commesurate with services rendered has been catagorized as an illegal kickback via RESPA’s Section 8. Loan Servicing companies are also subject to the provisions of RESPA. All lenders are subject to RESPA whether or not the LO owes fiduciary duties to consumers. Any amount over what’s considered normal and customary for services rendered is considered a junk fee and subject to challenge.
Sigh. I suppose we need to consider that we’re coming out of a mortgage orgy where LOs actually did just gather together some papers, threw them on the processor’s desk, and picked up a fat paycheck. Why wouldn’t they believe this could be their ticket back to the good old days?
Loan Originators, before you begin earning these referral fees for basically doing jack squat and handing the file over to an attorney, consider what would happen if the homeowner did not feel that he or she was well served.
Your regulator ends up with a phone call, which turns into an investigation. Perhaps you’ll end up having to refund all those fees back to the consumer. It could happen.
Loan originators, my advice is to refer your financially distressed homeowners to legal counsel and free HUD counselors. Loan modifications are performed free of charge by lenders.
As a fiduciary, is it possible to justify charging anything above zero when you know free services are available for your client?
Okay all you banker types. Help me analyze this trend. If banks/servicers are offering upwards of $3500 to outsource loss mit/loan mods, that can mean several things. It surely means that a large percentage of these people who are receiving a temporary interest rate freeze on their ARMs will be back in 3 to 5 years with their hand out again, asking for another loan mod; IF they even make it that far. 40% of recent loan mods have already re-defaulted. Random, desperate loan mods without common sense underwriting means we’re just pushing this whole mess further down the road, delaying the eventual recover until many years into the future.
Apparently one of these companies is coming to town next week to sell this system to a room full of LOs. They’re charging LOs a pretty hefty set-up and monthly fee to participate in their referral program. Someone is definitely getting rich quick off of desperate LOs.
This article and the comments below do not constitute legal advice. If you need legal advice please consult an attorney licensed to practice law in your state.
About the Author: Jillayne Schlicke
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Rhonda, Jillayne that 40% quote of loans that were modified have already defaulted was from 8 months ago. Maybe the stat is still the same, maybe not. However, 60% of modified loans were doing well — which seems to me to be a workable solution to a situation that otherwise had a 100% failure rate.I do agree tho that consumers needing to do a loan modification are far better off paying a recommended attorney, not some ’service’ that has sprung up in the past year or two. Also, many people in short sales might be far better off doing a loan modification instead, and I wonder if lenders are better/more willing to do modifications instead of short sales anyway? Seems like they are.
First they sold subprime,
Then they sold the Option ARM,
After that FHA was their god,
Now they’re cashing in on the loan mod.
Hi Leanne,
Here’s an article from July of 2008:
http://www.housingwire.com/2008/07/16/subprime-arm-defaulting-despite-loan-modifications/
“Analysts with Moody’s Investors Service said earlier this week that a whopping 42 percent of subprime adjustable-rate mortgages modified during the first half of 2007 had become 90 or more days delinquent by the end of March 2008. That number goes up over 50 percent when you look at previously-modified loans now 60 or more days delinquent.
In the industry, this is called recidivism; and seeing such high recidivism rates among modified loans is the newest wrinkle for a housing collapse that, so far, has been full of them. After all, what does it mean if those borrowers with renegotiated loan terms end up defaulting on them anyway?
“Defaults like this aren’t the result of borrowers needing a small fix to their loan,” said one source, a loss mitigation executive that asked not to be identified. “They’re the result of borrowers so far in over their collective heads, either on credit or affordability, that there is little that can really be done to save the house”
Yes, 60% are doing well; for now.
However, it takes a bank/servicing company an incredible amount of time, resources and money to process loan modifications. These statistics show us that we still have a wide systemic problem: The industry is handing out loan mods like we handed out subprime loans.
The re-defaulting loan mods at a 40% clip tell us that these loans should not have been modified.
This will lead to higher bank losses/write-downs and will lead to higher interest rates and fees for future homeowners.
If the banks/servicers are freezing teaser rates for another 3 years, then what happens 3 years from now when the homeowner still can’t qualify at the fully amortized rate, can’t refi into a new loan and can’t sell?
Hi Mortgage Samson,
How’s it going down there in Florida? Are the banks starting to write down the sales prices of those REOs yet? What about loan mods…..are you seeing the same problems down there with LOs trying to break into this arena?
I think the better argument is you can get the same results for free. Finding an attorney who knew how to do this would be problematic, at best.
BTW, I suspect this service would probably come under the distressed property law quite a bit of the time, depending on the circumstances.
Kary,
Ironically, mortgage brokers are exempt from the DPL.
“Finding an attorney who knew how to do this would be problematic, at best.”
Can you say more about this, please?
The LOs are being told that this company has a “pool of attorneys” that process the loan mods.
Hi Jillayne, Any loan originator who only gathered the papers and tossed them at a processor is long gone. Of we LO’s who are still around (I do call myself a mortgage planner, as a member of NAMF, NAMB, WAMB, etc.) it’s because we have taken on the concept of fiduciary as a real responsibility to deliver what is best for the client to the best of our ability. While it’s hard to draw a line on resonsibility (after all I am in business) one could say the guy I did one loan for instead of two in half the time and half the fee is a decent example of walking that line. As the voice of NAMF, I would hope you communicate that responsible LO’s are not just collecting fat checks for carrying paperwork and looking for easy ways to make a buck. It’s pretty darn tough out here and Realtors are not accumstomed to having their clients turned down since only ‘last year’ their self employed guy got 100%loan. Which begs the question: what ARE realtors doing counseling holmeowners in financial distress…is that their responsibility? Whoa! ?
Hi Susan,
Realtors are sometimes the first person a homeowner calls when they finally come out of denial and decide to do something about their pending foreclosure.
Sometimes homeowners are trying to figure out all their options and selling may be a viable option. At that point, Realtors often counsel the homeowners as to the “sale” option. If the homeowner does not want to sell there are other options.
For example, the homeowner could try to refinance or call their lender and see if they qualify for a loan modification. The homeowner could decide to take on a roommate. I’ve seen this happen lately. The homeowner could decide to move out and live someplace more affordable and put a tenant in the home. There are plenty of options for a homeowner to consider beyond selling.
Not all agents are well versed in all these options which is why it is so important to refer homeowners to a HUD-approved housing counseling agency where a homeowner can receive FREE counseling.
Susan says, “As the voice of NAMF, I would hope you communicate that responsible LO’s are not just collecting fat checks for carrying paperwork and looking for easy ways to make a buck. It’s pretty darn tough out here.”
Susan’s right. There are many, many LOs who I meet every week who are really struggling with trying to figure out how to help homeowners who may want/need to refi but might not qualify under the new tighter underwriting guidelines.
There are also many LOs who would not ever consider take a $2,000 referral fee (or paperwork shuffling fee) from a homeowner in financial distress.
Even if it’s 50/50 that mods will become foreclosures, it seems to me that they are cheaper than a full foreclosure for the lender, and the risk of the second 50% that may fail possibly will be offset by them failing in a bottomed out or near bottomed market. It’s a risk, but lessoning an onslaught of sheer numbers of foreclosures all at one time seems like a smart plan to me.
We can’t have all the failures all at once. Chaos.
Jillayne, you quoted “Analysts with Moody’s Investors Service said earlier this week that a whopping 42 percent of subprime adjustable-rate mortgages modified during the first half of 2007 had become 90 or more days delinquent by the end of March 2008″.
I would think that subprime modifications are far more likely to return to foreclosure than other foreclosures simply because those borrower were marginal in the get-go. However, there are foreclosures happening due to value reductions, job lossess, illness, and such where the borrower always has been stable and qualified until the chaos of todays’ market. I wonder what the modification success stats for this group would be? Much higher would be my guess.
Great post. This is a scam. Any good bankruptcy attorney is capable of doing a loan modification without filing bankruptcy. Some real estate attorneys may do it as well. They will also explore the client’s other legal options.
The scammers sell their services by leveraging off the attorney’s bar license.
What you are describing is fee spliting which is strictly prohibited by the attorney’s rules of professional conduct. An attorney cannot share fees with a non-attorney or vice-versa. It can also lead to charges of unlawful practice of law against the person doing the modifciations. The bar takes it very seriously. The rule prevents non-attorneys from influencing the attorney’s judgement.
There is also an inherent conflict. Is the attorney loyal to the client or the scammer? What if a dispute arises between the scammer and client or any of the parties. The attorney’s loyalty to the client is compromised. What about confidentiality? Out the window.
This has been seen in the estate planning realm. An organizer sets up a system to sell services. They sell by leveraging off the attorney’s bar license. They do the work and maybe have an attorney review the documents. As a result it is now a violation of he consumer protection act for non-attorneys to advertise estate planning services.
Attorneys have been disciplined for their involvement in these arrangements. My experience is that only inexperienced or desperate attorneys fall for these types of fee generating arrangements.
Do you want someone who is inexperienced or desperate or willing to violate the rules to work your case?
There are very good attorneys out there who can handle modifications. My advice to clients who need a modification would be:
1. Call the mortgage company and see what they will do for you. They don’t want your house. You may not need a professional.
2. Hire a debtor’s attorney to handle the matter.
3. Consider the benefits of filing bankruptcy with a good bankruptcy attorney.
No reason to throw money away on a scam.
Hey Jillayne – I think you’re throwing the baby out with the bathwater. I have been a mortgage professional for 23 years and
I have seen first-hand the travesty of the sub-prime and 100% financing that created this mess. Our industry has had more than it’s share of bad actors, especially since the banks stopped paying
attention to ‘prudent man’ rules with respect to underwriting. But our industry also has a lot of professionals who have counseled clients against over-financing just because the banks would let them.
Loan modifications as an “industry” is brand new. Until the lenders started choking on their REOs, there were not very open to modifying loans. It IS a difficult process because each situation is unique, and because the servicer is usually the middleman between the homeowner and the owner of the mortgage. And due to securitization, it’s often difficult to know who the owner of an individual mortgage actually is due to those securities being sliced into ‘tranches’ which are sold to different investors.
I am willing to bet a lot of money that most attorneys don’t know
any more about how to determine the Net Present Value to the mortgage holder of Modification vs Short Sale vs Foreclosure than most of the other players jumping on the Loan Mod bandwagon.
Those calculatons depend on a number of variables that change
daily. I am certain that 99% of homeowners don’t know how to
determine that.
So I belive that there is a place and a need for loan modificaiton
professionals who can not only underwrite the borrowers ability
to pay (full documentation only please), but who can also demonstrate to the lender that the proposed modification will result in the least cost outcome to the ultimate investor. And I believe that
knowledgable mortgage professionals are in a better position that most to be able to do that.
The market will take care of finding the right value for that service,
but I am happy to see that loan modifications are being widely promoted because they are BY FAR the best solution to this crisis.
They keep families in homes, they reduce the financial stress on the family, they are the least-cost solution to the lenders, they keep the
home from being added to the inventory of distressed properties for sale thereby reducing downward pressure on home values for everyone, and they don’t cost the taxpayers a dime.
Jillayne, I forgot that loan officers were exempt. Apparently this was due to the new laws that went into effect covering them about the same time.
As to what I meant by problematic to find an attorney, it’s not really a category of attorneys in the phone book, and even if it was, that wouldn’t help them find a good one. Finding good attorneys is difficult. That’s all I meant by problematic–I wasn’t referencing the pool of attorneys at all.
As to this pool of attorneys, I wouldn’t necessarily assume they’re good at what they do. This type of thing might be something they even pay to join, so that they get the referrals (further eating into the $1,500). But chances are unless you’re their first, they’ve probably some experience doing this. But again, that doesn’t mean they’re good.
I advised debtors for 20 years, and I never did this sort of thing, and I don’t know that I know anyone who did.
Who still uses a phone book?
its snoopy Jillayne keepn’ the man down from makn’ a buck. gee whiz.
Bob “Bubba” Johnson
Official Registered Mortgage Planner Specialist
Dewey, Chetham, & Howe Mortgage, Inc.
Qwest Dex (Dexknows.com), whatever. The point is finding a good attorney is tough. Probably particularly tough here because whatever work the attorney does is not public, so the quality isn’t known even by other attorneys.
I really wonder how these workouts work. Do they require the person to file bankruptcy if they have significant other debt? Seemingly they would, or at least have the change be reassessed if they do file bankruptcy.
Kary this is an excellent question:
“Do they require the person to file bankruptcy if they have significant other debt?”
I will ask this question next week when I attend one of their local “sales” presentations. It’s free by the way. If anyone wants to go, next Wednesday’s presentation is especially for Realtors. Then there’s another on on Sept 26 especially for Mortgage Brokers. Let me know and I’ll email the link.
If the borrower has significant other debt and does not qualify for the loan mod because their overall debt to income ratio does not meet loan mod guidelines, I’d imagine that filing bankruptcy would only mean more write-offs for banks.
I can’t imagine that the banks would encourage that.
Hi Jillayne, I still say that realtors have no business counselling homeowners under duress unless they intend to become licensed mortgage ficudiaries. Of course, I refer homeowners to realtors to asses their current home’s salability if that is an option to get a fuller picture of the options. Realtors should never be discussing a client’s financial situation unless they want a big fat law suit later for their trouble!
Which begs the question: Why are you running down LO’s in the realtor world anyway? Lost of decent LO’s are learning the ever- evolving new ropes daily in an effort to better serve our stressed clients and to help preven such tragedies in the future. I thought your organization was developed to promote best practices not bemoan stupid ones? Do you run down realtors for “tossing a bunch of papers …and collecting a fat check” in LO circles? I hope not!
Hi Susan,
Realtors absolutley must understand what’s going on with their clients finances. For example, if a homeowner is considering a short sale, it’s imperative that the homeowner understand that short sales are reserved for people in financial distress; for people with no money. Homeowners need to hear that up front so they can make an informed decision.
Hi Susan,
The “best practice” that I am promoting in regards to this article is for LOs and Realtors to refer homeowners in financial distress to:
1) their own local, legal counsel; and,
2) FREE HUD-approved housing counseling where loan modification assistance is done at no charge to the homeowner.
and for LOs and Realtors to avoid becoming victims themselves of companies who are asking LOs and Realtors to pay a hefty fee in order to have the “opportunity” to get involved in secret fee-splitting arrangments that might not pass the smell test with state regulators.
Since when are realtors experienced or trained in assessing a client’s financial situation? I should think at the very least the realtor would be advised to rely on the client’s accountant for that persepective, appropriately edited! Who the hell would consider a short sale unless they were in dire straights? It is NOT a realtor’s job to assess this!!!!!
Realtors are are highly trained in the contractual and sales process and legalities of those transactions.
It is my understanding an appropriate distance from a client’s financial state is a matter of law and would otherwise be toeing the Privacy Act line rather closely…i.e., putting a realtor at disadvantage in negotiating failry on their behalf for knowing ‘too much’. I had one client in distress who was very emotionally unwell…and if his realtor had known to what extent he was in the hole it was rather likely they would have swept in like wolves for the kill to underbid his home.
“Who the hell would consider a short sale unless they were in dire straights?”
You’d be surprised.
http://www.raincityguide.com/2008/03/20/question-from-todays-short-sale-class/
Susan, Realtors must disclosed short sales in their multiple listing system so other members of the MLS know whether or not the home sale must be approved by the lender.
If the seller cannot perform on the sale without the approval of a third party, most people would consider that a material fact that must be disclosed to all parties.
Therefore the real estate agent must help the seller make an informed decision about short-selling BEFORE the home is liste. This includes having a heart-to-heart discussion/reality check about the lender’s requirements: The seller must prove they are in financial distress.
Aren’t short sales homes that are legally in iminent state of seizure posted at the county courthouse as a matter or record? I attended a certified short sale class and heard a noted WA attorney expound on the new Distressed Homeowner Law recently– both of which should put anyone off the idea of ‘counseling’ for life.
Not necessarily. Sometimes the homeowner might not be in default….yet.
Susan wrote: “Since when are realtors experienced or trained in assessing a client’s financial situation?”
When they were a bankruptcy attorney 20 years prior to becoming a real estate agent!
Seriously, prior to the distressed property law going into effect, if someone want to sell, but was also in financial distress, I’d list their property but also get them to see a bankruptcy attorney, preferably early on. There are things people should be doing months before filing bankruptcy, and with the new bankruptcy law attorneys are less willing (and in some cases unable) to file a bankruptcy if the client comes in at the last minute.
Susan wrote: “Who the hell would consider a short sale unless they were in dire straights? It is NOT a realtor’s job to assess this!!!!!”
Agents need to do that do know whether they can do a short sale. A lot of people want to do short sales that can’t because they don’t want to pay the difference between what they owe and what the property will net. The agent needs to be able to understand their financial situation enough to be able to determine that, and later to sell the bank on the short sale process. That’s why only agents that specialize in short sales should do them (and I say that not being such an agent).
Susan wrote: “I had one client in distress who was very emotionally unwell…and if his realtor had known to what extent he was in the hole it was rather likely they would have swept in like wolves for the kill to underbid his home.”
If by “in the hole” you mean how much was owed compared to value, chances are the agent(s) already knew that. It’s not a secret in most cases. I always look that up before writing an offer for a buyer.
If you mean instead how dire their financial situation was, then perhaps the agent would avoid taking the listing due to the distressed property law.
Agreed, Kary assessing the financial state of the property transaction is one thing…assessing the financial state of the seller is a very specialized skill and legal resonsibility. One wonders if havng the guts to list a property after counselling the client is such a hot idea and could be construed a conflict of interest.
My ‘in the hole’ client had yet to default on his home but was not meeting other obligations. Dicey territory.
That’s where the distressed property law could kick in. So “dicey” is an understatement.
Jillayne, I’m so glad you wrote this. I did participate in a national conference call about loan modifications where I was hoping to learn how to properly “point” consumers in trouble in the right direction. I honestly do not have enough time to be a counselor nor do I wish to be compensated for this type of transaction–it’s not part of my mortgage practice. However, when consumers contact me, I’d like to have some good advice to send them in the right direction… just over halfway through the call, it turned into a sales pitch much as you’ve described here. I was angered and sick. I hung up…I wish I would have stayed on to learn the nitty gritty–but I really couldn’t stomach it.
Thanks for this post.
“Do they require the person to file bankruptcy if they have significant other debt?”
You cannot modify the loan on a residence you occupy in a bankruptcy. The idea of giving bankruptcy judges the ability to modify loans has been floated and shot down by the bankruptcy reform folks.
You can sell a house free and clear of all liens (short sale) in a chapter 13 bankruptcy in about 30 days. Much faster than any lenders will approve a short sale in my experience.
That’s not what I’m talking about. I’m well familiar with the laws of bankruptcy, having practiced for 20 years.
What I’m talking about is will they allow you to continue to pay $500 a month towards other unsecured debt, and still modify the loan. Assuming they would modify the loan with that other debt in place, how would they deal with that if you then later filed bankruptcy and wiped out that $500 a month payment? Seemingly they’d require you to file bankruptcy so as to maximize the payments you could make on the mortgage, but I could see the politics of this calling for a different result. Maybe that’s not such a concern with the means testing of the new law (something I’m not familiar with). But seemingly it could allow the debtor quite a windfall if they could modify their secured debt and then wipe out their unsecured debt.
Excellent point on the bankruptcy option to short sale, however. I used to think of the bankruptcy process as rather cumbersome, but compared to a short sale it’s much closer to a normal sale (subject to some other concerns).
I believe Doug Jones has the best point:
I am happy to see that loan modifications are being widely promoted because they are BY FAR the best solution to this crisis.
They keep families in homes, they reduce the financial stress on the family, they are the least-cost solution to the lenders, they keep the
home from being added to the inventory of distressed properties for sale thereby reducing downward pressure on home values for everyone, and they don’t cost the taxpayers a dime.
—————
I believe that homeowners can get their lenders to do loan modifcations if they are persistent, live in the property, and have convincing reasons as to why a modification is in the mutual best interest of the investor and homeowner. Homeowners – if you don’t feel confident you can do this yourself, find 2 or 3 real estate attorneys, talk to them, and pick one to work with. Keep up with what your attorney does, and learn as you go. You can definitely get extensions on foreclosure dates, and keep negotiations moving along.
leanne, I hope home owners in need aggressively try to have their loans modified as well…and that they’re aware that predators are waiting for them…as they do prey on the weak and fragile.
On the call I was on, a LO asked: what if the home owner doesn’t have $3500? The answer? Family is happy to help and/or they’ll eagerly use their credit cards.
Off point here, but credit cards are the next big mess. Banks are/will be be jacking those rates like crazy and EVERYONE (home owners and renters alike) will feel the pain if they carry balances.
Credit cards are what caused me to ask the bankruptcy question above. In my experience there are very few people who get into trouble on a home loan that don’t also have significant credit card debt. I don’t see how you deal with one and ignore the other.
In the past one of my suggestions was amending Chapter 13 to allow a home loan to be modified (both amount and interest rate) under a 5 year plan. That would allow all the debt to be dealt with, and only give the debtor relief if they completed a long term plan. It would also eliminate the issue of obtaining bank approval, especially on assigned loans.
“Since when are realtors experienced or trained in assessing a client’s financial situation? I should think at the very least the realtor would be advised to rely on the client’s accountant for that perspective, appropriately edited!”
You are right Susan, Realtors are not trained in assessing their client’s financial well being. In fact it is rare that a loan officer will discuss the buyer’s true qualifications with the agent involved in the transaction leaving Realtors to rely on the lenders representations. However the current market is evidence of how well LO have done at honestly assessing the borrower’s ability. By the way, can you enlighten us to the education and licensing requirements for loan officers that qualified them to be financial consultants? Fogging a mirror doesn’t count.
“and if his realtor had known to what extent he was in the hole it was rather likely they would have swept in like wolves for the kill to underbid his home.”
WOW! Wolves? Realtors are required to look out for their clients best interest. Your client should be honest with his agent about his motivation in order to get the best representation possible. The listing agent would not disclose this information any other agent as it would violate their obligation to look out for the clients best interest. I know the “fiduciary” aspect of the lending industry is new, as is continuing education, but agents have always had a fiduciary obligation to their clients, and a code of ethics. Clarification…our obligation to the client was fiduciary until the late 90’s when the laws changed due to the desire to implement better representation for buyers, i.e. buyers’ agents, and the standard became an agency duty to the seller.
As a short sale specialist I do talk to my prospective clients about their financial situation. If they feel they have the income to support their monthly payment over a long period I refer them to free credit counseling like Acorn. I also refer them to a bankruptcy attorney as a routine part of our first meeting. Many are buried in mortgage payments and have tapped savings, retirement, and credit cards to try to keep their home and are out of options. Short sales are just one of many potential solutions for homeowners. The available solutions depend primarily on those homeowners particular circumstances.
Lenders are getting better at loan modifications. 6 months ago the standard reply to a borrower asking for loan modification was to require half of the arrears up front and then pay the remaining balance, in addition to their regular mortgage payment, over 12 to 24 months. This was typically an unworkable situation since the borrower could not make the original mortgage payment in the first place. Those that accepted this type of deal usually tapped their savings or retirement for the upfront payment and then ended up defaulting anyways. Now they are offering to lower interest rates, put the arrears and penalties on the back end of the loan or try to refinance through the new FHA guidelines for defaulting borrowers.
Many people have said that the slow market will help get the bad apples out of the industry.
While that may be true to some extent, those that remain still need help/guidance on what to do in these situations.
It’s easy to point out what we can’t do (law.)
It’s more difficult to help people understand what they should do.
For example, this new “get rich quick” scam for LOs where the LO hardly does any work and collects $2K sounds too good to be true.
Imagine if you’re a struggling LO whose income has dropped dramatically over the past year. You may think your only option here is to go for the $2K or refer them directly to their lender and get nothing.
You have a family to feed, your own bills to pay.
Sometimes it’s not that black and white of a decision for some LOs.
It only becomes black and white when regulators say that this is not allowed.
Until then, without a set ethical guidelines, each LO makes that decision on their own. (A mortgage broker could have policies and procedures set up at his or her own company.)
Bankruptcy Attorney says that lawyers have a lengthy code of ethics that’s vigorously enforced. Even Realtors created a Code of Ethics over 100 years ago. (Enforcement of the Realtor Code varies from area to area, which is problematic but we’ll save that topic for another day.)
Ken asks,
“By the way, can you enlighten us to the education and licensing requirements for loan officers that qualified them to be financial consultants?”
Sure.
In WA State:
LOs who work for a mortgage broker must simply pass a competency test. No pre-licensing education required. Fingerprints and a background check as well.
LOs who work for a bank, credit union, or consumer loan lender have no such requirement. However, most banks do run a background check. Most all federally chartered banks offer ongoing training. With all other entities, education is voluntary. The duration and quality vary from company to company.
Same could be said for mortgage brokers. It’s all subjective depending on the company.
This will change, though I do not have an effective date for you.
All LOs are going to have to pass a competency test and a background check as well as take a 20 hour pre-licensing class. All LOs, no matter where the work.
HOWEVER, it’s important to point out that none of that education contains a requirement to assess a client’s financial situation. It’s all education in state and federal law.
Jillayne, I think it worth pointing out that unless you have studied pretty thoroughtly or have reasonable experience an LO would not pass the comptency test. In addition we have continuining education credits required every year and oversight by Brokers for Loan Originators working under their licenses, which you yourself participate in. At the moment, we are witnessing a trend of Brokers becoming “CLA Bankers” (brokers moving to Consumer Loan Act status) who are advertising the move to LO’s as ‘no more licensing!’ and ‘no more ysp disclosure’. This has attracted a certain element of folks who have been investigated for violations. The reason they get the same bank status for LO’s is because they hold funds from transactions for an hour or so before reselling the notes. A new loophole soon to be closed? Any insight on this?
I also disagree that LO’s don’t have to be familiar with assessing a client’s financial situation: the very fact all lending (Fannie, Freddie, specific Lenbders) guidelines dictate what are acceptable debt to income ratios and credit scores for a given loan product put us in the position of assessing their ability to repay a mortgage…requiring a very thouorugh analysis of their assets and liablities in context. Our loan analysis software is pretty thourough on these points as are the underwritng systems. Most lenders and brokers are requiring a Net Tangible Benefit discussion with a client about their full understanding of their ability to repay the mortgage for the forseeable future or at least three years.
Any licensed LO in the state of WA is pretty well versed or they wouldn’t be able to get a loan underwritten…much less have their files clear their Broker compliance and get paid!
Ken, Regarding my incendiary ‘wolves’ comment above: the client I was assisting was elderly, legally blind, emotionally unstable, dealing with the loss of a close family member and had already been taken advantage of by a realtor who helped get him into a very high interest rate baloon note held privately by a friend who wanted his home. I had another elderly client with a 300 ft beachfront property and modest home nearly taken down by a lawyer who held his note and wanted to develop his property. Another angel investor, also an attorney, told me he would ‘definately foreclose if given the opportunity’. So yes, unfortunately not all of your compatriots or mine have the right attitude toward treating our clients with repect and fairness.
Susan, re: brokers moving to become CLA lenders…it’s not all about “no more licensing”. Our company has been licensed under the MBPA and was quite happy being so…the recent passage of laws that were passed at the end of this past session (which there were many doosies) forced lenders (such as correspondent lenders regardless of whether or not they were all ready complying with the state licensing) to become CLA lenders.
The bonding required to be a CLA lender is enormous. We were told by the state they wanted us to have bonds under both MBPA and CLA if we wanted to retain “active” licenses.
We are now CLA lenders–not by choice. We have chosen to retain or MBPA licenses as “inactive” and are told by DFI that when the national licensing goes into effect, this will allow us to easily convert to that.
We are a direct endorsed HUD lender–we’re not hiring convicts to be LO’s. But because we’re large enough to have our own credit lines and our own in-house underwriting–we’ve fallen into this trap.
I can’t wait for national licensing which will include every one who takes a residential loan application: broker, banker and correspondent lender.
It’s about time…but it’s my understanding this may take up to 2 years? (Jillayne have more scoop on this).
National licensing will get rid of any remaining fringe and scum that has no business originating loans…if the current market doesn’t weed them out first.
Ken, re: “the current market is evidence of how well LO have done at honestly assessing the borrower’s ability”
the current market is also evidence of how many real estate agents pushed buyers who could barely fog a mirror to their LO’s…with comments such as “can’t they afford more?” or “well if you can’t approve them, so and so can”.
I’m not saying that this made it okay for the loans to be made or pushed…I’m just saying for every LO that was unethical or not considering a buyers ability–there’s probably a real estate agent out there to match.
Rhonda,
You’re right… everyone had a hand in this. LO’s like yourself and the one I use are at the top of the list for ethics, integrity and ability. The 80/20 rule where 20% are doing the business right and the rest fall into another category applies to all of our related industries. I don’t know how many agents act in the way you refer to in your comments but I would likely see a different scenario. Agent fails to get a good pre-approval before showing the customer. They see a house $50,000 more than they can afford, oops, and all the rest in their price range just won’t do. Buyer wants to get that house and either the agent and loan officer do whatever they can to make it happen of the buyer disappears and ends up with someone who can.
Jillayne, thanks for another terrific post. The ensuing discussion has been fascinating as well.
I am not in the industry–just a person who’s bought two homes and refinanced a few times. We bought our first house in 1998, before financing went completely haywire. I’m something of a numbers geek and watching lending standards completely leave the realm of reality was baffling (as a number-cruncher) and frustrating (as a borrower).
Watching the situation come back to earth is painful, too, even as we are thankfully pretty far from short sales and bankruptcy–knock wood.
I’m prompted to jump into the conversation by Susan’s comment at #41:
I also disagree that LO’s don’t have to be familiar with assessing a client’s financial situation: the very fact all lending (Fannie, Freddie, specific Lenbders) guidelines dictate what are acceptable debt to income ratios and credit scores for a given loan product put us in the position of assessing their ability to repay a mortgage…requiring a very thouorugh analysis of their assets and liablities in context.
Lending guidelines that focus on debt-to-income ratios are missing a big part of any household’s financial picture. In my experience, LOs paid not one whit of attention to other financial commitments that don’t register as formal debt. I can’t help but wonder if this has been part of the “willful ignorance” in the past few years and a big contributor to financial failure among borrowers.
As a large example, childcare. In our family, we have two working parents and children younger than school age. Of course we have a major monthly outlay for day care, which is not exactly negotiable; the income that we use to pay the mortgage wouldn’t be obtainable without child care and its expense. Over the course of several transactions (purchases and refinancing), this was *never* explicitly considered in the analysis of how much we could borrow. Not by our stodgy old credit union, not by the slick-and-sleazy LO from, well, elsewhere.
Of course childcare and other kid-related expenses are common. I’m sure there are many other examples of non-negotiable expenses that simply don’t register in cut-and-dried, computerized credit assessment. But those bills do come due. If folks take on a mortgage with a payment that “the experts” say they can afford, based only on loan-to-debt ratios…leads to some tough choices.
I mean, kids just don’t have a lot of trade-in value these days. Or maybe that’s just *my* kids…
The genesis of this market started in the mid 90’s when source lenders (not loan officers or mortgage brokers) came up with the theory that they could provide a loan to every American. Based upon underwriting guidelines and risk profiles a lending product could be produced that, in theory, would provide an acceptable return based upon the associated risk profile. The only question therefore was A. what is the risk associated with a particular underwriting profile and B. what was the required rate of return required in order to offset the risk.
Every loan product has an expected default rate for which the associated cost is spread out over number of loans in total for that product. The cost is expressed as an increase in interest rate above the nominal return required for profit and overhead. The number crunchers who create the loan products and underwriting guidelines thought their computer models had figured the X factor for every type of borrower. That is why a borrower who walked out of the court house with a bankruptcy discharge in hand could get a stated income, zero down loan from the mortgage broker across the street. To them it was simply a matter of charging an appropriate rate of return to cover the expected default costs, overhead and required profit margin. In theory it should have worked. Of course history has proven otherwise. If all of the guidelines had been strictly adhered to, appraisals had been accurate, borrowers had truly stated their real income, and had all of the other moving pieces in the transaction adhered to the profile I’m sure it would have worked, but life just doesn’t work that way.
I’m sure they are back at their computers, at least those still employed, factoring in the new variables to come up with more reliable products. The one thing you can absolutely count on is this; as long as there are consumers with money to spend there will be bankers who will lend them money. For now they have to work out the bugs in the system so the flow of money, for which their existence relies on, will continue.
Angie, it’s not for LO’s to determine the entire financial picture with items such as childcare as you’ve referenced above. Underwriting guidelines dictate what debts are factored.
Bottom line, it’s for the consumer to determine what their financial picture is. Even if a LO can approve a borrower for a payment of $x and a 40 debt-to-income ratio, doesn’t mean that the borrower should seek out that payment and suck up their mortgage payment. If a credit card sends you a card with a $20k limit–is it your job to max out the card?
Consumers need to be more responsible and accountable for their personal finances. A question I ask my clients is “what payment would you be comfortable with for your total (PITI) mortgage payment?”
Rhonda, absolutely. At the end of the day the borrower is the one who signs on the bottom line and takes responsibility for the incurring that debt and for paying it back.
But if people in the lending field now have fiduciary responsibility to their clients; and if, as Susan says, part of that job is ensuring that the borrower is able to repay; then presumably that means taking into account the whole picture, not just what ends up in a credit reporting agency’s database.
In our case we wouldn’t have ever dreamt of taking on anywhere near the maximum loans–or monthly payments–that were “on the table” when we were buying houses. Just didn’t make sense in our budget. Likewise, I would say, it doesn’t make sense that those astronomical numbers were even ever offered at all, since there was no way in the real world we could have actually afforded them…
Well, I guess that’s been the story of the last few years!
Along those lines–Rhonda, I do appreciate your updates about how lending guidelines are changing. We’re hoping to move on to house #3 (converting house #2 to a rental) in the next few years. Some of your recent posts have been very helpful as we’ve been mapping out our strategy.
This dialogue about underwriting guidelines is good.
Now let’s apply those same ideas to loan modifications.
If we did a lousy job of underwriting the loan the first time (and not charging enough money for the risk) then at this juncture, if we hand out loan modifications to everyone…the default rate on loan mods will continue to be high.
Leanne says it’s better than a huge wave of foreclosures.
But this also means the entire mess will be drawn out years and years into the future. Most of the loan mods being offered are at the 3 and 5 year juncture, for example: Teaser rate fixed for an additional 3 years.
Angie I can remember when my both my children were in daycare at the same time. Those days, my mortgage payment was less than the cost of daycare. That was over 10 years ago. I’m sure full time daycare costs are even higher now.
Angie says, “But if people in the lending field now have fiduciary responsibility to their clients; and if, as Susan says, part of that job is ensuring that the borrower is able to repay; then presumably that means taking into account the whole picture, not just what ends up in a credit reporting agency’s database.”
This is correct. This is what concerns me about mortgage brokers/LOs jumping into the loan mod business.
Fiduciary duties means much, much more than just helping a client delay a rising mortgage payment for 3 years.
JIllayne, I believe the lenders want this to be drawn out over years, and so does the Fed.
We can’t have it all “work out” all at once, or we face collapse. For those who are in loans they can’t pay, either due to intensly bad terms in the first place, or for those who are down on their luck, health, or job income … let’s allow the lenders work out their modifications with buyers, and let this mess gradually unwind.
I have never heard that the word “gradual” is a negative word. Hurry up, is usually bad. Let’s allow some grace here, and some cures, and see how that goes.
Fiduciary or punishment? I personally think let’s figure out how many of these loans will find their way to success with some hand holding, rather than just put cement boots on them and sink ‘em now.
Some will still lose their homes, and others will find ways to stay in them. 50/50 odds perhaps, but for the good of the whole, let’s allow some grace.
I am not the only one who believes this is the most prudent course of action on the part of lenders. There are many economists above my skill level that want this course to be able to play out.
I’m not sure that “years and years” will be the course either. When things are falling apart for individuals, it doesn’t take years.
In my view, a slow work out won’t forestall everything, not even close. But, it will help many who are wobbly, and allow many to regain their footing. 3 years to 5 years can make a world of difference.
And, if in 3 to 5 years, we’re still hurting, well then, how really did it hurt? Do you want a fire sale today, or the long, slow train of a leaky air mattress? I like the leaky air mattress myself. I hate fire sales, and disasters.
My bet is on the realities of life — we have needs to move during our lives, as well as desire. We’ve all been in this odd waiting game in the last year or two, and I don’t think the waiting is going to want to continue. Just my hunch.
The majority of homeowners have no credit problems, nor did they do sub prime loans. We are a nation of “fence-sitters” right now — so many too worried to move. When we all get sick of waiting for “permission to move”, things will unplug, and we’ll see a decent market, not this current market of doom & gloom.
A confused mind takes no action.
At some point, that confused mind, says ” I have a need, and I’m solving it. “
Jillayne:
Fascinating post, thanks for taking up the subject! Sorry to show up at the party so late…
1. Unless there is a NEED for bankruptcy, I cannot see where LO’s or attorneys are needed for loan modifications. I know of someone who successfully modified his 1st, 2nd and 3rd loans (3 different lenders), despite not being all that fluent in English or finance. That tells me there is not a lot of “value added” to the proposition by the presence of a loan mod specialist or an attorney. All that should be needed is a decent call center at the lender, with an escalation department prepared to interview the borrower and take in the new information and documents, and an underwriter to assess the risks associated with the modification (and if these do NOT exist, how does having an attorney or a motivated LO help?). It’s not like the borrower can benefit from “shopping around”, or is insufficiently motivated to get the modification done!
Are these loan mod specialists advertising that they can negotiate better terms than the borrower is capable of? If so, I would expect the banks to quickly discourage such costly intermediaries, and refuse to deal with them!
2. It would seem that banks are ramping up production in loan modification, and will soon be able to more of them, perhaps to better effect.
3. As for the discussion of LO’s being financial advisors (Susan T) that are vastly superior to REs….well, I think that’s a bit of a stretch (oh, I’d like it to be true!). We should be specialists in finding the best mortgage solution for the client, then matching a willing borrower to a willing lender, using the available guidelines. We are not responsible for telling people how to allocate their grocery or child care budget, nor should we pretend to be. However, as decent human beings, we should be willing to discuss with the borrower all aspects of a borrowers ability to handle a mortgage, along with their other obligations, and help them find a comfort zone.
4. Whether you are regulated under MBPA or CLA, whether by active choice, or inactive choice, is not the best determinate of who will do the job best for the consumer. I preferred the MBPA, for many reasons, but the broker I work under chose CLA, again for many reasons. I chose to stay at the broker I am at now because of their commitment to rigorous compliance and ethical behavior. I cannot see that my behavior has changed at all under either, and I doubt that Rhonda or Susan’s has either.
5. Jillayne, I think the banks MUST kick this problem down the road (offering shaky loan mods instead of foreclosures), until some semblance of stability and predictability returns to the market. The risks of correcting it all at once are huge, and painful, both for the banks, and the rest of us. I know there is lots of blog support (CR) for the “take your medicine all at once solution”, but I think that is an “Ivory Tower” position, not “down in the 9th Ward of NOLA” position. There will be pain, either way, but I’d prefer to see it gradually, so that the greatest number of people can make the necessary adjustments.
In the meantime, let’s keep hoping for a better tomorrow.
Ken Crotts
re #47.
Nicely put.
Regarding #47, specifically the second paragraph, I attribute what happened to the lenders trying to apply the credit card model to home loans. With credit cards they eagerly make loans to unqualified borrowers because the overall default rate is low enough that they still make a profit. And they still make that profit largely because people in trouble will struggle to make the payments far longer than they should–well beyond the point in time that they should have realized they dug a hole too deep to get out of.
The problem with house loans was that they discounted the risk due to the loans being “secured.” Thus, where X% would be an acceptable default rate with credit cards, they thought that (X + Y)% would be an acceptable default rate with home loans, because they could always fall back on the security (and because people would tend to pay home loans before credit cards, and because there were restrictions on what could be done with home loans in bankruptcy, etc.). But the whole analysis falls apart when you throw in the possibility of prices declining, sort of like how California energy deregulation fell apart when prices increased. Add on top of that some companies focusing on short term results, and you have a really nasty combination.
As to the topic of stretching out the pain, or getting it over with fast (like pulling off a bandage), the only real choice it to stretch is out.
News flash: Bill Gates never was the richest man in the world. If he’d ever needed to liquidate his holdings, the value of MSFT stock would have fallen significantly. That’s because you don’t really need that large of a percentage of a company’s stock to be sold over a short time to destroy the value. The same is true for houses.
I have no idea how many houses there are in King County, but as of the end of last month there were 12,288 for sale in the NWMLS system. People consider that a high number, but it’s possibly less than 1% of the total inventory, and a large percentage of those merely want to sell, they didn’t have to sell. If you made the percentage that had to sell at any one point a significant number, prices would fall dramatically. And if that happened, I’m fairly certain even the value of performing loans on bank’s books would need to be written down, and the banks would need to record large losses, leading to much worse instability in the financial markets.
If on the other hand you manage to stretch things out, the price declines will not be so great, and it’s even possible that the allowances for losses taken to date will turn out to be excessive. But of course, just stretching things out, by itself, won’t be the complete solution. You also need the economy to do sufficiently well to come close to at least maintaining prices. But absent stretching things out, the economy will not perform well. So that leaves little choice.
Thanks, Angie!
I was also coming from a recent conversation w/a buyer in a long contract (new const) who had used the builders lender and no longer wants the property. Their income has changed significantly and there’s decent (non-refundable) earnest money on the line. This person qualified for the home stated income and feels wronged by the lender. (I’m not the lender). I asked this person, “what made you think you could afford this mortgage payment?” which was 2/3 of their gross monthly income (not only insane–it’s impossible)…their response was “I was young and wanted the house”.
Who’s fault is this? The niave buyer? The builder’s LO who would do anything (including stated income) to shove more buyers to the builder? It’s sick no matter which way you look at it.
Jillayne, would you mind “bolding” the paragraph that reads:
“Consumers reading this blog: Loan modifications are performed by a lender with no fee to the homeowner. HUD-approved Housing Counseling Agencies perform loss mitigation/loan modification services for free. These agencies are supported by our tax dollars.”
I just received a call from a consumer who needs help w/a modficiation.
Sure thing, Rhonda. Done.
I agree with $ 3500.00 being too much of a fee, but the L.O. is gathering all the information, finding the client, speaking to the client about ALL of thier income and assets to determine if a Loan Modification is actually a choice. And if not if you are with a good company, they can help put together a short sale. However the client should never be charged any more than one months payment for this work. Yes it can be done for free. Will the client do it, most of the time they will not as they are easily intimidated. An outside party will look for the best deal they can get for the client and understand what the lender is looking for. The company doing seminars for L.O. is just cramming their bank account with sign up fees, and then those L.O.s who are all pumped up about making tons of money are going to be in for a big suprise when they find out it is just not there.
Thomas, instead of collecting a fee, such as one month’s mortgage payment (which the home owner is in dire need of) why not encourage them to contact a HUD approved agency, as Jillayne has recommended? This would be FREE. You could even initiate the call w/a conference call if the borrower is that itimidated to reach out for help.
Who knows, you may wind up with referrals down the road from a kind gesture directing a home owner in need to the right resource without taking money from them (that they obviously don’t have).
Almost no one is aware of this law, some states, CA, CO, MD to name a few have had this law on the books prohibiting this business.
Prohibiting “Foreclosure Consultants”
Those Who Say They Can Get Your Loan Modified, Prevent, Postpone, Or Reverse The Effect Of Such Foreclosure With Your Lender For A Fee.
On July 23, 2008 the U.S. House of Representatives passed the most comprehensive response yet to the American mortgage crisis by a vote of 272-152. The American Housing Rescue & Foreclosure Prevention Act, H.R. 3221, is intended to help families facing foreclosure keep their homes, help other families avoid foreclosures in the future, and help the recovery of communities harmed by empty homes caught in the foreclosure process.
The bill would prohibit non-HUD approved agencies from providing ANY foreclosure assistance. The bill defines “FORECLOSURE CONSULTANT” as:meaning a person who makes any solicitation, representation, or offer to a homeowner facing foreclosure on residential real property to perform, for gain, or who performs, for gain, any service that such person represents will prevent, postpone, or reverse the effect of such foreclosure;
While the bill presents great opportunities and resources for HUD approved counseling agencies, the legislation limits the participation of all agencies in the foreclosure counseling process (even those that are tax-exempt). It is interesting to note that enforcement authority over “foreclosure consultants” is granted to the FTC, but the FTC does not have direct enforcement authority or oversight of tax-exempt organizations. There is, however, a private right of action.
The bill does not include
(i) an attorney licensed to practice law in the State in which the property is located who has established an attorney-client relationship with the homeowner;
(ii) a person licensed as a real estate broker or salesperson in the State where the property is located, and such person engages in acts permitted under the licensed laws of such State;
(iii) a housing counseling agency approved by the Secretary;
(iv) a depository institution (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813));
(v) a Federal credit union or a State credit union (as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752)); or
(vi) an insurance company organized under the laws of any State.
“The bill would prohibit non-HUD approved agencies from providing ANY foreclosure assistance.”
So Jack, Thanks for the copy/paste on HR32321. I typically delete copy/paste comments but I have a question for.
The link you provided in your name sends us to your website where you’re selling loan modifications.
Question: Does this new law put you out of the loan mod business or do you have plans to become a HUD-approved counseling agency?
FYI:
I just received this in my inbox this morning:
“Earn clients for life.
Foreclosures are at an all time high.
Lenders are motivated to negotiate.
Turn your declines into cold hard cash
Our Rate Modification Services can help you the real estate/mortgage professional triple your income this year and feel good about helping your clients.
Our attorneys and paralegals do all the work.
Our processing center does all the customer service.
95% success rate, money back guarantees.
You just sell the program and make big commissions.
Average commission is $2,000 to $4,000 per deal. You control the money.
Instant cash to keep your doors open!
Referrals unbelievable…
Don’t miss out on this it won’t last forever.
Call us now at….”
Jillayne:
Welcome to MY world of spam!
That, and the “stated income” commercial loan solicitations.
Sheesh….where are the ads telling us LO’s to just hunker down, work hard, and do the right thing, by getting those that qualify into better loans, while they still can?
Thanks for the expose` on this.
PS The punctuation limits on comments are mildly frustrating….but I suppose I should be glad I am only mildly frustrated today!
I think it is simple decision to go to an attorney rather than your lender for a loan modification!
Sure the lender will do it for free but is that really going to give you the help that you need.
If you hire your own attorney you get some one that is on your side. you get the ability to negotiate.
Going with the free lender option “its their way or the highway”.
And jumping into this with a mortgage professional may be a good way to get the right attorney. This is because a mortgage pro wants to build long term clients that he can do business with in the future. No one has the option to forgo the fiduciary responsibility to their clients anymore. If you do you die.
So Realtor’s, Mortgage pros, Title Agents, Processors and any one else directly involved in the housing crisis need to make these networks to survive.
Some of the benefits of these networks will include referral fees it is standard for an attorney to pay those type of fees.
I run a network of many professionals and help them learn how to increase their business by meeting their clients needs first. I manage the network and the clients putting the clients in touch with “The Right People” based on their needs! We get paid similar to a lead broker! But we do far more than collect and distribute leads. We have direct involvement with our attorneys, mortgage brokers, Real Estate Agents, CPA’s, Insurance Agents, Credit restoration companies etc… We tell them the standards they must operate by and this ensures the clients get the fiduciary commitment from all the service providers! This must be incorporated into any ones business plan to survive this industry. We are extremely successful with this strategy and we average 1 new referral for every client we help!
I do not want this to be perceived as an ad so I will not leave My URL I just want to make the point of why Mortgage pros, Realtors and any other professional involved in the financial industries should be pursuing these options! The best thing about networking is you can focus on your own profession and still have alternative answers for your clients!
Jack:
I’ve tried doing word searches of the bill HR3221 for the words “foreclosure consultant” several times, but I cannot find the passages you are quoting from.
I then scanned through it again, old school style, and still did not see it.
I think I have full versions of the bill. But, it could be me….
Secondly, you refer in your web site to a “Federal High Risk Home Loan Act”
At present, I cannot find a federal version of “High Risk Home Loan Act”.
There is an Illinois State version.
I try to keep up on all of the new federal laws, and at least the WA state laws, but if this is for real, I’d like to see a link to a source, other than your own writings, to validate this information.
So Kevin, how much in referrals are you making when you refer clients to attorneys and how is this disclosed to the consumer?
FYI..you do not need to be a attorney or mortgage broker to OPEN a loan modification business..you can however hire attorney a work for you…and the fees vary..so you do not need to be IN FORECLOSURE but can just be behind or even current on your mortgage..
Jillayne, There are loads of spam artists promising action for cheap.
If you want to get a $500 referral fee for making a phone call — (those guys may or may not pay you)? How loverly for one’s reputation to be passing our valued clients over to hacks!
Nice article. I would think that “desperate times call for desperate actions” might be applicable here. Most consumers are not capable of working out their own loan modification and the lenders are not staffed to work it out on their own. I think for the next two or more years, this is a service that will assist the market. I know when I am trying to handle a short sale prospect, when they tell me they still want to keep the home, I have nothing that I can do for them. That is where they need this type of specialist, at least from where I see it.
I’m a mortgage pro, w/ 10 years real estate experience, a RE Broker License and am a CMPS and have spent the last month trying to figure this out because people are coming to me who need help.
I have talked to at least 10 firms who do the modifications and am doing the due diligence on them because most people having trouble making payments, well let’s face it,many of them have no business being a homeowner, and do not have the skills to find a company that will not prey upon them.
So to try and help them keep the home they bought, including assessing their situation, giving them the option of FHA Hope or loan mod, deed in lieu or short sale is a valuable service and I see nothing wrong with a mortgage pro getting compensation for that.
In my search for an experienced group who handles loan modification, short sales and recommends other options, I’ve talked to folks who are obviously out of the subprime phone rooms and passed on them.
I do think $2,000 is too much for a L.O to receive and am trying to figure out how to serve people and still make something for my time, research, due diligence and knowledge putting the client first.
I could not wait any longer for Jack ,#62 to reply, nor for Jill, #1, to research it, for that matter.
Something about a “pail of water”…..?
The language Jack posts appears to be from a PROPOSED bill, and as far as I can tell, is not currently law, nor a part of HR3221, (which has passed).
The proposed bill is called the
Foreclosure Rescue Fraud Act of 2008 (Introduced in Senate) S 2888 IS
Latest Major Action: 4/17/2008 Referred to Senate committee. Status: Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
http://thomas.loc.gov/home/c110query.html
(paste the bill number or title in the search)
As we have all learned recently, there is a world of difference between a proposed law, and a passed law, and passing off a proposed law, or non-applicable state-specific law as existing federal law is self-serving at best, and benefits no one except the fear mongers.
Nice job of making it look offficial though, if deception is the goal, by leading with the passed bill, and then flowing to the proposed bill.
“The American Housing Rescue & Foreclosure Prevention Act, H.R. 3221, is intended to help families facing foreclosure keep their homes, help other families avoid foreclosures in the future, and help the recovery of communities harmed by empty homes caught in the foreclosure process.
The bill (would) prohibit non-HUD approved agencies from providing ANY foreclosure assistance.”
parentheses mine.
Here’s a nice link with some advice regarding foreclosure consultants.
http://real-estate.lawyers.com/Foreclosure-Consultants-Pros-and-Cons.html
If someone has better (sourced) information, please, re-educate me. I have been humbled before (often in this forum!), and I am now the wiser for it. Wish I had these past few hours back, though, trying to wade through the mis-information.
Sierra, what do you think is a fair fee for a LO to receive for assisting with a modification if a home owner can contact a HUD counselor and have it done for free?
Joe, so why not refer your clients directly to their lender, to a free, HUD-approved housing counseling agency, or if you’ve determined that they would be better served by an attorney, to an attorney?
I could not wait any longer for Jack #62 to reply, nor for Jill #1, to research it, for that matter.
I heard something about them “ fetching a pail of water”…..?
The language Jack posts appears to be from a PROPOSED bill, and as far as I can tell, is not currently law, nor a part of HR3221, (which has passed).
The proposed bill is called the
Foreclosure Rescue Fraud Act of 2008 (Introduced in Senate) S 2888 IS
Latest Major Action: 4/17/2008 Referred to Senate committee. Status: Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
http://thomas.loc.gov/home/c110query.html
(paste the bill number or title in the search to view)
As we have all learned recently, there is a world of difference between a proposed law, and a passed law, and passing off a proposed law, or non-applicable state-specific law as federal law is self-serving at best, and benefits no one except the fear monger.
Nice job of making it look offficial though, if deception is the goal, by leading with the passed bill, and then flowing to the proposed bill, as if they were one and the same.
To quote,
“The American Housing Rescue & Foreclosure Prevention Act, H.R. 3221, is intended to help families facing foreclosure keep their homes, help other families avoid foreclosures in the future, and help the recovery of communities harmed by empty homes caught in the foreclosure process.
The bill (would) prohibit non-HUD approved agencies from providing ANY foreclosure assistance….”
parentheses mine.
If someone has better (sourced) information please, re-educate me. I have been humbled before (often in this public forum!), and I am now the wiser man for it.
Wish I had these past few hours of wasted research back, chasing down a non-issue. On the bright side, the proposed “foreclosure consultant” law is worth a 2nd look.
I could not wait any longer for Jack #62 to reply, nor for Jill #1, to research it, for that matter.
Perhaps it has something to do with “ fetching a pail of water”…..?
The language Jack posts appears to be from a PROPOSED bill, and as far as I can tell, is not currently law, nor a part of HR3221, (which has passed).
The proposed bill is called the
Foreclosure Rescue Fraud Act of 2008 (Introduced in Senate) S 2888 IS
Latest Major Action: 4/17/2008 Referred to Senate committee. Status: Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
http://thomas.loc.gov/home/c110query.html
(paste the bill number or title in the search)
As we have all learned recently, there is a world of difference between a proposed law, and a passed law, and passing off a proposed law, or non-applicable state-specific law as federal law is self-serving at best, and benefits no one except the fear monger.
Nice job of making it look offficial though, if deception is the goal, by leading with the passed bill, and then flowing to the proposed bill, as if they were one and the same.
The American Housing Rescue & Foreclosure Prevention Act, H.R. 3221, is intended to help families facing foreclosure keep their homes, help other families avoid foreclosures in the future, and help the recovery of communities harmed by empty homes caught in the foreclosure process.
The bill would prohibit non-HUD approved agencies from providing ANY foreclosure assistance.
If someone has better (sourced) information please, re-educate me. I have been humbled before (often in this public forum!), and I am now the wiser man for it. Wish I had these past few hours back, though.
On the bright side, the proposed law is worth a 2nd look.
I could not wait any longer for Jack #62 to reply, nor for Jill #1, to research it, for that matter.
Perhaps it has something to do with “ fetching a pail of water”…..?
The language Jack posts appears to be from a PROPOSED bill, and as far as I can tell, is not currently law, nor a part of HR3221, (which has passed).
The proposed bill is called the
Foreclosure Rescue Fraud Act of 2008 (Introduced in Senate) S 2888 IS
Latest Major Action: 4/17/2008 Referred to Senate committee. Status: Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
http://thomas.loc.gov/home/c110query.html
(paste the bill number or title in the search)
As we have all learned recently, there is a world of difference between a proposed law, and a passed law, and passing off a proposed law, or non-applicable state-specific law as federal law, is self-serving at best, and benefits no one except the fear monger.
Nice job of making it look offficial though, if deception is the goal, by leading with the passed bill, and then flowing to the proposed bill, as if they were one and the same.
The American Housing Rescue & Foreclosure Prevention Act, H.R. 3221, is intended to help families facing foreclosure keep their homes, help other families avoid foreclosures in the future, and help the recovery of communities harmed by empty homes caught in the foreclosure process.
The bill would prohibit non-HUD approved agencies from providing ANY foreclosure assistance.
If someone has better (sourced) information please, re-educate me. I have been humbled before (often in this public forum!), and I am now the wiser man for it. Wish I had these past few hours of research back, though.
On the bright side, the proposed law is worth a 2nd look.
I could not wait any longer for Jack #62 to reply, nor for Jill #1, to research it, for that matter.
Perhaps it has something to do with “ fetching a pail of water”…..?
The language Jack posts appears to be from a PROPOSED bill, and as far as I can tell, is not currently law, nor a part of HR3221, (which has passed).
The proposed bill is called the
Foreclosure Rescue Fraud Act of 2008 (Introduced in Senate) S 2888 IS
Latest Major Action: 4/17/2008 Referred to Senate committee. Status: Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
You can Google it.
As we have all learned recently, there is a world of difference between a proposed law, and a passed law, and passing off a proposed law, or non-applicable state-specific law as federal law, is self-serving at best, and benefits no one except the fear monger.
Nice job of making it look offficial though, if deception is the goal, by leading with the passed bill, and then flowing to the proposed bill, as if they were one and the same.
If someone has better (sourced) information please, re-educate me. I have been humbled before (often in this public forum!), and I am now the wiser man for it. Wish I had these past few hours of research back, though.
On the bright side, the proposed law is worth a 2nd look.
How are you… I am Ken Glatt, disabled veteran, working pt.
I have house loan mortgage with Nationstar at 8.75 fixed…
I had to retire early from government due to disability, income dropped from full-time pay to retirement pay…
Unable to make the 3,500 a month payment plus 500 per month for taxes and 300 per month for insurance…
Nationstar sent me modification docs in June, I signed and had notarized on 6-26-08, sent back…
It was interest only payment for 2 years then payment with escrow for approx. 2,800… I agreed, had notarized, sent back…
Then Eric I was working with, said his boss and him had changes after they came back from vacation in July, said its higher now…
Then they wanted 3200 without escrow included, I said to high… Now they said we have lower to the 2756 amount per month, but without escrow again…
The first one I signed on 6-26-08 was including escrow at the 2800 a month amount, it said start the payments on 8-10-08, which I did…
Now they have one they want me to sign for 2756 plus escrow to have payment at 3703.61 per month starting 10-01-08…
I have not signed the 2nd or this 3rd mod agreement, since its now at 8.73 percent…
Do I need an attorney to hold them to the 1st mod agreement or do I have to take there 3rd mod agreement?
Thanks, Ken Glatt
Hi Ken,
I’m glad you found us. I’m guessing that your lender/loan servicer did not have full authority to offer you the first modification without first checking with and receiving the approval of the investors who hold a security interest in your mortgage.
This is one of the downsides of securitized lending: When loans are modified, there’s more than just the lender who has to agree to the new terms.
Here’s the good news. I am hearing that your first phone call should be to the local Veterans Administration.
I’ve been told that the VA is going all out and doing EVERYTHING POSSIBLE to help all our Veterans, even if your loan is not a VA loan. Here’s the phone number to the local VA:
(206) 220-6300
ask to be connected with a housing counselor for help with a loan modification.
Good luck and check back in with us and let us know how it went.
Jillayne,
A little housecleaning…somehow I have multiple identical posts (73, 76, 77, 78 and 79).
I just concluded listening to the CMPS conference call regarding accepting fees for Loan Modifications. The advice was solid, if unspectacular.
1. It is a RESPA violation to accept a fee for referring a client to a loan modification specialist, UNLESS the charge is commeasurate with the service performed. So taking $2,000 would be hard to justify, and taking $200 would hardly be worth it.
2. If you decide to take a fee, make sure the method of payment is compliant with state laws, and the rules your company operates under. Chances are, if you do FHA, you cannot accept the fee directly, and your company will probably discourage it.
3. Be careful not to offer legal advice. Do NOT advise a client to miss a payment, to improve eligibility for loan modification, nor tell them whether their particular case is a a recourse, vs non-recourse situation. You could be in violation of providing legal advice without a license.
The CMPS advice is on a national basis, so state specific info was missing.
It was not a waste of time, and though a competitor of yours, they generally do a pretty good job of getting useful and ethical information out there.
I’m pretty sure I would have learned more at your class, in the same amount of time, but I couldn’t have answered emails, and commented at the same time!
Jillayne, looks like Joe and Sierra don’t have a response on how to justify their charges? (72 & 73/74 & 75).
And…I’d leave Roger’s extra comments up…he did a lot of research afterall.
Roger, Interesting stuff on CMPS. I was afraid it would be too much like the last conference call (Mortgage Coach/Ron Quintero) so I stayed away. Also interesting that you consider CMPS and Jillayne’s firm as competitors…I guess I see them as two separate (similar) entities.
Hi Rhonda,
If an LO is simply referring a client out to free counseling at a HUD-approved agency, I’m not so sure any fee at all could be justified.
What work was done prior to determining that the client could be best served by a taxpayer funded free state agency?
Maybe….15 min, 30 min interview? You tell me. An hour?
I could probably figure it out in under 10 minutes but I’m atypical.
Hi Rhonda,
I can do a separate blog article on how LOs determine what to charge if the LO decided to begin charging by the hour for his/her services.
Would this help?
Jillayne, it would be interesting. If I recall, the recent State legislation that was passed does permit LOs to charge a consulting fee (PLEASE correct me if I’m wrong).
I did a post a while back at RCG suggesting that LO’s should be paid by the hour instead of based on a percentage of the loan amount.
I think w/regards to #84, LOs are not referring clients to a HUD approved agency, those who are collecting fees are referring them to an attorney or “modification group”… BTW I’m getting more and more junk from such groups promising me commissions if I refer clients in need to them. NO THANKS.
I guess I’ve accepted there are parts of my job that I do “for free”. I’m not paid hourly. I do provide advise for those getting ready to buy a home or who need a little help getting on track w/their credit–this is free. If I can encourage someone to contact a HUD Counselor or Hope Now–I would NEVER charge a fee. These people need help and money the most. They don’t need our LO hands out just because business is down.
I also believe (call me Pollyanna) that if you do good for others, it will return to you…may not be that day…but good karma has never hurt me. The marble kitchen counter hurt me…but not karma!
LOL
Re CMPS, there were a few plugs to attend another expensive educational seminar, but not bad.
I see their services as similar, but they both would probably vociferously argue to the contrary, much like sisters that insist they bear no resemblance to one another!
I called the HUD number, went through the phone tree, got several local numbers and connected on the 2nd one, spoke with a very helpful live person.
There is a surprising amount of resources available, including grants, counseling, loan modifications and legal advice. A borrower in trouble should definitely investigate that route first.
No, I do not believe you could charge a fee to refer someone to a HUD approved agency. It seems inadvisable to charge a fee to refer someone to a loan modification specialist. Cannot see that I would.
We have to remember that our situation locally may be strikingly different from the norm nationally. HUD approved counselors may be overwhelmed in areas of California, Nevada and Florida.
One other tidbit from the conference call:
One of the effects of the passage of HR3221 is to ALLOW the lender/loan servicer to do a loan modification PRIOR to the borrower becoming delinquent, WITHOUT the fear of being sued by the investor, as it grants the servicer some indemnity.
An important distinction, and one that had previously escaped my attention.
I received confirmation from Mortgage Law Central this morning that unearned referral fees (for doing no work; just refering the client) on a loan mod are a violation of RESPA Section 8:
“Section 5(b)(6) of Regulation X exempts from RESPA “any conversion of a federally related mortgage loan to different terms that are consistent with provisions of the original mortgage instrument, as long as a new note is not required, even if the lender charges an additional fee for the conversion.” Hence, if you do replace the note (which would be a refinancing) and you do not change the terms of the mortgage, the loan modification is not subject to RESPA. By implication, any conversion of a mortgage loan to terms that are different from the original mortgage is a transaction subject to RESPA.
You might argue that no amendment of the mortgage is recorded and, therefore, the loan modification is not subject to RESPA. That is not quite correct. The proper legal analysis asks whether changing the terms of the loan to a fixed rate from a variable rate is consistent with the terms of the ARM Rider to the mortgage. The answer is that the ARM Rider permits the lender to modify the interest rate and P&I payments, but the loan modification does away with these rights. It is irrelevant whether the changed terms are noted in the public records. The fact remains that the terms of the mortgage instrument have changed, and the loan modification is a transaction subject to RESPA.
This begs the question of whether loan modification assistance is a “settlement service,” since only referral fees for settlement services are barred by Section 8(a) of RESPA. For this, we go back to the definition of a “settlement” and a “settlement service” in Section 2 of Regulation X:
Settlement means the process of executing legally binding documents regarding a lien on property that is subject to a federally related mortgage loan. This process may also be called “closing” or “escrow” in different jurisdictions.
“Settlement service means any service provided in connection with a prospective or actual settlement, including, but not limited to, any one or more of the following…..Provision of any other services for which a settlement service provider requires a borrower or seller to pay.”
A settlement occurs when the borrower or the lender signs documents that commit to change the terms of a loan from an ARM loan to a fixed rate loan. Because the borrower is required to pay the loan modification company to complete this transaction, the $1500 fee bootstraps the loan modification company’s services into “settlement services,” and the $500 paid to our inquisitive reader is an illegal referral fee.”
http://www.mortgagelawcentral.com
Many LOs will be tempted to jump on the modification bandwagon if they’re having a tough time surviving in this market…
Another thought… it’s been brought up that if a LO did a certain amount of work (to where they were actually providing a service instead of just a referral) they could possibly earn a fee…BUT I would surprised if the lender would work with an LO when they are not a party to the transaction. Would they represent themselves as the borrowers Consultant? Would they have to present a signed agreement from the borrower to the lender? How could this even work?
Why couldn’t any homeowner hire someone for a fee to act as their representative? And, perhaps even the lenders involved might be better to actually agree to pay certain fees so that borrowers could get some legitimate help; perhaps the lenders need to think about drawing up some kind of legal document for the borrower, the person helping the borrower communicate/negotiate and the lender involved as to what the duties are,the fees being paid etc.
It seems like lenders need to hire more people to help talk to homeowners, but at the same time, it seems to me that the homeowners need someone to represent their best interests, and the lenders can’t really do that either – they have opposing needs in many regards.
And just referring someone to HUD or another counseling service and expecting to be paid a fee is ridiculous.
Confusing times to be sure.
Leanne:
I’m sure the homeowner is free to hire anyone to help with a loan modification, including family members, their LO, the babysitter!
The question is whether the law allows just anyone to charge a fee for a service.
That is not the case currently, in many professions, and while not perfect (because the professional associations have carved out a lucrative labor/service market for themselves), largely the intent is to protect the consumer.
The trouble is the labor market, in concert with existing laws, cannot be nimble enough to address rapidly changing situations, but entreprenuers, seeking an opportunity, can.
Some entreprenuers will provide valuable services, some will only serve themselves.
We love the creative entreprenuer spirit, and we love the protection of law.
We don’t usually get to have it both ways. In the meantime, we’ll have to muddle through.
[...] great post by a well-respected mortgage professional was posted recently here — and while it has become a conversation for mortgage professionals more than consumers [...]
Hello. I am real estate attorney Chris Benson.
I have read many of the messages posted conerning loan modifications. Some are somewhat on point; however, many are not.
Here are some things that are accurate from the posts:
1. It is true that you do not have to file bankruptcy to obtain a loan modification. In fact, sometimes the purpose of doing a loan modification is to avoid filing bankruptcy.
2. It is true that lenders do not charge a fee for agreeing to a loan modification. The attorney fees a person pays is for the attorney to counsel with the client, prepare a proper and complete loan modification and assisting the client with the details of negotiation such as various interest rates, forebearance agreements, prepayment issues and length of amoritzation to name a few.
3. It is true that a property owner can contact the lender directly and attempt to negotiate their own modification. There are many things you can do in this World on your own that may not be a great idea such as: a) set your own broken leg; or b) get a can of spray paint and paint your own car; or c) borrow a friend’s airplane and try to fly to Vegas. I have flown many times as a passenger on an airplane and frankly flying one doesn’t look that hard. Sit in the left hand seat, press the throttle levers forward as far as it can go and pull back on the big steering wheel and off we go. Piece of cake. Landing looks like it might be a little tricky, but we’ll figure that out later when we get there. What’s the worse that could happen?
The point is that sometimes you really need to pay a professional that knows what they are doing in order to have the best chance to achieve a desirable result — otherwise, your chance of success may not be too good.
4. Here’s a bit of a kicker…especially in Washington — Only a lawyer can provide legal advice on how a person can (or should) modify their existing legal contract. Advising someone how to modify a contract (the promissory note and thus the legal rights at issue) is the practice of law. See my website for the case law concerning this matter. Now, it is true that some non-profit agencies such as Solid Ground are FHA and VA approved organizations that do assist low income families in modifying their loans and that practice has been approved. However, if you are not a lawyer or not a preapproved FHA/VA non profit organization….well…you know the answer….you shouldn’t be setting the patient’s broken leg or flying the plane.
Loan modifications are a great way for a person to have a chance at saving their house. Get them to an attorney that can help them…they will appreciate you for that referral.
Hi Chris,
Thanks for stopping by RCG. Excellent advice. Question:
“Only a lawyer can provide legal advice on how a person can (or should) modify their existing legal contract. Advising someone how to modify a contract (the promissory note and thus the legal rights at issue) is the practice of law. ”
What about loan originators, who (theoretically anyways) know about mortgage documents.
When they perform loan modification services for a homeowner, which may include talking with the underlying lender, are they practicing law unauthorized?
Next question, when Realtors assist a homeowner with negotiating a short sale, are they also engaging in the unauthorized practice of law?
Thank you.
Chris:
I don’t really want to practice law. I just want to help people, and originate loans.
Are you suggesting that I am illegally practicing law if I advise someone struggling with a loan payment (assuming that I cannot help with a new and better loan) that they should talk to their existing lender to see what they can work out?
Somehow, that doesn’t seem right.
On a wider scope, can a person give anyone any kind of “legal advice” without illegally practicing law?
Does it matter any that the advice is free?
I mean my wife is always giving me legal advice: obey the speed limit, leash the dog, don’t put the pizza boxes in the paper recycling etc..
I agree with you that a person should seek competent help. Thanks for writing.
Jillayne, I don’t think it’s possible to get very solid answers to those questions. The Law Practices Board (part of the WSBA) has an opinion out that indicates real estate agents can’t explain contracts to their clients. That’s an extreme position, but I can’t say it’s wrong based on the case law. (Although I think it probably does allow the agent to ask how many days to provide for an inspection, and then explain that they filled in that many days.)
Also, in Ardell’s lease purchase thread, at about post 120 or so, I discuss the limitations of contracts that agents can “fill in.” (Search for “simple” if you want to find it). So to the extent a short sale includes either a note for the difference, or a promise of the lender to waive the deficiency, arguably the agent could be in trouble. I quite frankly hadn’t thought about this before, so that’s just my initial impression.
BTW, I believe as a result of the distressed property law (or maybe prior to that), there are third party entities that assist agents with short sales. They are probably particularly at risk of unauthorized practice, because I don’t believe they are licensed in any way, nor do they come under any case law exception that I’m aware of.
Roger, I think you could safely advise them to consult an attorney, and then as part of that indicate that they to have the right to represent themselves, just as someone can represent them-self in court. My guess is it’s more advising them as to the nuts and bolts that will potentially get someone in trouble.
And again, this is a very uncertain area of the law.
I’m going to put up 2 posts to partially answer the latest questions.
The first post will be the law concerning the unauthorized practice of law. The second will be the law concerning real estate licensee and the Cultum v. Heritage House decision.
Realize, it is beyond the scope of this informational blog to give all the case law and all the explanations.
I can try to lead the horses to the water….but, I can’t make you drink. I’m not the “real estate police.” I’m just trying to open your eyes and help some people out.
Here is Supreme Court case, a reference to the Rules of Professional Conduct put out by the bar association and the Washington RCW on the issue of unauthorized practice of law concerning promissory notes and deeds of trust:
As set forth in the Supreme Court decision Perkins v. CTX Mortgage Co. 137 Wn.2d 93 (1999)
The practice of law includes the selection and completion of legal instruments by which legal rights and obligations are established. It is established that the selection and preparation of promissory notes and deeds of trust is the practice of law. Perkins at Page 97
The Perkins Supreme Court also provided on page 98 of their ruling as follows:
We have firmly rejected the notion that a lay person’s authority to prepare legal instruments turns on whether a fee is charged.
In Great Western, the unanimous court held that a bank, by selecting and completing legal documents, including promissory notes and deeds of trust, engaged in the unlawful practice of law where a lay employee filled out the documents and the bank charged a fee for the service. After resolving that the bank had engaged in the practice of law, the court considered whether such actions were unauthorized.
A lawyer shall not: “[a]ssist a person who is not a member of the Bar in the performance of activity that constitutes the unauthorized practice of law.” Rule of Professional Conduct (RPC) 5.5(b). “It is the duty of the court ‘to protect the public from the activity of those who, because of lack of professional skills, may cause injury whether they are members of the bar or persons never qualified for or admitted to the bar.’” Bennion, Van Camp, Hagan & Ruhl v. Kassler Escrow, Inc., 96 Wn.2d 443, 447, 635 P.2d 730 (1981) (quoting Wash. State Bar Ass’n v. Great W. Union Fed. Sav. & Loan Ass’n, 91 Wn.2d 48, 60, 586 P.2d 870 (1978)). R
CW 2.48.180 provides criminal penalties for the practice of law without bar membership: “Unlawful practice of law is a crime. A single violation of this section is a gross misdemeanor.” RCW 2.48.180(3).
You can either choose to drink the water or not. If you don’t…good luck out there…it’s going to take just one upset person and one hungry lawyer to create some drama in your life.
Chris, I don’t remember for certain, but didn’t Perkins v. CTX allow the banks to charge a fee for document preparation (e.g. filling out a deed of trust), even though it was the technically practice of law?
If so, I don’t really see the point of citing that particular decision.
Chris:
I visited your website and watched your video.
Both are informative, but I think there is an inaccuracy.
You state in the video several times that ONLY an attorney can modify a loan contract.
But as you mention here, a person may negotiate their own loan modification directly with a lender (just as they may represent themselves in court, possibly inadvisedly), AND they may contact a HUD authorized non-profit agency (similar I suppose, to pro-bono legal assistance), and those entities are authorized to negotiate and modify the contract on the borrowers behalf.
Nowhere in your site do you mention that free help is available. As a for-profit business, I think it is understandable to not promote a competitor, but not to the extent of stating that no other entity can help.
I hope you are successful in helping people.
Chris, and Kary:
Thanks for the additional clarifications.
Re 98, to summarize, you cannot help another person modify a contract with a 3rd party unless you are a lawyer.
Did I get that right?
Re #98 and 99.
The law says it is OK for the two parties in the contract to modify the contract (right?).
So why couldn’t the bank modify the contract, without an attorney? Were they not one of the parties?
Thanks for contributing.
Second post concerning real estate licensees and the practice of law. To kind of boil it down, real estate licensee have a limited scope authority to prepare certain pre printed, preapproved forms that are preapproved by a lawyer in the representation of a person in an ordinary real estate transaction in the ordinary course of business as long as there is no fee for form completion.
Can a real estate licensee advise a person on a loan modification: Nope.
Can a real estate licensee advise a person on a short sale and negotiate a short sale? Well…. here’s the case law on the limited scope that a real estate agent CAN perform. Beyond that, I don’t know and i wouldn’t want to be the first to find out, especially in light of the new distressed property owner law.
18.86.040 Seller’s agent–Duties.
(1) Unless additional duties are agreed to in writing signed by a seller’s agent, the duties of a seller’s agent are limited to those set forth in RCW 18.86.030 and the following, which may not be waived except as expressly set forth in (e) of this subsection:
(a) To be loyal to the seller by taking no action that is adverse or detrimental to the seller’s interest in a transaction;
(b) To timely disclose to the seller any conflicts of interest;
(c) To advise the seller to seek expert advice on matters relating to the transaction that are beyond the agent’s expertise;
[Remainder of Statute omitted]
Here is an excerpt from the Supreme Court Case:
103 Wn.2d 623, 694 P.2d 630, CULTUM v. HERITAGE HOUSE REALTORS]
File Date: January 11, 1985
CASE TITLE: Diane Cultum, Respondent, v. Heritage House Realtors, Inc., Appellant.
[1] Attorney and Client – Brokers – Agent for Sale of Realty – Unauthorized Practice of Law – Earnest Money Agreement – Limited Practice. A licensed real estate broker or salesperson does not engage in unauthorized practice of law by filling in a printed earnest money form in a simple transaction handled by the broker or salesperson in the usual course of business. The printed form must have been approved by an attorney and there must be no additional charge for completing the form. The broker or salesperson is held to the standard of care of an attorney in such activity.
[2] Attorney and Client – Practice of Law – Regulation by Supreme Court – Statutory Provisions – Effect. The state bar act, RCW 2.48, does not restrict the Supreme Court’s inherent power to regulate the practice of law.
[3] Attorney and Client – Instructions of Client – Compliance – Necessity. Reasonable care requires that an attorney faithfully follow his client’s explicit instructions.
[4] Damages – Review – In General. A damage award will be upheld on review if it is within the range of the relevant evidence.
The actual opinion of the case is very long: However, here is a relevant excerpt:
In a series of recent cases this court has broadly defined the practice of law to include
“the selection and completion of form legal documents, or the drafting of such documents, including deeds, mortgages, deeds of trust, promissory notes and agreements modifying these documents . . .
BOWERS v. TRANSAMERICA TITLE INS. CO., 100 Wn.2d 581, 586, 675 P.2d 193 (1983) (quoting WASHINGTON STATE BAR ASS’N v. GREAT W. UNION FED. SAV. & LOAN ASS’N, 91 Wn.2d 48, 55, 586 P.2d 870 (1978)); HAGAN & VAN CAMP., P.S. v. KASSLER ESCROW, INC., 96 Wn.2d 443, 635 P.2d 730 (1981).
The trial court’s extension of these holdings to completion of form earnest money agreements by real estate salespersons is logical since such agreements fix the legal rights and duties of both buyers and sellers of residential real estate. It therefore fits within the broad definition of the practice of law as we have previously defined it.
Nevertheless, without retreating from our rulings in those three recent cases, we think there are sound and practical reasons why some activities which fall within the broad definition of “the practice of law” should not be unauthorized simply because they are done by lay persons.
[1] As we have so often stated, it is the duty of this court to protect the public from the activity of those who, because of the lack of professional skills, may cause injury whether they are members of the bar or persons never qualified for or admitted to the bar. GREAT WESTERN, at 60. We have also made it clear that the practice of law is within the sole province of the judiciary and encroachment by the
Legislature may violate the separation of powers doctrine. HAGAN, at 453. This does not mean, however, that the attorney hegemony over the practice of law must be absolute. Hence, although the completion of form earnest money agreements might be commonly understood as the practice of law, we believe it is in the public interest to permit licensed real estate brokers or licensed salespersons to complete such lawyer prepared standard form agreements provided that, in doing so, they comply with the standard of care demanded of an attorney.
For a long time suppression of the practice of law by nonlawyers has been proclaimed to be in the public interest, a necessary protection against incompetence, divided loyalties, and other evils. It is now clear, however, as several other courts have concluded, that there are other important interests involved. SEE CONWAY-BOGUE REALTY INV. CO. v. DENVER BAR ASS’N, 135 Colo. 398, 312 P.2d 998 (1957). These interests include: 1. The ready availability of legal services.
2. Using the full range of services that other professions and businesses can provide. 3. Limiting costs. 4. Public convenience.
5. Allowing licensed brokers and salespersons to participate in an activity in which they have special training and expertise.
6. The interest of brokers and salespersons in drafting form earnest money agreements which are incidental and necessary to the main business of brokers and salespersons.
We no longer believe that the supposed benefits to the public from the lawyers’ monopoly on performing legal services justifies limiting the public’s freedom of choice. The public has the right to use the full range of services that brokers and salespersons can provide. Christensen, THE UNAUTHORIZED PRACTICE OF LAW: DO GOOD FENCES REALLY MAKE GOOD NEIGHBORS – OR EVEN GOOD SENSE?, 1980 Am. B. Found. Research J. 159. The fact that brokers and salespersons will complete these forms at no extra charge,
whereas attorneys would charge an additional fee, weighs heavily toward allowing this choice.
Another important consideration is the fact that the drafting of form earnest money agreements is incidental to the main business of real estate brokers and salespersons. WAC 308-124D-020. These individuals are specially trained to provide buyers and sellers with competent and efficient assistance in purchasing or selling a home. SEE WAC 308-124H. Because the selection and filling in of standard simple forms by brokers and salespersons is an incidental service, it normally must be rendered before such individuals can receive their commissions. Clearly the advantages, if any, to be derived by enjoining brokers and salespersons from completing earnest money agreements are outweighed by the fact that such conveyances are part of the everyday business of the realtor and necessary to the effective completion of such business. SEE COWERN v. NELSON, 207 Minn. 642, 290 N.W. 795 (1940). SEE ALSO 53 A.L.R.2d 788, 3 (Supp. 1978).
The interest in protecting the public must also be balanced against the inconveniences caused by enjoining licensed brokers and salespersons from completing form earnest money agreements. STATE EX REL. REYNOLDS v. DINGER, 14 Wis.2d 193, 109 N.W.2d 685 (1961). Although lawyers are also competent to handle these transactions, lawyers may not always be available at the odd hours that these transactions tend to take place. As noted by the Minnesota Supreme Court:
“It is the duty of this court so to regulate the practice of law and to restrain such practice by laymen in a common sense way in order to protect primarily the interest of the public and not to hamper and burden such interest with impractical technical restraints no matter how well supported such restraint may be from the standpoint of pure logic. . . . We do not think the possible harm which might come to the public from the rare instances of defective conveyances in such transactions is sufficient to outweigh the great public inconvenience which would follow if it were necessary to call in a lawyer to draft these simple instruments.
COWERN, at 647.
*** There is more to the case opinion, but you get the idea.
LO’s need to stick with earning their keep from originating mortgages IMO. There is nothing wrong with referring a client/consumer to a HUD counselor or attorney–in fact, that’s what I would recommend…but there should not be compensation. (Especially if it’s a RESPA violation).
It’s really dancing a fine line and our industry has done enough of that.
Okay. Few things and I’m done for the day. I got work to do
1. My website is not perfect. On the first page I do have the following text:
Why using a law firm is important
Only a lawyer can advise you on the modification to a contract you have. Or you can do it “Pro Se” which means legally representing yourself. With a loan modification, you’re talking about saving your home. This is something you don’t want to get wrong. Also be wary of non law firms that claim to be able to advise you on your legal obligations and contracts.
I did not list Solid Ground and other possible sources such as FHA/VA approved non profit organizations. That is a good idea and I should update my site to include that info.
2. My video is not perfect. The original material was over 18 minutes and was way too long. It got edited. The purpose of the video is an introduction to the idea of loan modification to people who did not know such a thing was even an option out there.
3. The Pro Se Exception to the practice of law is where you represent yourself. The Great Western Bank case is an example of that. A bank falls under the pro se exception because it is a party to the contract.
All I am trying to do is to open your eyes that if you advise someone else on how to modify THEIR contract (and negotiate the terms thereof) with SOMEONE ELSE, you are engaging in the unauthorized practice of law regardless if you charge a fee or not.
I’m a big fan of differences of opinions and discussion. If you don’t agree with me or the information I provide, that’s cool. Viva la difference’!
I’m also a big fan of the idea that the more information you have the better decisions you can make. That doesn’t mean all the information is accurate or relevant, but, it is up to you to filter all the information you receive and pick your own path.
Best of luck to all of you.
Chris:
Thank you for your contributions and clarifications. There’s a lot to absorb in what you say.
Please do not construe my suggestions to improve your website as an attack. I think we are largely in agreement. A person with a lot of money at stake probably should consult a lawyer.
I would…if I had a lot of money!
I am also a big fan of reasoned and civil disagreement (which I find to be generally the case here at RCG). It helps to clarify options, opinions, and what contstitutes ethical behavior in business and in life.
Y’all come back now, y’hear?
What gives the attorneys and LOs the privelege of touting “Loan Modification” as a new venue exclusive to those professions as far as charging a fee.
Any financial planner or former real estate professional should be able advertise and contact lender(s) on behalf of clients and get the paper work to fill out and help the client negotiate one of the lenders’ boiler plate options! The lenders will only give so much and they will send a form. They do everything in writing and the options are limited. Some folks need help in going in that direction and it shouldn’t cost $3500.00. No NEW LOAN is being negotiated here. All that is being done is gathering information on a loan that exists and inquiring as to what options are available to a borrower. No one is breaking any law if they charge a fee to do it for someone else, as long as there is full disclosure to the client as to the persons qualifications requesting the information and no one is being taken advantage. A business license and references in the legal, real estate industry or field of finance should suffice. If the client thinks a short sale is in the best solution then an attorney or real estate broker/agent will have to do the sale. Of course, there is always the “For Sale By Owner” option and in some cases it could be the best way to do it and avoid any futher financial obligations in the form of attorney fees and/or a real estate commission.
With all due respect Mr. Sloan, you are incorrect.
It is the practice of law to advise someone concering their contractual rights. It’s that simple. A “business license and a reference” ain’t good enough.
Also, if you think that there are only boiler plate options available concerning loan modifications, you are also mistaken on that point as well.
The lender gives you the options and it is up to the individual to choose. Who said anything about giving “contractual advice?”
I have a subprime loan that is not behind in payments and I will continue to keep it when it rolls over. The lender has boiler plate options for anyone who has a loan. In some cases a “collection agency” is collecting the payments and the original “lender” is long gone and no one knows where.
When was the last time you talked to any of these people?
I have a friend or two who are going belly up and I guarantee you the “collector” whom ever it may be will have some “boiler plate” options and all you do is pick and choose!
The lenders collector is “legal” in every respect and you only have choices. If you think that it is your expertise that negotiates the interest down, delays payments, or any other option you are kidding yourself. These folks don’t “give” anything away. It’s all in the “options” somewhere. I didn’t just get off the turnip wagon, and worked for six years in an attorney’s office.
How long have you been out of law school?
It is not against the law to give advice based on your own personal experience and you can charge for it – oops, sorry. Lawyers hate this stuff.
This is really a gray area, but I think Chris is far more correct than Todd.
As I’ve noted in the past, the Law Practices Board takes the position that real estate agents cannot even explain the contracts to clients–that such actions would be practicing law. Now that may not be a correct interpretation of the law (only the WA Supreme Court can tell us that), but assuming it is, then clearly doing a loan modification would be rather restricted, unless people are willing to pay a lot of money to be handed boilerplate forms.
Great conversation. Perhaps this is why the loan mod companies are telling the LOs to sell it this way: “Our third party loan modification company works with a pool of attorneys..”
My argument is still as follows: If a homeowner has money available to pay an up-front fee to a “third party” for this service, why aren’t the LOs simply referring homeowners to a LOCAL real estate attorney for the same price or maybe less?
A homeowner in financial distress should always be referred to an attorney; we can likely agree on that.
Attorneys can do way more than a loan originator. They can advise their client of their rights, they can explain the proposed loan modification, and they can even look at the original loan documents and scan them for compliance with state and federal law, looking for possible fraud, advise the homeowner of any rights under their state’s consumer protection laws, and so forth.
Sure, a loan originator with experience working on the loss mitigation side of the business can attempt to do the loan modification portion of this, but I’m questioning whether this large fee paid by the consumer is in the best interest of the homeowner commesurate with the work performed. Further, the LO would be extremely wise to make sure that homeowner was referred out for legal counsel.
SB 6381 says mortgage brokers/LOs owe fiduciary duties to their clients now.
At best if the homeowner is not well served and files a complaint, the LO might be looking at refunding those fees. At worst, well, the worst case is a court date.
I’m not worried about competent LOs with many years experience and experience working in loss mit. I’m worried about the majority of LOs looking to make their own mortgage payment this month with ZERO knowledge in this area trying to earn back those six figures he/she was making in 2006.
Can anyone point me to any discussions regarding “Deed in Lieu of Foreclosure” and why this is a last resort rather than a first resort? Sounds like the easiest way to bail to me. Almost like laying your keys on the counter at the bank. I’m sure that’s not the case, but it sure sounds easy to just sign over the Deed.
Hi Ardell, we should probably do a separate post on that because with loan mods, we’re assuming the homeowner wants to stay in the home and can reasonably assure the lender that they are willing and able to continue to make the monthly payments.
Lenders are under no obligation to accept a deed-in-lieu. Doing so reduces their ability to pursue the homeowner for a deficiency judgement later, if, for example, fraud was found to have occurred on the part of the homeowner. Most banks/servicers look over the file very carefully when a deed and a set of keys arrives in the mail from the homeowner.
I am planning to do a separate post on all the homeowner’s options, but thought I could get a few pieces of info before doing so on the least talked about option.
Loan mods only work in certain situations, and I plan to write a post on my thoughts on which situations warrant which of the various options.
Loan Modification
Short Sale
Foreclosure
Deed in Lieu (of Foreclosure)
Those are the options I can think of off the top of my head that should be included in the post. If there are others, besides jumping off a bridge or pulling the blankets up over your head, that I may have overlooked…throw them out by name and I will include them.
On second thought…I’m not going to write that post. It really isn’t my field of expertise. But someone should.
I can write it! Meanwhile, if readers need help now, they can google the Seattle Coalition for Responsible Lending. They use to have a PDF handout that explains the differences between all these options. Let me go find it….
It’s not there anymore. If anyone needs a copy, email your fax number to me and I’ll fax one to you.
It’s about six pages.
Kary,
I’m sorry that you don’t know what you are talking about.
It is not against the law to give advice to anyone based on your own personal experience. You can charge for it as well. Who mentioned anything about being a real estate agent/broker or an attorney! Yuk!! Check it out. I had an opportunity to be an attorney years ago and I have had a real estate brokerage firm. I finally opted to seek a more respectable line of work.
As far as a “Deed in Lieu of Foreclosure,” check with whomever collects for the lender. They can help. If you have a decent high school education (forget California or New York) you can even go to the local Law Library and someone there will help you find the references and the “forms” you need. The Law Library is funded by the tax payers and is there for everyone to partake, not just the legal “profession” (if you can still call it that).
Isn’t it amazing that there is approximately one lawyer for every one hundred americans and the average american cannot afford to hire one.
This will be the end of my postings. I know some of you will be glad.
By the way, the lender(s) I have contacted are lusting for “Deeds in Lieu of Forecloseure.” Where have you been? The only down side is that your credit will take a hit for two years.
Seems if a Trustee Sale forgives any shortfall, then a Deed in Lieu is also a viable option just prior to Trustee Sale. That’s if they aren’t going to go to Judicial Foreclosure. But I’m just guessing here.
Yes, I’m following your logic but most homeowners being that far into the process typically end up just letting the clock run out, taking as much time as they can to stay in the home while paying nothing.
Does anyone know a good attorney in Orlando fl for modification? I am in a subprime terrible loan and payment is due today. I think I would rather hire a lawyer than to pay it. The economy here is awful.
Hi Donna,
Find your local state bar association. Google: “Florida State Bar Association.”
Look for attorneys in Orlando that specialize in consumer protection law.
Great article. I recently started doing loan modification. As a lawyer, I often end up negotiating with the lender’s attorney, the compliance manager, VP or CEO. I find that these people want to resolve the matter quickly and amicably. They’ll typically talk to a lawyer but no one else. Usually, I make reference to other legal claims my clients can rightfully bring. In this age of predatory lending, it’s not hard to find legal violations to gently use as leverage. Having the attorney is helpful if you don’t know your rights or need a quick resolution. You can certainly do it yourself if you understand the loan business and have just fallen on hard times. Unfortunately, many people got themselves into bad deals b/c they didn’t understand what they were agreeing to — so that same person might do themselves a disservice trying to negotiate their own loan mod. I do some pro bono and low cost loan mods in the latin community. They have been greatly targeted by predatory lending.
Hi Tracy,
Thanks for stopping by RCG. I’m glad to hear that you’re having success with using the past predatory lending evidence to hammer on the lenders for your clients.
Where are you located geographically?
Hi All! I am a casualty of the lending industry and have been doing Loan Mod’s recently; true story–doing a short sale on a property I bought in Florida-started in December and still not finished doing it myself. The company I work for is taking 5-15 days to modify. What they charge is reasonable, the rep makes approx. a grand and the attorney $1500. You have to ask yourself, do you have the time to experiment and phone and negotiate? Are you shorting yourself? Why not change your own oil or wash you own car? Sometimes it is better to have someone experienced do the job. There is a small window of opportunity while the lender is bending over backwards to keep a non performing asset off of their books. You can just wait and make lots of calls (I did) and if you wait long enough or not act at all, the next visitor will be the Sheriff helping you move. Don’t be pennywise and pound foolish; admit your goof–pay up–and move on!
Hi Jack,
So what do you do exactly for the $1,000 you make per file?
Thanks for sharing.
[...] or perhaps a financial set back that is now resolved (such as temporary loss of employment). Loan modifications with Uncle Sam owned mortgages would be streamlined, very low cost and [...]
Is it against RESPA guidelines to pay a Realtor for a loss mitigation referral? I can’t seem to find a clearcut “yes” or “no” answer anywhere.
Jay,
If you are a lender, and I expect you are because of RESPA being mentioned, then you can’t pay an agent for anything at all, or give gifts of any kind as a “referral”. There are no referral payments between lenders and agents…PERIOD!
My $.02 Let’s see what Jillayne and Rhonda say. RESPA doesn’t really have clearcut yes or no answers…it’s more of a “Just Say No” issue. When in doubt…”Just Say No”. When not in doubt say no to that as well. No monies should change hands between lenders and agents.
Hi Jay Lee and Ardell,
Please scroll up and read comment #88.
Jay Lee asks, “Is it against RESPA guidelines to pay a Realtor for a loss mitigation referral?”
The answer is yes.
Jillayne,
Does that mean Jay is a lender as I suspected? What if Jay were an attorney or another Realtor?
We’re all subject to RESPA….
cannot give OR receive something of value for a referral on a federally-related loan.
It’s amazing (guess I shouldn’t really be surprised) how many people try to skirt around the black and white in the attmept get more green.
Just for the record, I’m not a lender.
Is Loss Mitigation really a “federally-related loan?” I thought it was renegotiating with the bank to get a more affordable payment. Is there anywhere specific you can direct me on the DRE website regarding this? Or, is this just your interpretation of RESPA?
Hi Jay, Here is a reprint of comment number 88 from above. This isn’t a state law issue; it’s a federal law. The state would only get involved inasmuch as a violation of a federal law is ALSO a violation of their state law.
A person is always free to hire their own legal counsel and obtain their own RESPA interpretation.
The interpretation below is provided courtesy of Mortgage Law Central.
This comment does not constitute legal advice.
*****
“Section 5(b)(6) of Regulation X exempts from RESPA “any conversion of a federally related mortgage loan to different terms that are consistent with provisions of the original mortgage instrument, as long as a new note is not required, even if the lender charges an additional fee for the conversion.” Hence, if you do replace the note (which would be a refinancing) and you do not change the terms of the mortgage, the loan modification is not subject to RESPA. By implication, any conversion of a mortgage loan to terms that are different from the original mortgage is a transaction subject to RESPA.
You might argue that no amendment of the mortgage is recorded and, therefore, the loan modification is not subject to RESPA. That is not quite correct. The proper legal analysis asks whether changing the terms of the loan to a fixed rate from a variable rate is consistent with the terms of the ARM Rider to the mortgage. The answer is that the ARM Rider permits the lender to modify the interest rate and P&I payments, but the loan modification does away with these rights. It is irrelevant whether the changed terms are noted in the public records. The fact remains that the terms of the mortgage instrument have changed, and the loan modification is a transaction subject to RESPA.
This begs the question of whether loan modification assistance is a “settlement service,” since only referral fees for settlement services are barred by Section 8(a) of RESPA. For this, we go back to the definition of a “settlement” and a “settlement service” in Section 2 of Regulation X:
Settlement means the process of executing legally binding documents regarding a lien on property that is subject to a federally related mortgage loan. This process may also be called “closing” or “escrow” in different jurisdictions.
“Settlement service means any service provided in connection with a prospective or actual settlement, including, but not limited to, any one or more of the following…..Provision of any other services for which a settlement service provider requires a borrower or seller to pay.”
A settlement occurs when the borrower or the lender signs documents that commit to change the terms of a loan from an ARM loan to a fixed rate loan. Because the borrower is required to pay the loan modification company to complete this transaction, the $1500 fee bootstraps the loan modification company’s services into “settlement services,” and the $500 paid to our inquisitive reader is an illegal referral fee.”
http://www.mortgagelawcentral.com
I believe Jay Lee is a Realtor(r) based on his question (126).
Judge ordered loan modification……is that chap 11 or 13 or ?
Joe, I’m not sure what your question pertains to (perhaps “Bankruptcy Attorney’s post?), but in Chapter 7 and 13 the courts cannot typically modify home loans (there are some exceptions in Ch 13). Chapter 11 has no such restrictions. I don’t believe the amendments a few years back changed that, but you should consult an attorney to be sure (and to be sure an exception doesn’t apply to you).
[...] the point where you are considering using a for-profit loan modification company, there is a great post about loan modifications found on Rain City Guide written by Jillayne Schlike with excellent comments following [...]
I’ve recently made the move from loan broker to an attorney assistant. Some of the comments about borrowers negotiating on their own behalf is laughable. I have yet to see one individual borrower come up with a decent loan modification. Practically none of them have any experience with this, they cannot recite the law, and they probably don’t know how to sue on their behalf.
Clients don’t just walk in the door. It takes advertising, office expenses, and whatever fees to run an office. So to say that a loan officer is netting $2,000 and the attorney is netting $1,500 is ridiculous.
There are going to be shady loan officers, shady attorneys and shady people who run websites and charge people to advertise realtors, brokers and attorneys on their site. That’s just the way life is. You do your best to screen people out and make an adult decision on whom your going to work with.
A loan officer has a better chance than a borrower to get results – assuming they’re honest and work hard. An attorney should get better results than both the borrower and loan officer – assuming they’re honest and work hard.
If someone has a 13% rate adjustable, they’re upside down and I can drop their loan to fair market value and give them at 5% rate I’d have no problem charging them $20,000. I just performed an “invaluable” service. They will probably save several hundred thousands of dollars over the life of the loan.
The bottom line is everything is situational. To put every loan officer in the same category is ignorant.
Hi Jim;
Thanks for stopping by RCG. Question: I’m trying to imagine a scenario where a lender would approve of a $20,000 loan modification fee. Is this what you typically charge when performing an invaluable service?
Your analogy isnt quite correct. If you go straight to the attorney for the loan mod they will also charge $3500. Trying to do a loan mod yourself is damn near impossible. I can tell that you don’t have any friends that are going through or have tried to go through that process without professional help. For that matter, people don’t really NEED a Realtor or agent to buy a house. I bought my house without one and I saved 20k on the price because of it. Why use them? You also don’t NEED a lawyer to go to court but your probably going to want one.
My best friend tried to modify his loan with Wells Fargo for over 5 months and they rejected him twice a month when he called. They also wouldnt let him short sell even though he had a cash buyer. He hired a loan modification service and 40 days later his $4200 a month neg am loan payment (without impounds) is now $2200 WITH taxes and insurance AND the bank paid his 10k in past due property taxes!. His fully amortized rate was 8.3% now it is 3.4%.
You tell me how paying $3500 for a service that let him keep his house AND save well over $2500 a month wasnt valuable?
and to Jill above. The lender doesnt have to ALLOW any kind of fee in a modification. They have nothing to do with the legal services provided or what is charged. It isnt a refinance. The money isnt taken out of a new loan. I think the lack of understanding of what is going on is obvious in this article and it reflects poorly on the company that is writing this blog as an advertisement
Jill also states above that .”
We’re all subject to RESPA….
cannot give OR receive something of value for a referral on a federally-related loan.
”
This is great to tell agents that work for you but in reality it isnt an across the board solution as your stating. In CA even the Real Estate Principles textbook for the licensing gives examples of where and when referrals can be paid and to whom. As far as with Loss mitigation and financial services that may include loan modification there is no settlement procedure withe the bank. No escrow, no title.
Either way your trying to put down a service that is helping people to stay in homes that they may or may not had been duped into buying by unscrupulous Realtors or agents that told them the value would always go up! you can afford this get an ARM!
Just because a legal service charges closer to 1% for a valuable service instead of 6% as Real Estate Agents do doesn’t make it evil.
The more i read Jillayne’s post the more i realize she just wrote a blog about something she doesnt even understand the basics of.
There are no ‘guidelines’ for a loan mod. If the borrower has some sort of hardship i.e. arm adjusting out of reach, cant refi out since value dumped down, medical bills, divorce, death in the family, loss of job etc. and they cant make the mortgage payments. The bank can either Foreclose and lose a lot of money and their liquid assets on their books skew and their clients panic and withdraw money and they go out of business. SEE WAMU and INDY MAC.
OR they can take a look at the borrowers budget and tax returns and see exactly what that person can afford to pay and keep them in the home. That’s really it. All your business with ‘guidelines’ is nonsense. Sure if you have a savings account of 200k they aren’t going to modify your loan but that isn’t a ‘guideline’.
But if your husband just had a heart attack and you cant make your current mortgage payment and your going to lose the house and the bank has to show another foreclosure. Modifying is often best for both parties. Most banks have loss mitigation teams that deal directly with the larger loan mod services and this is why they can complete something in 20 days that was ignored when the client or a government hired HUD worker calls.
I suggest anyone who wants a loan mod try to do it themselves and call HUD for free. IF that doesnt work then try a reputable company with an ‘open book’ operation. People email me daily with nightmares about the HOPE program and trying to talk to their bank about changing their payment.
There is a reason why people dont want to use a public defender in court. In this case a loan modification HUD employee who is paid $12 an hour. Good luck with that. But I still would suggest people try that route first in all honesty. But dont let the lender offer you terms that barely change (WHICH IS EXACTLY WHAT THEY DO). They offer the smallest amount and take advantage of the borrower since they know they will be happy with any change.
Hi dave,
“If you go straight to the attorney for the loan mod they will also charge $3500.”
This is not an accurate assumption.
“Trying to do a loan mod yourself is damn near impossible.”
I have talked with many homeowners who have successfully received a loan modification with no help from any third party.
I am all in favor of third party loan modification services, dave, PROVIDED:
the loan originator fully discloses the fee split up front to the consumer, fully explains the work that will be done for the fee paid, and offers a full refund if the loan modification fails.
Consumers have many choices: Do it yourself, go with a free HUD-aproved counseling agency, hire an attorney, hire a third party loan mod company, let the home go into foreclosure, and so forth.
In the example cited in this article, a consumer’s $3500 may be better spent with an attorney.
I am also concerned that today’s very hungry loan originators are being taken advantage of by loan modification referral services that are charging the LOs a up-front fee!
Hi dave,
“There are no ‘guidelines’ for a loan mod.”
Actually dave, there are.
So, what kind of up front fees are you charging consumers?
Do you have a fee-for-service agreement approved by your state regulator?
How much of the fee stays with you, the LO and how much of it is split with an attorney?
Thank you for stopping by raincityguide.
dave, in regards to RESPA, scroll back up and read comment #133.
I
Why do you assume that there is a ‘loan originator” involved? What if there is no ‘Loan officer’. What if the people who need these services have called a financial planner and attorney to help them?
Why do you assume there is a broker or loan officer anywhere in the picture everytime? All of the loan modification places I know of dont have ‘loan officers’ You might have a case if a place is misrepresenting themselves as a loan officer only to send them to a loan modification service but this is another law entirely. And when I meant ‘guidelines’ i was referring to what each bank will or will not accept for a loan modification. Although I am licensed as a real estate salesperson (among other things) I do not currently do loans and I do not work as a loan negotiator either.
I think your assumption for how someone would best spend their money shows a good amount of hubris.
dave, the sheer amount of time you’re spending on this blog on a Saturday morning begs the question of your interest in defending fee-for-service loan modifications.
dave, this is a really interesting statement: “I do not currently do loans and I do not work as a loan negotiator either.”
So….then how can you claim to know so much about the loan modification business?
As a licensed real estate agent, are you referring homeowners to financial planners and attorneys for loan modifications and in return, accepting a fee for doing nothing but passing on the referral?
If so, I highly encourage you to seek your own written legal opinion as to if this is a violation of RESPA per se. I further invite you to then revisit us and share the written legal opinion you obtained on this site for all to view.
I was up in the shower a few minutes ago and it dawned on me that dave might have had to negotiate his own loan mod. So here I am with a towel on my head in my bathrobe pondering dave’s visit to this site.
dave, I’m thinking real estate in general has been hit pretty hard in the San Diego area. Many agents even up here in Seattle are in situations of needing loan mods and short sales.
Did you try to do your own loan mod and it instead were able to get better results through a third party?
If I’m on the right track please continue to share your experience with us. If I’m off base, the please feel free to set me straight.
My first post explains how I know so much about loan mods and what I went through to attempt to assist friends of mine in loan mods (for free). I was shocked by the lack of response I got. Once we hired a firm to do the mod it was completed and I was stunned by the outcome. We weren’t expecting to have the rate lowered from 8.3% to 3.4% nor to have the bank pay the 10k in back property taxes and forgive the months of missed payments. But they did. I work in internet marketing. I even help people set up blogs such as yours to advertise (as you are). I get emails all the time and I explain to people what pitfalls I hit and what worked.
Im not even arguing with you about whether or not people should take referrals to point people to services but I felt obliged to set you straight (as I saw) on some issues that you seemed to not grasp.
Are there companies out there ripping people off? Maybe, but throwing out the baby with bathwater because there is a middle man seems silly. If we did that there would never be a car dealership, real estate agent or any broker of ANY kind.
In fact, a blog such as this that is in essence used to drum up clients skirts RESPA laws as well. I understand you may mean well but there are also many people that would post an article such as yours to debase an industry that might actually be helping people just to gain the trust of someone less informed that reads it to hopefully gain their business down the road. This is a very common tactic in internet advertising. I am not saying your doing this but I am also not writing blog articles entitled “Predatory Upfront Loan Modification Fees”.
I also find it strange that people mention people would be better off seeing a BK lawyer. Talk about predatory. Some people need this service and MOST will be unsuccessful doing it on their own and most of those people who are successful will probably get terms that aren’t much better. Banks such as countrywide have set up appointed teams to deal exclusively with private loan mod companies. If the banks think its worthy and people like me know first hand how successful they can be I don’t think its fair to pin the entire industry as “predatory” because there might be a middle man. They sure helped me and my buddy and it was cheaper than a refi and much cheaper than being gouged by a Real estate agent if he was able to short sell. 6% commission with the advent of the internet? Talk about predatory. I might help a friend for 1% find a house or charge a minimal fee if they want a loan done but I cant in good conscience charge 3% for finding them a house that in all reality will probably come to our attention on the MLS by automation.
Lets agree to disagree. And if anyone wants to hear my personal experiences of what did and didnt work during a loan mod they can email me. I certainly recommend trying it yourself first but make sure you go in knowing what to do. ANd no, I wont refer you to anyone out of respect to Jillayne. Cheers!
Hi dave, I do not perform loan modifications.
You say you work in Internet marketing but you also say that you are a licensed real estate agent?
Which is it? or both?
I know you dont do loan mods. I meant i wont use this forum as a plug for anyone who might be able to help someone modify theri loan out of respect for the blog.
I do or did both. ONce in a while someone refers someone to me to see what kind of rates are out there. Usually, i just make sure their broker isnt screwing them.
Believe it or not some people get education and licensing in different fields. Some politicians were once lawyers. I even know a man who has a law degree AND is an MD. Although he is licensed in law he works as an MD for his living currently.
I got a license and I used to dabble in real estate but I like helping people market online a little better. I will sometimes help people get some traffic or whatnot. In full disclosure after our experience with getting the loan mod I am helping some full service financial service companies who also offer loan modification to market but I also help realtors and bands. Whatever.
by the way. The blog is really well done. And from a traffic perspective this article does a good job of being controversial and garnering attention. Kudos.
Check out how the loan mod effort is going so far.
Not so well.
http://tinyurl.com/loan-mods-3Q-08
Wonder if the lenders will start reducing principal to 90% of current appraised value, like HR 3221 encourages them to do.
Think you could flip the sequence so that the most recent post appear at the top?
Anyway I was Googling loan modification and wound up here. Truly enough insight and opinion to go around.
My experience is that the lenders LOVE the idea of a homeowner trying to do their own loan modification without the benefit of an education.
Countrywide will modify a loan for a homeowner lickety split. They offer great rates on these for unsuspecting homeowners. Why, they will even let a homeowner roll the back payments into the new principal balance.
Their customer service reps are trained to do this well. I have seen them send a loan modification agreement at 7.5% at the drop of a hat.
And the added bonus for the bank besides working with WC Fields “sucker” they get the homeowner to sign away all of thier rights to remedy any damage done on the prior loan.
No, I for one do not recomend a homeowner try this on their own without alot of research and education. Lest they be taken advantage of by the lender.
I would never accept the lenders 1st offer, and never accept anything that is not a realistic long term solution.
In full disclosure myself I own & operate a full service title and escrow settlement agency in NY, and we do negotiate loan mods for a fee.
I have also written a “Do it yourself” book on the subject.
There are many charlatans out there charging clients and not doing the job. They come in all shapes and sizes, there are former LO’s, loan mod companies, and yes even attorneys.
If you choose to hire a professional ask for references, make them show you examples of successful loan mod agreements. Check with the BBB, consumer affairs, negotiate your fees and most of all call your lender at least once a week to keep track of what activity is going on on your account.
Your lender will tell you who has called, when, what the conversation was and what progress is being made. Even though you are not negotiating yoursefl you should still make sure the person you hire is in constant contact with the bank.
It is sickening hearing about the ridiculous fees being charged for loan modifications. This is a relatively simple process that can be handled quickly and the fees involved should be minimum at best. No up front money should ever be paid.
This is what I think. Yes you can go to HUD and attorneys and realtors and here and there to do a loan modification. The the truth and the reality is people that are in this situation are still trying so hard to get to work and finding second jobs just to keep up with all of this. The thing is who has the time to do such a lengthy investigation when you are so tied up trying to make ends meet? I mean all the paperwork and foot work is VERY time consuming. I’m sure you have to meet with people fill out tons a paperwork and much more. I do agree that $3500 is alot…However, If I had to pay for the service rather than do all myself I’d rather pay. That’s like doing your divorce without any help. And I did do that and I told myself forget it! I am never doing this again. I had to miss work to go to counsling sessions and classes. It was rediculous. FREE means you get help when they are available. When you pay for services like this you get what you pay for. It’s up to the person to be smart enough to find a good company. I think an attorney would be happy for someone that was trained to get all the necessary documentations together for them without having to pay that person a fee and just go to that person for any additional info that’s needed rather than have his people deal with all these people in distress for all the little details and get $1500 out of that. The people that get all the paperwork together are the ones that have to deal with these people directly and answer a million questions and deal with any discrepancies. So what’s the big deal…HEY maybe they are worth $2000 a pop. It’s called convienence. Some people don’t mind paying for convienence. Yah the lender will do it for free but it ain’t a real great turn out. Paying a loan mod service will probably have a WAY better outcome.
Hello, I don’t think I have seen a list of legitimate companies who will help us with loan modification. As Levani Oct 9th said, she rather pay to get it done right. I rather do the same as I am about ready to pull my hair out, and their is anxiety to it all. Please offer us a list of real people who will not scam us. Really, I can’t figure out who is real and who isn’t , there are so many out there !
Hi Lucy,
Thanks for stopping by. What state are you in; Montana? Google the “montana bar association.” Interview three attorneys. Look for a consumer protection attorney and a real estate attorney to inteview, and one other. Find out how many loan modifications they have successfully completed. An attorney will typically work on a retainer/fee-for-service agreement. Also, have you had the chance to talk with a local HUD-approved housing counseling agency?
Go to: HUD.gov
halfway down, look for the tab “at your service.”
Click on “talk to a housing counselor.”
Find your state, etc.
When the list of agencies pops up, find the agencies that offer DEFAULT counseling.
Good luck in your quest. Please come back and let us know how it’s going. We care.
I wouldn’t mind some information and a few leads from Dave if you don’t mind.? I don’t even know if my home was an FHA loan as it was probably of the sub prime nature and sold to other lenders a few times or so? Does this matter whether or not it was an FHA loan? I googled state bar, nothing sprang up, but suppose I’ll call attorneys from phone book tomorrow. Knowing the attorneys in this town it will be useless… sigh.. And I think the top HUD lady was just fired here locally, so it sounds sketchy.
Hi Lucy,
It doesn’t matter whether or not your loan was an FHA loan. HUD-approved agencies can still help you. Here is the link to your state’s agencies:
http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm?webListAction=search&searchstate=MT
Contact an agency that offers “LOSS MITIGATION” services in a city near you so you can make an appointment and GO THERE and talk with a counselor.
Here is the link to the Montana State Bar:
http://www.montanabar.org/
Call and ask for a referral to a Consumer Protection Attorney and another one for a Real Estate Attorney. Maybe get 4 referrals, two of each. Call and talk to all four about your situation.
Meanwhile, go find all your old loan documents from when you originally purchased and/or refinanced. This will help save time.
I contacted the timr@cccsmt.org apparent director? Great Falls. He emailed me back giving me a local number for consumer counseling. I called them and she said they would help by offering help with credit card bills, which I don’t have any . So she gave me the number for HOPE, which all they are is another consumer counseling and noone answers your questions except to tell you they will go over your bills with you and advise whether or not you should short sell your home or other suggestions such as renting it out. Well, what good will that do when rent is sky high, added my payment is due to change and noone will pay this huge payment, and or , nor will I be able to. My mortgage bank doesn’t reply back, they said they would email me information to restructure my loan, and that was 3 days ago. of course they are always away from their desk when I call, and never have time to call me back.. So calling HUD doesn’t get me anywhere and neither does this HOPE that Bush signed.
lucy, next step is to find an attorney.
Hi Lucy,
There are many organizations out there with the HOPE acronym in their titles. The most popular one is 995 HOPE.
Keep in mind that these organizations are only going to assess your finances and give you some advice. IF THEY think you qualify then they will contact your lender and try to help you get a modification.
I have had many homeowners who were initially told by these well meaning individuals that they didn’t qualify and should short sell their homes.
ONLY TO GET A SUCCESSFUL MODIFICATION LATER WITHOUT THEM!!!
So Caveat Emptor…
I know that Jill has sugested an attorney, and if you are facing an imminent foreclosure that is probably the best advise.
A few things to know about modification:
The numbers you send to your bank have to make sense. Write them down on paper and do the math.
If you are not able to demonstrate an ability to make payments AFTER a reasonable modification (5% – 6% 30 year fixed) you will not get one approved.
Depending upon your lender, there are a number of ways they will work with you. I have personally negotiated with most of the lenders and servicing comapnies left in the market.
Don’t be discouraged. If your lender said they were going to send a package, they will and it should take 3 – 5 business days to recieve it.
Most importantly you can begin to take control right now TODAY. Gather the following:
Last 4 paystubs for everyone in the house who earns money.
If you don’t have paystubs, you will need a cash letter from the wage earner defining what they take home monthly. (Yes your lender WILL accept this)(It’s in their best interest).
2 years W2’s for each wage earner in the home.
2 years tax returns
2 months bank statements – (PSST… If you have big bucks in the bank, you modification will not happen!) Your lender will require ALL pages of your statements. If you don’t have them, go to your bank and get a 2 month printout, make sure that someone in the branch stamps and signs the printout or your lender may not accept it.
That should be the extent of documents you will need to provide to your lender. (unless you are self employed)
The above documents will be required to be submitted to your lender. So make copies of them now so you are prepared and ahead of the game.
YOU CAN DO THIS!!
REMEMBER YOU ARE YOUR OWN BEST ADVOCATE. NO ONE HAS YOUR BEST INTEREST AT HEART MORE THAN YOU.
Now gather ALL of your bills and make a COMPLETE list of ALL of your monthly expenses, food, transportation, tolls, gasoline, heating bills, electric bills, water bills, trash & sewer bills, car payments, all forms of insurance, child care, tuition, camps & clubs, school lunches, pet food, Absolutely every dollar you spend needs to be accounted for lest you underestimate your living costs and negotiate a modification that won’t work.
OK… Now your rolling!
Get your totals down on paper and do the math. You may very well be in the red CURRENTLY, but calculate what your new payment would be and do the math again using your new modified payment. If you above water with the new number you are well on your way to a new life, with one less worry.
I do not think the average person needs a professional to negotiate a modification. My experience with MOST attorneys is that they are aloof, unreachable, unresponsive and condescending. If you can find one with empathy God bless you, but you don’t need a professional to get a modification with your lender.
It bears repeating though, if you are in danger of iminent foreclosure then you need an attorney right away.
If you can’t find your loan documents from the closing, you can get them directly from your lender. Under RESPA section 6 they are ABSOLUTELY required to send EVERY page you signed at closing to you.
Get Ready, Get Educated – Get Modified and Get on with your life…
GOOD LUCK!!
“It bears repeating though, if you are in danger of iminent foreclosure then you need an attorney right away.”
Thanks for your long comment, Dan.
Lucy, and readers, it is very important that all homeowners in financial distress always consult with an attorney. Attorneys can do things that loan modification book sellers simply cannot do.
Even if you are not in default on your mortgage. If you are facing foreclosure, thinking about a short sale, or loan modification, please consult a local attorney in your hometown that you can talk with face-to-face.
Many loan mod companies claim to deal with a “pool of attorneys.” This may or may not be in your best interest when compared with the money loan mod companies are charging. Why not consider spending that same dollar amount on a LOCAL attorney?
I would like to know on a loan modification what happens to the borrower. Is their credit trashed due to this modificaiton? Are their any reprocusions to the borrwer though this process. How much of the modifications are done on the discrepencies of the HUD and the Truth and lending disclosures apposed to the lender just feeing sorry for your situation. Also, how long does the process take with an attorney vs. doing the due dilligence your self. I find this site and all the blogs just fastinating and would like more information. Also if there is not a settlement disclosure in the process how is it a violation to RESPA. Is the modification not just an addendum to the current contract?
Has anyone else noticed that Jillayne is the only pretty face in the crowd. How can I change mine? I digress.
A loan modification is quite simply an agreed upon change in the terms of the note. The note is the borrowers “promise to pay” the lender according to the terms outlined therein.
If the borrower is late or in arrears on their mortgage that will affect their credit.
A loan modification will not affect a borrowers credit in any way, shape, or form. And there are no repercussions if the borrower lives up to the new agreement.
One side issue –> The borrower upon signing most loan mod agreements gives up their right to remedy anything done in the prior mortgage. Some may consider that a repercussion.
A forensice audit or loan document review is invaluable when seeking a loan modification. Finding issues with the cuurent loan and documentation will change the equation exponentially.
I too find the subject of loan modification and the lendrs view on loss mitigation fascinating. It is not for the weak at heart, I have negotiated many, many loan mods. Often I have to push the lender to the brink of threatening legal action before obtaining a truly meaningful modification. Most homeowners are too emotionally invested to play the game, leaving them easy prey for the loss mit crew at most banks.
Hi Dan,
Thanks for stopping by RCG again. If you want to transform yourself from a monster-face to a Dan Harris face, upload your photo to gravatar.
http://en.gravatar.com/
Jillayne
Hi Dan,
Question: if a loan modification means changing the terms of the note, then isn’t this the creation of a new contract? In most states, wouldn’t an attorney be required to create such a contract?
So then if the lender’s attorney draws up a new note and deed of trust, then, as a book author, do you recommend homeowners always seek out legal counsel (even if it’s just for a few hours) so the homeowner has someone representing their interests?
Thanks for your insights.
Hi Shanz, here are your questions and my answers:
Q: what happens to the borrower. Is their credit trashed due to this modificaiton?
Your mortgage history such as late payments (30, 60, 90 days late) still show on the credit report UNLESS you negotiate this with the bank. Loan modifications and short sales are LESS damaging to a person’s credit than a foreclosure or a deed-in-lieu of foreclosure
Q: Are their any reprocusions to the borrwer though this process.
A: Well, it depends on how you define the word “reprocussions.” Some people might say that extending the loan term from 30 years to 40 years is “good.” Others might say that the additional interest paid over the life of the loan is “not so good.” If you believe your financial problems might continue into the future, a loan modification might not be in your best interest. For example, what happens if you re-default again in 4 months? Now the lender isn’t going to be so thrilled at modifying the loan again. Maybe you would have been better off to try and sell and start rebuilding your credit as a renter now, today rather than putting this off for 4 months.
Q: How much of the modifications are done on the discrepencies of the HUD and the Truth and lending disclosures apposed to the lender just feeing sorry for your situation.
A: Lenders are not uncaring, unfeeling robots. However, everyone who is asking for help is facing a sorry situation. Lenders are required to look for solutions that will minimize losses for their shareholders and investors. If you believe you may have been a victim of predatory lending or bait and switch lending tactics (being quoted on set of fees at application and then switching you to a different, more expensive, less desirable loan product at closing) then an attorney can take a deeper look at the loan documents to see if your lender was in compliance. Loans out of compliance are receiving FAVORABLE loan modifications when handled by an attorney or a HUD-approved agency.
Q: Also, how long does the process take with an attorney vs. doing the due dilligence your self.
A: The due diligence will need to happen in both cases. You must interview at least three local attorneys in your town and find one who has experience working with lenders in this way. Sometimes that means a real estate attorney but more often that means a consumer protection attorney. If you decide to do it yourself I never recommend moving forward without having an attorney look at the loan modification being offered to you by the lender.
Attorneys are not as expensive as you might believe. Get a few hourly quotes. The more experienced the more their hourly fee, but then the more efficient they’ll be (theoretically) at handling your case.
DIY- No
DIY Yes, but always with an attorney, even if the attorney is only needed for a few hours.
Q: if there is not a settlement disclosure in the process how is it a violation to RESPA. Is the modification not just an addendum to the current contract?
A: If a third party loan modification person is earning a fee but is not performing work commesurate with that fee and just hands the file over to someone else to do the work, this appears to be a section 8 violation of RESPA as unearned fees are classified as kickbacks. See comment number 88 for a quote from Mortgage Law Central.
I do agree with Jillayne, a loan modification agreement should not be signed without being reviewed by an attorney.
I do not however dismiss the services of a loan modification company as compared to an attorney.
If you are dealing with a reputable company that does the work in house and has attorneys on staff (not outside the company) who review loan documents (forensic review) with verifiable references as well as actual examples of successful completed loan modifications, you should expect to do well.
Compare a well run, well staffed company as outlined above to the sole prctitioner attorney who doesn’t return calls, is in court all morning, and doesn’t have staff to make the many, many follow up calls, and you will understand the need for research prior to hiring anyone to be your consumer advocate.
The amount of hours in just putting a file together prior to sending it to a lender is cumbersome. Add to that the amount of time spent on phone calls to the lender. ( HomeQ takes a minimum of 45 minutes to answer a call) Would you like to be billed by the hour for that?
Find a loan modification company that doesn’t collect until the loan mod agreement is in hand.
All the talk about attorneys being the best route is great, but I have yet to find an attorney taking these on a contingency basis, and paying $150 to $450 an hour can add up quickly.
Mind you I do have a son in law school, and hope that when he gets out he will be able to build a business based on billable hours.
I just believe in getting the most for your money, and if you can hire someone who only gets paid upon success, they will work hard to get paid.
IMHO
[...] BEFORE the trustee sale, there are options that homeowners weigh. Repayment plans, forebearance, loan modifications, and short sales are some of the options we’ll discuss in part [...]
When dealing with an extremely important subject such as your home and overall financial health, why anyone would take chances at this moment in their life without the assistance of an experienced lawyer and tax advisor is really difficult to justify. At this moment in your life, now is definitely not the time “to get cheap.”
You don’t want to be “Penny wise and Pound foolish.” Such is the case in dealing with loan modifications and short sales.
What People seem to miss is that there are actually multiple tangible and intangible components to achieving a successful loan modification and/or short sale.
The tangible components are things like the law, what information the lenders need about the property, the homeowner, the liquidation analysis, and the workout analysis.
The intangible component that you can only learn through experience and not through reading is “the art of the deal.”
Sure, everyone can handle their own attempt modify their own loan or attempt to get their lender to agree to a short sale; however, at our law firm, we actually accomplish the goal every day.
Simply put, there is no substitute for experience in dealing with lenders on a daily basis and actually working through how all lenders handle things differently.
There is no substituted for experience in negotiations and knowing how lenders act and react to multiple offers and counteroffers.
The same lenders do not act the same way with different clients. Each case is different.
Part of the process is mechanical. However, a very important of the process is art in the negotiation process and knowing what it takes to get things done.
Read all you can and be informed. Ask questions. At the end of the day, hire an experienced real estate lawyer and get this part of your life handled the right way.
When your kids get sick, some times you know you don’t have to take them to a doctor right away. However, other times, you recognize that you need to get a professional evaluation and treatment for your child to be healthy.
Right now, your financial and real estate situation is very sick. You need a professional evaluation and treatment in order for you to get healthy again.
Good luck to all.
I have been a loan modification officer for about 2 months with no Prior experience at all when it comes to mortgages. I was out of a job and narrowed it down to 3 professions with job security: Nursing,Information Technology, and LOAN MODIFICATIONS. I went into this business because I saw job security for the next year or two. My mother works for the State as an Attorney and had done some research on the company I am involved with and gave me the ok. She said that on a daily basis in her office she is seeing complaints filed against companies similar to mine who are taking the money upfront and never getting the client remodified thus resulting in the client either forclosing or just being in a worse situation than before. Watch out for these companys. She also held a free seminar in a town where there are going to over 400 homes forclosed within the next 3 months. Only 15 people showed up. WE are lazy as a nation and want to consume and be served while consuming. She believes this is a wonderful thing as long as it is done the right way. What we do is charge $1,595 which is held as escrow until the modification is complete. Which $400 is paid to me for commission on the sale. It is 100% refundable if our attorney does not accept the new modification of your loan. Our attorney which is in house calls you within 24 hours of your payment to find out if you can afford the new Monthly payments plus to make sure this will not put you in a worse situation than b4. You also have a 3 day cancellation term with generally every contract which is why our attorney calls you promptly. Our attorney will not make a final decision on the modification without approval from the client. If you do find your own private lawyer that you believe is qualified you will have Appraisal fees’, and closing costs. Majority of the people i speak with agree and understand this. And Yes obviously the lawyer is doing the majority of the work. If someone asks if they can do this process on their own I ALWAYS tell them the truth. Am i going to tell them this without them asking, no because i am here to make money and this is a service we are providing. I have found the most success i have is with people who can AFFORD this fee or people who just dont have the time to do this cause they have to work 2-3 jobs to keep their house, or possibly because they have such high Mortgage payments from the BAIT AND SWITCH or ill advise from REAL Estate Agents. But I can see why a real estate agent would advise a client to check out the FREE way to do this only because the client is going to see how time consuming the whole process is, thus inturn going back to them for help. If this service wasn’t available I truley believe that these Free programs would not be able to help out the hundreds of thousands of people in this situation in a timely fashion. Do you agree that with our LOAN MODIFICATION SERVICES we are going to be able to make a difference and increase the number of homeowners keeping their homes???
Just my thought, please excuse my Grammer and spelling. I am a young college student and since I surely am not as qualified as many of you to speak on this subject. I just would like to think that I am providing a legitimate service to people in need while making money to help put me through school. That is the reason why I got into this.
Got to go….sorry for not proof reading……..PHONES ARE RINGING OFF THE HOOK….. got to go fix the problem Mortgage Loan Officers & Real Estate Agents had a hand in creating. LOL had to throw that in….Love causing a rukus. Thank you for your time……
For young college student, the previous poster did make some good points. There definitely are legit loan modification services out there that can help homeowners facing foreclosure, but maybe just as many that are scams. Hopefully readers will take in all of the advice given here about doing due diligence on vetting their options for attorneys or “loan mod officers.”
To me, the central debate on this issue comes down to the DIY or go with a service. I think there is a lack of clear information on the topic that makes the DIY option difficult. The state-by-state legal differences, the lender nuances, the preparation of expense worksheets, hardship letters, etc. can be confusing and overwhelming if you’re trying to research the topic yourself. The young college student above makes an excellent point about time…some people just don’t have enough time to wrap their heads around all of the information and make sure they have the right advice, especially if they are working extra jobs to deal with their financial situation. However, Jillayne makes a great point, the due diligence in preparing for a loan modification is going to have to happen regardless of whether you do it yourself or go with an attorney. Chris Benson tries to make the point that a loan modification legal service is the way to go because they deal in it every day. I somewhat agree with this but I also have to think that the bank really doesn’t want to own someone’s house. They much rather deal in loan modifications or other options, so if a homeowner takes an entire day out of the weekend and gathers all of the information they need and then follow Jillayne’s advice and take the material to a local attorney and pay for a couple hours of review, then they can accomplish the same thing at much lower cost.
But it still comes back to time and information. Is there enough of it out there?
I have been a Loan Consultant for three years and real estate
for one years. And I’m about to work for a Loan Modification
company.
I had sold those “Power Options” Loans but only to investors
and people I trusted and knew that they knew what they
were getting into.
I have been, since 2007, reading, absorbing, and attending seminars about the correct, ethical ways to do loan mod.
Here is what I can tell you…..
DIY:
Yes, you can do this yourself but 90% of those whom had tried failed. 10% of those (50%) ended up getting a deferment on
their mortgage which is not going to help because if YOU cannot pay NOW, how can you pay 6 months later!!!
Scams Artist:
- DIY programs or instructions you can buy online.
- Upfront fees without doing any work.
- Attorneys asked for a monthly payment for his/her service.
The correct way of Loan Mod:
1) Reduce interest rate (at least 1% lower).
2) Reduce principle of loan.
3) Reduce monthly payment & extend longer terms.
If any of these 3 are not met, a loan mod will not work
to the advantage of a homeowner.
THE LOAN MOD PROCESS:
1) Applcation + Hardship Letter (package)
- Purpose is to know your situation.
- Proof of your hardship.
2) Attorneys negotiation
- Attorneys have more leverage than YOU.
3) Processors
- Process all the paper works and contracts.
Yes…don’t forget the Salesperson(LO) he/she is to tell
and explain this to the potential clients. And depends
on the company, this Salesperson might do more
of the above duties.
Salesperson makes about $200 – $700 commission.
You have to understand the Attorneys, Processors DO NOT
want or have time to call…so…that’s why the Salesperson
calls.
Ethical FEES:
$2500 – $3000
Collected in 3 separate payments:
1) Application/package
2) Negotiation
3) Processing of papers.
My thoughts on doing it yourself:
1) If you don’t mind talking to a lender/servicer…
2) If you have the knowledge and negotiating skills…
3) If you don’t mind being transfer from dept to dept…
4) If you know how to put together a Hardship Package
that is different for each lenders.
Finally…is $3,000 worth to save your home without
going through all these DIY. And image after the
DIY, you didn’t get approval, ARE YOU GOING to
do all the above over and over again before your
foreclosure deadline???
best of luck,
Hi Peter,
Yes, there are lots of hungry LOs who are signing up left and right to do loan modifications.
It’s easy to justify behavior as “ethical” when we need the money.
I have a question…If you don’t have money to pay your mortgage and are experiencing “hardship,” how the hell are you going to come up with $3500?
Ok, so I have another question…
If these programs actually work and truly help homeowners and banks avoid foreclosure (which costs banks tens of thousands of dollars), then why doesn’t the bank offer this service at a much lower rate, if not for free?
The money the banks will save in the long run by avoiding the foreclosure process will far outweigh the immediate cost of the LO, the processors and attorneys.
Hi Danilo!
Thats a very good point! But some ppl will not be able to make a payment even after a modification. Thats a scary part for banks. Banks will gladly foreclose properties which values went up.
3500 is a lot for a modification, normal fee is between 2500-3000. If there is a second loan, that needs to be modified, you could do it for additional 500.
Lastly, if you are lets say behind 5 months on your mortgage payment, and each payment is 2000, you owe 10k to the bank. paying 2500-3000 for a modification to save your house is nothing!
p.s. 10k is typically rolled on the back of the loan.
Jovana
p.s. pricas srpski?
Ugh!!!
Busy day, but I coudln’t possibly let this one go…
Spoken like a true Subprime LO, turned Loan Mod Guy!
Just to start, your statistics are WAY OFF BASE.
Maybe a refund for your “schooling” would be in order.
“QUOTE”
Scams Artist:
- DIY programs or instructions you can buy online.
- Upfront fees without doing any work.
- Attorneys asked for a monthly payment for his/her service.
“END QUOTE”
You left out the most obvious one.
Guys that sold those crap loans, that now want you to pay them to fix them.
Did I mention I was Busy Today?
Anyway.
I have personally negotiated and closed in excess of 100 loan mods for clients.
I have a DIY book for those people who have a desire to do it themselves or can’t afford to pay for professional services.
I have spent many hours of my time counseling and coaching some of those people who couldn’t afford to pay for services.
DIY is a real alternative for these folks, lest they lose their family home.
I realize from your post your research is yet to be completed. If you had read through a sampling of what is available out there for less than $100 bucks you would know that the rules of DIY are clearly laid out in most of these publications as follows:
Your lender has only IT’s beat interest in mind – Not Yours
NEVER take your lenders 1st offer
NEVER settle for a “workout agreement”
NEVER accept a deferment or forebearance as a solution in and of itself
ALWAYS do the math and figure out what you can really sustain, make certain you do not settle for less from your lender
Spend the few dollars it costs to at least have an attorney review the loan modification agreement you have negotiated.
If the DIY book doesn’t mention these in it’s pages then it’s probably not a great book.
But for less than $100 bucks, it can hardly be classified as a scam.
And it pales in comparison to the scam perpetrated by LO’s who collect 3-5 points to squeeze homeowners into these exotic loan products, and now that the parties over, they want to “help” their victims out of the jam (For a fee of course).
Caveat Emptor –
If you are a homeowner and looking to hire a professional read the many posts above, there is some good advice.
If the professional or attorney you are interviewing to become your advocate doesn’t start with a complete review of ALL of your closing docs, (the ones the bank has in it’s posession) RUN DON’T WALK to the nearest exit.
The BEST way to get a loan mod approved is to reverse engineer what happened between the time your signed a 1003 (Loan Application) and the closing date.
I have looked at hundreds of these and the number of mistakes and violations is staggering. Once these issues are uncovered and shown to the lender they negotiate with THEIR BEST INTEREST in mind.
They want you to sign the loan mod which will most definitely have a clause that eliminates your rights to go after them for what they did to you in your prior loan.
“QUOTE”
Finally…is $3,000 worth to save your home without
going through all these DIY. And image after the
DIY, you didn’t get approval, ARE YOU GOING to
do all the above over and over again before your
foreclosure deadline???
“END QUOTE”
Remember WC Fields said There’s a Sucker Born Every Minute.
Watch your wallet folks.
I think I need a shower!
Dan Harris
Do a search for loan modification on Google.
Wow, now I know how they beat 3rd Q estimates.
Dan, you are probably correct that some educated folks will be able to DIY, but most of them probably won’t need it.
There’s a whole lotta folks that haven’t read a book in years, and have an underwater mortgage, and they probably won’t DIY.
That’s too bad. It’s a heck of an incentive to read a book.
hi, my boyfriend has a 3-family primary residence building that has an ARM about to balloon. He has good credit/never been late, yet can’t get re-financing. He has been offered a Modified loan with a 4,500 fee. I am researching this and found this article. Do I understand correctly that if charging they are predators and we should stay away? Can he Modify by himself or with attorney? He thinks he doesn’t have much time so he should take this deal. Can you advise me please, don’t know much about any of this, but don’t want him to be ripped off or have his credit ruined.
Thanks to all for your information. It has helped me understand the Loan Modificatin process and what to do and look out for.
Good Luck to all of you and God Bless us all.
Hi julia,
Has your boyfriend tried talking directly with his lender?
Lenders do loan modifications with the borrower for FREE. There is no fee charged by the lender.
Your boyfriend should hire an attorney for far less than $4500 to first advise him of his legal rights, options, and the attorney will do way more for way less.
Find a LOCAL attorney who specializes in real estate OR consumer protection law.
In regards to the company making the “offer” in exchange for $4500. are they making promises and wanting cash up front? This is a giant red flag.
The current sales pitch going around right now will scare you into thinking that attorneys will charge your boyfriend $10,000+ to make it seem like $4500 is a steal.
It’s NOT that easy for some people to find the right service they need and would rather pay someone to handle the paper work and the negotiation process for them. When you pay someone to do something they are obligated to perform their services as agreed..
Personally I’d rather pay for good service then mess it up myself, having someone else to blame sits better my conscience . And I’m sure I could do it myself but, should I really?? In all reality I could probably build my own house and make my own clothes but, do I dare??? NO. I’d rather have someone do it for me.
Its all comes down to the client(the homeowner). You could call your bank or a HUG agency that does it for “Free” but, a lot of cases they don’t get back to you, you can’t get them on the phone and at the end of the day they don’t really care if you get a loan modification or not because at the end of the work week they still get paid and get to go home to there homes.
Most attorneys don’t even know about this modification service. With all due respect they are probably pretty good in their practice but have no clue how to handle this animal. Loan Mods take weeks of negotiations and paper work, which the regular real estate attorney doesn’t have the time for.
I don’t want to defend For-Profit modification agencies to much because not all them are good and sum are scams. I started working for a modification agency a few months ago because my aunt was in need of a modification, she was losing her house and couldn’t get the bank to work with her. So I researched and researched and researched! I found the agency that I work for now and actually went down to the corporate office to see the whole operation as a customer and as a potential employee. One of the counselors sat us down ,went over different options to make sure a loan modification was the right thing for us and presented us different modification cases that were already complete. They offered a 100% money back guarantee(that was in writing in the application) and they only took half of there retainment fee to get it started. YOUR COUNSELOR DOESN’T GET PAID UNLESS YOUR MODIFICATION GETS APPROVED, Bottom line!
Of course my statement doesn’t apply to everyone but, I know A LOT of people that feel the same way I feel.
As a customer and employee I think my company offers the best service! ! !
Best Regards,
Wayne Wofford
Counselor
Jill is on the mark again.
DO NOT fork over an enormous $4,500 fee to someone who will ultimately have you sign a document that “offers no guarantee” if they won’t work on the contingency that they get paid when you get modified, tell them to “GET LOST”.
In addition, make absolutely sure that anybody who is going to work as your advocate knows about RESPA, TILA, HOEPA, and Regulation Z, along with having experience working with bank docs EVERY DAY, not just once in a while.
It will be this experience that will enable them to review your loan docs for fraud, miscalculations, and errors that will set the stage for successful loan modification negotiation.
A loan modification is MUCH MORE than a simple compilation of documents and phone calls.
It requires tenacity, and a drive to get it done. Unfortunately it requires the 5 percenters.
Yes just like anything else in life only 5% of the loan modification professionals out there are really getting it done everyday. The rest are just collecting the $4,500 up front fee and selling their clients down the river.
IMHO…
[...] have been a theme on RCG lately. Here are some great recent posts: predatory loan modification fees, helping consumers in tough times, and options for homeowners facing foreclosure. [...]
-Jillayne
I appreciate you trying to educate homeowner’s on their best options and to prevent foreclosure scams, however, you are way off. While there are definetly unethical loan mod companies and inexperienced attorneys attempting to perform services, there are several quality companies in the marketplace. You can’t label every loan modificaton company that takes an upfront fee as a scam. It’s absolutely perplexing to me that you or some individuals on this thread have never dealt directly with homeowners in distress or actually performed a succesful loan modification but are trying to give advice. How sad!
I have been peforming loan modifications since July 2007 and last month we executed 181 successful modifications with not one single complaint. In my eyes, I saved 181 home last month. Do you have any idea how happy that makes me feel? Ironically, 70% of these homeowners attempted to work directly with their lender or with HOPELESS-NOW (HUD AGENCY) but were completely unsuccessful. Does the average homeowner know how to package, process and negotiate a loan modification? Does the average homeowner have countless hours to spend on the phone with their bank during normal business hours? Does the average homeowner know how to perfrom a loan audit? Do you really believe that HUD approved counselors have experience in giving advice or performing loan modifications? HUD counselling agencies were implemented to do one thing, “protect the banks profit margins.” Don’t banks run this country? Do you really believe that the lender is looking out for the homeowner’s best interest or their own profit margins?
Furhtermore, my point is apparent by analysts at Moody’s Investor Services which states, “A whopping 42 percent of subprime adjustable-rate mortgages modified during the first half of 2007 had become 90 or more days delinquent by the end of March 2008.” Guess what Jillayne? These huge default rates can be attributed to the Banks offering higher rates to stabilize or increase their own margins. Once again, the homeowner’s interest is set aside for monetary gain. The majority of these defaults are coming from “rate freezes” when in reality the homowners needs a “rate reduction.” Aren’t you the one advising homeowner’s to work directly with their bank? Wake up!
These are just a few points….much more to come!
@Jordan “You can’t label every loan modificaton company that takes an upfront fee as a scam.”
Actually, I can and I do. If your company is so successful, why the demand for money up front?
Jordan says, “Once again, the homeowner’s interest is set aside for monetary gain.”
Let’s see. Jordan claims to have completed 181 loan modifications in one month. If the average cost of a loan mod is $3,500. then that means Jordan’s company has grossed $633,500. in ONE MONTH.
Thanks for sharing, Jordan, so that all the homeowners can read along with us.
Let’s get some clarity on this:
Mtg lenders performing loan modifications
Real Estate performing loan modifications
Attorney Loan modification
Self Help Loan Modification
HOPE loan modification
So who really is qualified to council the homeowner?
The answer is all of the above, depending on the knowledge base of the company/person
Is it better to have legal representation than not? One would think so,
Lets take Joe the plumber who has fallen behind on his house payments, Should Joe do a short sale? Bankruptcy? Loan modification? Walk away? Call the hope foundation? Well? Of course we can’t answer that, why? Because we need to gather more facts. And let’s not forget Joe, and what he would like to achieve. So let’s go on the fact finding mission. Let’s value the property first. Who shall we have value the property, Lets Choose the Realtor, this is what they do. Should Joe attempt a Refi?’ would he qualify? Its time to call the loan officer and run Joes numbers. Perhaps it’s a good thing to have the realtor on close by to discus the financing options with Joe. By the way, has anyone called the bank yet? Should we send in Joe to deal with the $14 an hour decision makers who are trained to hand out standard answers? And besides wouldn’t the bank be protecting their best interests or would they be all about taking care of Joe, it’s a rhetorical question.
Lets go to the hope foundation, has anyone here tried this place, they return calls every month. If we peel back the onion layer we will discover the hope foundation is funded by the banks. Now seriously if we are going to negotiate the best deal for Joe why would we join the wolf in sheeps clothing ?
Now that we have explored the initial options for Joe the plumber (and so far Joe hasn’t paid a dime, and find an plumber who works for free) Lets go visit with the Bankruptcy attorney. The bankruptcy attorney might often advise for Joe to file, after all this is how the Bankruptcy attorneys, like all the other players in the loan mod game, keep the doors open.
Bankruptcy might be a great option, especially if Joe has two loans and one of them is at zero equity. Perhaps a strip down of the second loan would be in Joe best interest, but hold on, what if Joe had a high yielding first loan? Let’s go get some more information and visit the loan modification service company. Joe is told that loan modification is feasible, his property has lost value and his income has decreased. he is advised to do a loan mod on the first trust deed, and if the second is not cooperating then once the interest rate and or principle has been reduced on the first then all being well go back and visit with the bankruptcy attorney. If the first lien holder will not work with Joe, then Joe may want to consider a short sale or a short refi. You see Joe the plumber has a lot of options none of them can 100% guarantee the outcome.
It would seem to me that the best place for Joe to go is a full service company that provides loan modification bankruptcy short sale and short refi services. Looking for the best outcome and saving Joes house and his family from catastrophe. $3500 for all this? Joe would have paid at least that amount when he secured the loan.
Now all we have to do is find a company that offers such services.
By the way the income derived from helping Joe pails in comparison the banks made when they sold Joe the loan.
I suggest a company that is made up of professionals with licenses and accountability. It’s akin to a department store where Joe will have his personal concierge to help him shop and make the right decision.
Chris Giddings Las Vegas NV
Chris,
I think you meant Joe Sixpack. Joe the Plumber is the “spread the wealth” guy.
Hi Chris,
Thanks for stopping by RCG. I like your story. I had a thought. Maybe you can help me out:
“By the way the income derived from helping Joe pails in comparison the banks made when they sold Joe the loan.”
but….the banks are now losing money. Loan mod, short sale, foreclosure, maybe a re-default later on that loan mod….hmmm.
Could an attorney, who is well versed with the laws that govern all these choices, help this same person for less than the large fees being thrown around out there?
Thanks.
Chris, “your Joe” should obtain as much information as possible and make an informed decision as quickly as possible.
Jillayne wrote: “Could an attorney, who is well versed with the laws that govern all these choices, help this same person for less than the large fees being thrown around out there?”
I would think so, and they probably wouldn’t be involved in the likely unauthorized practice of law like some of the other players mentioned. If memory serves, I believe that was probably addressed in one of the 190 posts before this one, but it bears repeating.
Wall mart is a popular place to shop, Perhaps this could all be outsourced to china?
That might save dollars, loose a few jobs, take our money offshore.
It has occured to me that there is no source of reliable data on loan modifications.
At least, I cannot find any.
That would be very useful for folks trying to make rational decisions.
Hi Roger,
do you mean data as in, how well loan mods perform? Right now data exists that shows loan modifications are re-defaulting at a rate between 40 and 50 percent.
I have read too many negatives here. I have been in the real estate and mortgage business in Ca for over 17 years. I have seen the ups and downs.
Just to share a note with everyone, I had a homeowner walk in with loan modification paperwork which she had not requested. Was not sure what it was. Missed one month payment. It was directly from the bank and reducing her principal over 100K and had a fix rate for the remaining 28 yrs and reducing her payment in half. THANK GOD there are some banks starting to do this. Just one of five that has happened in the last week.
How can I get the phone and fax numbers to my loss mitigation departments. I have a couple of properties with 4 different lenders. None of them actually answer my calls of have any info on their websites about how to do these modifications.
Lenders contact list…
There was a complete list on the Loansafe website, but it has been pulled.
I just found one for you here:
http://www.workitout.com/mod/glossary/view.php?id=98
Principal reductions WITHOUT A REQUEST.
Which bank is doing this?
Wow…haven’t been reading this post..it has grown.
Let me try to answer some of the concerns on my
post:
Is it worth $3k or $3,500?
Coming from a loan industry, I had seen how processors
work. Because I have to pre-package my loan. So what
do these ethical, honest Loan Mod company do?
1) Take your appl.
- collect your info
- collect your documents.
- call between you, company, processors, attorney.
2) Negotiation
- attorneys or company team
- call banks, call loan servicers.
- fax documents back and forth to you, company,
processors, loan mod agent.
3) Processing
- more calling, calling, faxing, faxing,
- data entry of you file.
- collecting documents.
- follow up, follow through.
NOW, multiply these task by 10 or 20 loans per week!
If you can do all these, all power to you!
1) DIY – If most of the homeowners have the time to
read and do research on DIY Mod then they will have
a chance of success of modifying their loan.
The reality is NOT many H.O. can, will, and try to do it
themselves. (They are confused, mad, and don’t care
anymore).
And yes, correcting myself, not all DIY are scams!
2) No Money
If you don’t have money, how can you do loan mod?
Then you will foreclosure your home, live in an
apartment, foreclosure will be in your credit record,
and next time you try to buy a home is going to
be very, very, tough.
Is that enough motivation to find the money (credit
card). (30 days to pay it back – by then you have
a new lower, mortgage payment).
3) Guarantee
Yes, there are company that gives guarantee if they
are not successful.
Just follow these steps:
a. Perform, result, pay.
b. Perform, result, pay.
c. Perform, result, pay.
4) Attorneys
Of course, the attorneys negotiating the mod will be
a specialist in R.E./Loan, because he/she will know the
terminology or R.E. Laws.
5) Why not FREE!
Banks are swamped with, pressure from gov., to
do these loan mod and banks do not have the time
to hand hold each homeowner to answer his/her
100 questions!
Banks do not have enough manpower to spend
30 mins answering questions for each homeowner.
BANKS ONLY want to deal with loan Mod. Spclst. because
they speaks the same lingual and know what’s going on!
Google or read the news, many HO (Homeowners) tried
to call their banks and ended unsuccessful because
they got transfer from dept to dept.
Nonprofit organization or companies will mod your
loan into a deferment (6 months).
What you need is:
- reduce interest rates
- reduce term
- reduce payment
- extend term
- fixed low rate for 5 yrs (gov. is working on this)
6) Your Mortgage
After your sign-off, you moved into your new home,
your loan has already been sold to private investors.
(usually within a week).
Packaged by your bank, with other loans and investment
products, sold on the international market.
Your loan is owned by several (Servicers), except
WellsFargo, they service all their loans. So in order
to negotiate the loan, the bank has to contact all
these Servicers and let them know about your term
and hope all of them agreed!
7) Fed is Helping!
Yes, the Fed is looking into hiring thousands of
employees to help BANKS to process these loans
from all the states.
This will speed up the process on the “other end”.
But the “Front End”, taking a qualified application,
is still very slow.
Now, the gov. is setting up guild lines on Loan Mod
Procedures…guess what…is going to be better but
at the same time…will be slow because the ethical
company will have to learn and train their people.
Loan Mod is just like those company that improve
your Credit Score & reduce your Debt.
BOTTOM LINE
If you can do it yourself, all power to you!
I, myself, can do a lot of DIY because I do not give
up and can be on the phone everyday until I gotten
an answer or write to 10 agencies to file one, single,
complaint!!!
But I still like to have ethical, professional people to
help me, do certain task to save time.
at least now we can get do these loan mods to generate some business until the subrpime comes back, or some alt-a loans. you can average about 2-3k upfront. Fomr your own corporation that is not a mortgage company and start getting paid again.
Can a non licensed mortgage professional follow up on loan mod. leads, prequalify them based on basic information, and then refer them on to a real estate attorney to complete the process?? If so, what fees can this mortgage professional capture from the client? Is it also my understanding that attorneys cannot “split” their fees with a non-licensed individual? I was told a client had 2 options: a) attempt the loan mod on their own or b) have an attorney advise and file documents on their behalf. Is this correct? When it comes to filing all of the paperwork and working with the lenders themselves, wouldn’t a good law firm have contacts within the lenders to expedite this process much quicker than if you did it on your own? Thanks for your help and I look forward to your comments.
Odd how mortgage lenders here defend the service charge. Wasn’t it their fiduciary duty to inform the client of the for sure downsides of the option arm. No. It was legal. And they presented it as a harmless rollercoaster that balances it’s self out. Not to worry. Try the interest only program. You can do it for three years then refinance. And they did this to first time buyers. What is a first time buyer? Somone who doesn’t know what is going on and set out looking for some one they can trust. Loan Modification should be free. A simple fine or punishment for placing the uneducated home owner in the situation in the first place. Or did we over look that. Phone calls, filing and faxes. Try working a physical eight hour shift while thinking of your negitave AM future.
Last night I did inquire online to find help. I typed my info in once to recieve two phone calls within seconds for modification. Then two more phone calls this morning. Not to mention six e-mails. One place wanted $2500 and the other $4,000. Got the best advice ever! Just call you who ever you have your loan with. You fax over your finances and they will set up a negotiation with you. Yes, they say the process will take 60 to ninety days. But hey, I save myself $,2,500 to $4,000 by just making one phone call. I stand by by my last post as proof. You malipulated the uneducated trusting home owner just to make a profit. And now your manipulating them again! Fiducial lending my ass.
Hey Thomas,
Thanks for checking back in with us today. I’m thrilled to hear that you’re going to try it on your own and avoid the high fees. $4,000–that’s insane.
When the lender offers their modifed loan proposal, I highly recommend finding a local attorney in your city to help you review the modified loan documents. Google your local state bar association and look for an attorney with experience in real estate law OR consumer protection.
Good luck! Please come back and tell us how it’s going!
I only spoke with my note lender moments ago. I will come back with an update. They say they are going to submit three one being an interest deduction, one being an lower fix, and one (not positive) being a loan based on low current value. In a normal market situation I can see the advice be useful. But people like me don’t have any options but to take the most reasonable lowest offer available. Local attorney, I’m not sure of the cost. Real estate attorney, I’ve heard starting cost $5,000, which is why from experience new owners deal with the false disclosures and repair the problems themselves. Arbitration usually fails in real estate leaving the new owners to sue the seller representing cost $5,000. Consumer protection, I’m going to look into it. Thanks. But even if I end up not being able to renegoitiate my loan and end up losing my home. i would like to take this crusade in lending to a higher level. I just had a brain storm today. Why do we need lenders in the first place? Follow this idea. If robotics replaced jobs, then computer programs can do the same. Each individual is responsible for their own borrowing. So each individual can set up their own loan. A national computer program monitored by the feds. We as individuals would run our own scenarios to see if our financial goals would work and be met. This way you know exactly what’s going on and what you are doing. No tricks, no options. The only way a person could fail is by their own doing. You would type in your plan in and run your scenario The only way you can complete your plan is to follow the hypethetical situation in the program. Therefore you do have a complete understanding of what your borrowing; not only written proof but math mathematically as well. Then when your goal is approved following the federal policies, you can go ahead and apply for a reasonable fee. $24.95 Once approved you’d bring your proof of finances to your bank or an approved federal establishment to complete the process. You did it all on your own. Positive out come : more people confident in knowing what their borrowing. More homes will be purchased and more buisnesses starting up. Like a lender opening a donut shop. No fee’s . No penalties. No high loan organization fees. No closing cost. No lenders. Just you and a program set up by the federal goverment. No manipulation tricks. No false leading. No high refinance fees. Think of possibilities. You don’t need a lender unless you choose so, you could only hire them as advisors. It’s a National Federal Lending Computer Program for eveyone. No joining fees. No required liscensing. I call it, ” A Place We Can Log On To” It’s a program right up there along side “Windows” A program for the actual lendor and the lendee. No financials funds take place here, which is why an individual has to report to the bank to complete the transaction. Complicated? Yes. Possible? I don’t see why not.
[...] Similar PostsPredatory Upfront Loan Modification Fees [...]
I have been a LO for several years. I didn’t put borrowers in homes they couldn’t afford. I didn’t charge prepayment penalities for my profit. I always advised clients of I/O and ARMs and Option ARM (although many chose them anyway). Now I am faced with borrowers who were suckered in by not so honest LOs who told borrowers to “just refinance in 6 months.” Last year I came across a guy who I tried to refinance and couldn’t because he had a 15,000 prepayment penality and his property value dropped about $40,000. I have been working with loan modifications because most of my clients don’t have the time, skill, ability, or knowledge to obtain a sucessful modification. I have had several clients who tried to do the loan modifications on their own and with their bankruptcy attorney and still lost their houses because no one knew the process.
I say if you have the skill and ability to do a loan modification than good for you…but in most cases if this were the case you wouldn’t be in the situation you are in in the first place. Many borrowers need help from people they trust and who are skilled at modifications.
Loan modifications require time and knowledge and most borrowers don’t have either.
I always tell borrowers they can do the loan modfication themselves but many of my clients have tried and was unsuccessful.
Just do your research and pay what you can afford! If you can do it yourself than do it. If not get some help!
Chase (original lender) did a loan modification, worked directly with them and Freddie Mac. Hubby’s 20 yr. job was outsourced, income reduced by 75%, and it took two+ years for him to find that. Savings gone (rainy day not titdal wave), using early retirement benefits to exist. Not looking for sympathy, just anyones HELP/ADVISE.
Mortgage amount balance increased (interest, costs, expenses, etc.) interest reduced 2%, and length of loan increased, we thought great. First two new payments, cashiers check only AND $0.00 for the modification fee, closing costs and first months payment. NO statement will be sent during this time. THIRD month, he gets a statement with charges never given to him. Unpaid Late Fees $297.20, Attorney Fee $1,802.50 8/6, Attorney Fee $1,999.50 8/27, Misc Fe $1,999.50 10/28, Suspense Funds App $1,494.90 10/31. Our first new payment was due 10/1, they show it was posted 9/12 , if payment not received by the 16th, there is a late fee, so on 9/16 we were charged a $37.15 late fee. That is not only by the max date BUT received EARLY. Second payment, again paid way EARLY, 10/16 $37.15 late fee, PLUS a $42.00 misc fee. Then on this statement, they increase the escrow monthly amount by $100.00. I know what our taxes are, insurance premium, can caculate that and they had it right on the first TWO payments we made and agreed with. Also know our escrow balance, blonde inactive Realtor (no market in Florida), but NOT dumb!
Besides sending them a “speical letter”, a copy to the State Attorney General, Director of RESPA (Chase never answered an August letter of the escrow overage error), Neel Kashkari (Head of Treasury Bail-out programme), and Elizabeth Warren a Harvard Professor appointed by Congress to oversee and monitor this Bail-out program. Is there anyone else I should address this to, or anyone I should remove?????? Who else is Chase doing this to, I wonder. Maybe the 40% unsucessuful loan modification were with Chase Home Finance, because their NEW TOTAL DUE is not in our program. I will continue to make the same payment as we did for two months. Prepared to pay it early again, but received the statement just a couple weeks ago, so need anyone’s help ASAP, so I can overnight this no later than Friday. Don’t know why I see $37.15 late charge prior to the 16th of December.
Thank-you in advance to any suggestions.
Hi jacalyn,
Before sending off letters to all these people, have you tried calling Chase and asking them to explain all these charges that you and your husband say you know nothing about?
Also, have you tried making your payment on the first of the month?
Is it possible that all these weird fees were disclosed in the original loan modification paperwork? Go pull out all the loan modification paperwork and documents that you signed and read them all the way through from start to finish.
If you do not understand what you’re reading, stop. Put everything down. Pick up the phone and call a LOCAL attorney in your city. Ask to purchase one hour of his/her time, and bring the paperwork and these weird looking fees in to your own attorney.
If it is true that these fees are unwarranted, an attorney will have the ability to call the Chase LEGAL department, which will be much more expedient than dealing with loan servicing.
I’m betting that the month you thought you were going to be able to skip, was not part of the final deal, and now it seems that you’re exactly one month behind each month, which would explain the late fees. But it’s hard to say without reading every last scrap of documentation.
Wow…over 200 comments and no one has yet addressed the one skill necessary for a successful loan modification: NEGOTIATION SKILLS! Give me a skilled negotiator and I need nothing else. He or she doesn’t need to be licensed or otherwise credentialed. What does having passed the Bar got to do with anything? I wouldn’t even CONSIDER having a counselor from HUD negotiate for me. I’m going to trust my ability to remain in my home to a $9/hour employee of a non-profit organization? Heck, I need a friggin’ HOSTAGE negotiator or a former Green Beret Special Ops who understands the difference between 6% and 3.5% to my bottom line.
Would I pay upfront for a highly skilled negotiator? No…because motivation resides in getting paid on a contingency basis for a job well done. However, if he could convince me to pay upfront, then he’s a SKILLED NEGOTIATOR and I would hire him on this basis: “You have fixed expenses just to keep your doors open, so I’ll pay a modest set-up fee to start. If and when you’re successful in negotiating loan terms better than I could negotiate for myself, I’ll pay your fee.” And such a person would be worth every penny of his fee. Of course, I’d have to see proof of successful loan mods, and a negotiator confident in his skills won’t mind providing such proof.
Hi Caitlyn,
Thanks for stopping by RCG. In terms of negotiating a loan mod, the attorney hired by the homeowner negotiates directly with the lender’s legal counsel.
loan mod salesmen do ZERO negotiating.
Non profit housing counseling agencies are actually very well trained to negotiate HARD with the underlying lenders.
The consumer *can* go it alone.
It’s important that the consumer be given all their options, including the option to pay a loan mod salesmen several thousand dollars for collecting paperwork.
Millions of homeowners fell for it the first time around. I’m sure millions of homeowners is who loan mod salesmen are targeting.
Here are some things everyone should keep in mind:
1. A person’s home is usually the most valuable asset they own.
2. A person’s largest single debt is their home loan.
3. There are several very important negotiable terrms of a loan modification and the long term consequenses.
I do not understand why anyone would not hire an experienced real estate lawyer to watch out for the client’s best interest and negotiate the best deal possible.
Why would you trust anyone else with this extremely important aspect of your life?
The comments on this site demonstrate over and over again why you should have an experienced real estate lawyer on your side.
Our firm has assisted many people with successful loan modifications and short sales.
We meet with everyone for free to discover and explain different options available; however, we do charge for our services up front.
When you pay for the fees upfront, you are going to get a lawyer who will try to work out the best deal for you.
If you want someone who only gets paid when a loan modification gets received from the lender, well, then you are going to get a person who is going to try to talk to into taking the first offer because if you do, then they get paid.
Do yourself a favor….call a real estate lawyer and follow their advice to help you with this difficult situation.
Fairly well put Caitlyn Coyle…
But there are many skills necessary to negotiating a successful LONG TERM loan modification.
Those would be:
Knowledge of real estate closings with specific skills in mortgage documents, TIL statements, HUD1’s, right to recind, HOEPA disclosures and more…
I for one have closed thousands of these transactions and have met MANY, MANY attorneys who were hired because of their sheepskin and the shingle they hung above their door that said real estate attorney. Unfortunately there were alot of these attorneys who had no clue what was on the HUD1 statement and just cruised through the closing under the radar.
If you want proof of how GOOD at real estate and mortgage law most attorneys are…
Just remember that 99% of the homes that were purchased with 80/20 loans at 100% financing with teaser rates, option arms, and other ill fitting payment terms were closed under the supervision of the buyers ATTORNEY.
I have no such penchant for the need of an attorney to negotiate a loan modification. I have had attorneys pay me a consulting fee to come to their offices to teach them and their people how to do this.
To complete the list of skills needed for negotiating loan modifications:
Negotiating Skills
Committment
Integrity
Honesty
Empathy
A deep rooted desire and comittment to make absolutely sure that your client gets the absolute best deal available from their lender.
NEVER taking no for an answer EVER…
Someone at the lender/servicer will modify the loan, you just have to find them.
If you read all of my post you would have gotten from them that negotiation skills play a very big part in getting a mod done.
My post are at #’s 153, 162, 165, 169, 177, 183, 197, 198
Dan Harris
Negotiating is a high skill, learned over years of hammering stubborn opponents. I really seriously doubt that non-profit counselors are very good at negotiating. I doubt that a real estate attorney is necessary, either. Attorneys often think highly of themselves and their fees show it.
I think Dan Harris is probably a shrewd negotiator. Dan, how would a distressed homeowner go about locating someone as skilled as yourself?
Dan Harris wrote: “Just remember that 99% of the homes that were purchased with 80/20 loans at 100% financing with teaser rates, option arms, and other ill fitting payment terms were closed under the supervision of the buyers ATTORNEY.”
I doubt that even 1% of 80/20 loans in Washington were done with an buyer’s attorney involved. And where they were involved, if the attorney told the buyer about the increased risk of an 80/20, the buyer would probably say something like: “But I’m saving $75 a month!”
As to the first post here today, the number one quality for negotiating a loan modification is patience, as is the case for anything that involves banks. The number two quality is a redial button.
Thank you Caitlin…
Kary,
If those deals weren’t closed with the advice of an attorney a sharp borrower would find an good attorney and sue the pants off of whoever closed the deal.
Caitlin just google my name and loan modification together, you’ll find me.
I also think that names on this board over the posts are links.
Dan Harris
Dan, Washington doesn’t use attorneys for most transactions, so I don’t see that being actionable at all. Also, it’s hard to argue that using a rather popular finance tool is negligence.
Actually at this point there is plenty of case law that would allow holders of option arms, 80 / 20 loans and other exotic products that were designed to shoehorn unqualified borrowers into otherwise un-affordable homes to go after those who originated, closed, and and advised them.
The forensic audits we do turn my stomach. On Friday I went over documentation with a lender and showed them that the tax returns they have in their posession today directly contradict the income on the 1003 (loan application). The 1003 STATED 105K in income while the woman has worked in the same place for 12 years and her real income at the time of application was 69K.
I wonder why she couldn’t afford the ARM adjustment?
If thats not actionable – nothing is.
I see it day in and day out, mistakes, errors and outright fraud. In Washington the realtor and mortgage professional have fiduciary responsibilities not to screw their clients regardless of how popular the finacing vehicle was.
Heroin is quite popular in certain circles but we still have laws to protect people from it.
What really agravates me is the fact that these lenders were absolutely complicit. It was obvious that the woman in the above example could not have been earning what was stated on her application. Yet the lender probably paid their “underwriter” a bonus to get loans closed. And this was one of them, one of millions.
What you’re describing is quite different than simply having an escrow close a transaction with an 80/20 loan. They don’t advise the buyer at all as to any of that.
I think perhaps our difference of opinion is due to our escrow system being different than whatever is done in NY. You wrote: “If those deals weren’t closed with the advice of an attorney a sharp borrower would find an good attorney and sue the pants off of whoever closed the deal.” Here that would be a suit against the escrow, which is basically a neutral third party. I’d agree loan originators could be liable in the types of situations you describe.
I’ve been in the finance industry 19 years. I myself see this as being a real problem to our credibility as an industry. We as a whole have taken a real beating in the public’s eye. The loan mods seem like a way for a “sales person” to take the last few bucks from a family or struggling person who is trying to save their home and do the “modification request” that the homeowner can do them selves going direct to the bank they are now with. There is no guarantee that it will even work. I do agree that they may need legal counsel, but I have a hard time with the idea of charging them for something they can do by themselves.
Our industry has gotten an ugly bad rap and I don’t agree with the attitude a lot of people have towards LO’s these days. I have loved my career and worked hard all these years with integrity, not always making a buck if it doesn’t serve to the client’s best interest. This negative attitude really concerns me. I think in some cases there may be a need for assistance because folks are afraid or don’t really know what to do but this article is right. It’s an avenue for the unscrupulous crooks to scam more money from the public and they really don’t care. There should be a solution to it and quickly.
So far, I have advised my struggling clients to talk directly to the servicing company that their loan is presently with if I can’t get them a loan better loan and they are sinking. I can assist, but can’t with a clear conscious charge them in there darkest hour, the last few bucks they have for something they can do, regardless of them getting themselves there in the first place. I have 2 families in this spot right now, and I call and check in with them to see how it’s going ever other week. I am not charging them anything, just encouraging them.
Respectfully,
Adrean Rudie
Loan Originator with Financial Advantage AND Real Estate Agent with Preview Properties
Adrean wrote: “I do agree that they may need legal counsel, but I have a hard time with the idea of charging them for something they can do by themselves. ”
Well people can do bankruptcies and divorce actions themselves, but I wouldn’t recommend that either.
And in Washington, most likely this service is the practice of law, so probably an attorney (or a company that utilizes attorneys) is the only choice if someone else is going to do it (free or otherwise).
Hi Adrean,
The homeowner can certainly do it themselves when it comes to loan mods. I know I wrote the book.
But…
A brief look at the rate of re-defaults after modification shows that borrowers who get a modification are re-defaulting at a rate of 50%.
This is the problem with borrowers who are getting modifications themselves from the lenders who screwed them into the ground in the 1st place.
These lenders try to negotiate “workout agreements” to INCREASE the payments to ALLOW the homeowner to keep the home after falling behind. A workout agreement simply divides up the arrears and spreads out the payment until the borrower catches up. That is a re-default waiting to happen.
OR – the lender will offer a PUNY modification at a 7.5% rate that moves the arrears to the back of the loan and reduces the borrowers payments by $200 – $300 dollars.
The borrower feels like the weight of the world has been lifted off of their shoulders only to realize 3 -4 months down the road that they can’t sustain the new payment and they’re back in trouble again.
If a borrower will do a real financial analysis and figure out exactly what they can afford, then fight tooth and nail and negotiate until they get that, then the modification should be sustainable.
99% of all of the modifications I have negotiated are at rates under 6% and many are in the 3% – 4% for the 1st few years in a stepped rate fashion finishing with a life of the loan modification.
A self negotiated modification typically is much closer to 6% -7% because the borrower is emotionally involved and too impstient too fight the lender.
Many of the modifications I get for clients are AFTER rejecting the 1st offer made by the lender. I have had many deals where we rejected multiple offers from the lender in order to acheive a real long term solution that the borrower can sustain.
As far as taking the “last few bucks” in their “darkest hour” a real knowledge of what is truth might help.
Most of the borrowers I deal with were short by a few hundred dollars a month on their payments which is why they fell behind. Once they reach default the bank will not take payments from them.
Do you really believe that someone who hasn’t made their $2,000 payment for the past 6 – 10 months doesn’t have the money to pay a professional to get them back on track.
The truth is if they have forgone making $10,000 – $20,000 worth of payments and they have NONE of that money put aside, they should probably be looking for a rental because they can’t afford to make any payment at all.
We have saved folks from the brink of foreclosure who were more than $50,000 behind in payments which many times includes helping their attorney with coming up with defenses to foreclosure actions because of a lack of experience in the arena.
Obviously having attorneys in house helps alot. A thorough forensic review of every file is the key to getting the lenders cooperation and a real sustainable modification.
Recently I helped an attorney stop a “motion for summary judgment”. He had missed the fact that MERS assigned the mortgage to Countrywide AFTER Countrywide filed for the foreclosure.
Unfortunately this is not the exception to the rule. It is common place and unsuspecting homeowners who expect that their attorney to know the law can lose their homes as a result.
I only wish that if an attorney is going to take on a foreclosure case, they do it being armed with the full knowledge of the law, both state and federal. So that they can find a way to protect their client.
The problem is even if the attorney is extremely well versed in this area of the law, they may not be experienced enough in loan modifications to get a great deal for their clients.
How many attorneys have actually read through a “pooling and servicing agreement” to understand the position of the servicer in relation to the investor?
How many attorneys have compiled a list of loss mitigation executives inside the lenders and servicers that can get their deals done?
We have worked hand in had with many attorneys who are trying to help their clients without the pretense of knowing everything. Now that’s a GOOD attorney.
We hesitate to move our files to the legal departments at the lenders because it slows the process of negotiating a mod to a crawl. Once legal action is threatened the legal department gets the file and will take its time to review, and be very careful not to do anything that could get them in trouble.
And, modifying a loan by too much could get the servicer in trouble with the investor. So having the file in the legal department could wind up being detrimental to the borrower.
We use the threat of utilizing counsel sparingly and usually to prod the heads of loss mit into moving the file along.
Kary,
I think you may have missed my point earlier.
When I refer to whoever closed the deal, I meant ALL of the professionals in the transaction not just the escrow agent. I have been in the title business for many years and understand the difference between escrow states, and attorney states.
I think a real review of the transactions mentioned would uncover all kinds of arrangements between professionals that are NEVER disclosed to the borrower.
The realtor refers the mortgage guy and the title company and the escrow company. I have reviewed many of these files and find that there is usually an unholy alliance without an ABA disclosure having been signed at closing.
Furthermore if you do wind up using counsel on these files to uncover what went on, it’s a pretty safe bet that the same crew of realtors, mortgage people, title companies and escrow agents work together on a majority of their deals. That is a RESPA violation waiting to have the light of day shown upon it.
Try explaining why that’s the case, I know their all just good friends and want to make sure their clients don’t get the shaft so they PROTECT their clients by refering an honest mortgage person and title person etc…
But if refering good professionals was done to HELP the client, how did so many of these borrowers wind up in “popular” financing vehicles like teaser rate ARMs, 80/20 loans, and option arms?
Easy if my buddy closes the deal, he will gloss over the bad stuff in the deal…
The answer is on the HUD1 – VERY HIGH FEES…
And behind the scenes, dinners, golf outings, theatre tickets and much more.
So I still hold my position that a borrower with a GOOD attorney could uncover this crap in discovery and render the mortgage un-foreclosable.
I have seen it done!
Dan Harris
Just got to the office and read my post…
Please forgive the spelling and grammatical errors.
Sheesh!
@Dan
“The problem is even if the attorney is extremely well versed in this area of the law, they may not be experienced enough in loan modifications to get a great deal for their clients.”
Dan brings up an excellent point. When interviewing attorneys, ask how many loan modifications that attorney has successfully negotiated.
How many attorneys have actually read through a “pooling and servicing agreement” to understand the position of the servicer in relation to the investor?
VERY FEW…
Make sure you ask them if they know what a PSA is. If you get a blank stare – RUN — FAST
How many attorneys have compiled a list of loss mitigation executives inside the lenders and servicers that can get their deals done?
Ask them to show you their list of contacts at the lenders.
If they won’t show you their list – RUN — FAST
We have worked hand in had with many attorneys who are trying to help their clients without the pretense of knowing everything.
Now that’s a GOOD attorney.
We hesitate to move our files to the legal departments at the lenders because it slows the process of negotiating a mod to a crawl. Once legal action is threatened the legal department gets the file and will take its time to review, and be very careful not to do anything that could get them in trouble.
And, modifying a loan by too much could get the servicer in trouble with the investor. So having the file in the legal department could wind up being detrimental to the borrower.
We use the threat of utilizing counsel sparingly and usually to prod the heads of loss mit into moving the file along.
This is no small point. If your file gets bogged down in legal, you could wind up with a less than stellar modification.
This is why I believe that a reputable, honest, up front loan modification company with ON STAFF attorneys can offer at risk borrowers the best of both worlds.
No up front fee for negotiating the loan modification. Pay for performance has a unique effect on people, along with the benefit of being able to threaten legal action if neccessary. If legal action is neccessary the file can then be converted to an attorney client relationship.
In the above loan mod company scenario your loan mod is worked on on a contingency basis.
As I have stated before, I haven’t seen attorneys taking on these cases on a contingency basis yet.
Although there are some exceptions.
I attended a meeting at the Federal Reserve for the purpose of being introduced to industry insiders like the head of the American Securitization Forum, and heads of loss mitigation from a few lenders.
At that meeting they highlighted this program.
In New York there is a pilot program being operated by the Federal Reserve called the Lawyers’ Foreclosure Intervention Network (LFIN).
QUOTE -
“We saw a real need in the community for additional legal assistance. If the project is successful, it may become a model for other areas of the country. We are looking to the legal and financial services communities to help address this important community need.”
- Thomas C. Baxter Jr., General Counsel & Executive Vice President, Legal Group, Federal Reserve Bank of New York
END QUOTE-
GOOGLE it you will find them.
They ARE working pro-bono on select cases to help borrowers negotiate loan mods, and if necessary take legal action.
Maybe some of the folks here who insist that you should use an attorney could start posting the info on attorneys who are taking on cases on a contingency or for the really needy pro-bono.
If you can find them and list them here – I might be persuaded to agree with the “use an attorney” crowd.
But, I still don’t think they can reach a better long term solution than I can!
What say you all?
Dan Harris
Hi Jacalyn,
Sorry I didn’t see your post until this morning…
Try getting your “special letter” to these folks at Chase.
It should help.
JP Morgan Chase & Co.
Attention: James S. Dimon (CEO)
Office of Secretary
270 Park Avenue, 39th Floor
New York, N.Y. 10017
1-212-270-6000
Fax: 1-212-270-1648
Comptroller of the Currency Administrator of National Banks
Customer Assistance Group
1301 McKinney Street, Suite 3450
Houston, Texas 77010-9050
1-800-613-6743
Fax: 1-713-336-4301
Dan Harris
Dan wrote: “Maybe some of the folks here who insist that you should use an attorney could start posting the info on attorneys who are taking on cases on a contingency or for the really needy pro-bono.”
My position is based more on what’s legal. This almost certainly is practicing law in Washington state. Having in-house counsel might satisfy that, but I’d question that, unless perhaps the person doing the work was working right under the attorney.
I’ve been reading lot of the posts. To many to read them all!! I will say that I started with a company that charges the 3500 bucks for a loan mod. The lawyers that are highered to do the loan mod have an awesome track record successfully closing over 2000 loan mods. I am not sure what they charge the company to do the loan mods, but my commissions are $500.
The question is, why pay the extra fee to the company taking the mod application. I will tell you. This company spends a lot of time and money locating clients and giving them options. These are ppl that are many times less then a month from foreclosure. There is a lot of consultation, and assistance putting a package together. It can be alot of work.
The commission has to be reasonable to keep us looking for people to help. After screening many of the clients, 1 out of 20 leads will be eligable to loan mod. That is a full time job! I will tell you, that the company averages 5 deals per month per agent. Not a get rich quick sceem by any means.
Some of these clients have already tried moding with the bank with no success and after we complete their package, the lawyers get it approved.
Most of these ppl would have lost their homes, but we took the time to locate them and help them.
Why shouldn’t we be paid for that? $3500 dollars is not a preditory fee to charge, which is 100% guaranteed or money back btw.
The alternative is that we don’t locate these ppl, do not spend money advertising, or consult them, but whats the alternative? let them foreclose? Or let the lawyers waist time going through 20 applications a day to find one solid client. Their is nothing wrong with having a system.
On the first post, when the lady was asked how much she makes, thats like walking into a store and asking the manager how much money they are going to make on that microwave. She shouldn’t have to answer that question if she does not want to. Her not answering does not make her a preditor.
These lead sources should be praised, because it will lessen the foreclosure rate and mabye help the property value in your neighborhood. I lost 30k in equity with all the shorts and foreclosures, and as a homeowner I hope everyone does these.
“My position is based more on what’s legal. This almost certainly is practicing law in Washington state. Having in-house counsel might satisfy that, but I’d question that, unless perhaps the person doing the work was working right under the attorney.”
As you know I would disagree, and I too believe that my position is based on what is legal.
Acting as a consumer advocate is not the unauthorized practice of law.
Negotiating a loan modification is not the unauthorized practice of law.
Offering legal advice, or a legal opinion is.
Having a client represented by a corporation that is purporting to act as legal counsel IS the unauthorized practice of law.
My opinion is that the unauthorized practice of law is something that can be easily defined and having in house counsel can help to avoid crossing the line.
There are times when it is neccessary to hand the file over and allow the attorney to create a direct attorney client relationship.
By Knowing at which point this is necessary, you can avoid falling into the trap.
Just a question…
What is it called when an unqualified attorney represents a client without a real grasp of the foreclosure or the loan modification process?
Is that the unqualified practice of law?
Orly is making a case that consumers in financial distress should pay for the cost of finding leads on loan modifications.
I fail to see how this can be morally justifiable.
“The commission has to be reasonable to keep us looking for people to help. After screening many of the clients, 1 out of 20 leads will be eligable to loan mod.”
Dan, in Washington, per the Law Practices Board, a real estate agent cannot explain the terms of a purchase and sale agreement to a client. It’s not been that many years that it’s been clear an agent can fill in forms. Loan modifications are much more than simply filling in forms. I think it’s fairly likely it would be unauthorized practice in Washington. Your state may be considerably different.
I agree with your comments on the fact that just because they’re an attorney it doesn’t mean they’re good.
Response to: Fail to see how this can be morally justifiable
I am saying that finding these people that would not have helped themselves is a lot of work. Ask any realtor or loan officer what their primary job is. If they are making a living, it is lead generation.
The application is very similar to a shortsale or loan application. The work load is about equivalent to a loan but with less commission.
Unless you are willing to spend all day knocking on doors, cold calling, advertising, and helping them get a package together to work in their best interest; I fail to see why this is morally wrong. Realtors don’t shortsale for free and they normally higher a mitigator to negotiate with the bank.
I forgot to mention that our lawyers charge retail $5,000 to do a loan modification. Many lawyers are charging up to $250 an hour for this type of service @ 30 to 40 hours per loan mod. Going through me saves the distressed homeowner money.
“… in Washington, per the Law Practices Board, a real estate agent cannot explain the terms of a purchase and sale agreement to a client.”
It is so beyond reasonable for anyone to think that agents do not explain the terms of the contract to their client. It’s like grown men believing in Santa Claus and the Easter Bunny.
What is the penalty for explaining the Inspection Contingency to my client these days, Kary? What authority does this Board have over me, a non-member? Agents have been practicing for over 100 years. What did they do before they were “allowed to fill in the blanks” recently? Hand the pen to the client?
I, too, agree with the comment that just because one is an attorney doesn’t mean he or she’s a good negotiator. It means only that s/he attended law school and passed the bar. I’ve known many attorneys over the years, and many of them couldn’t negotiate their way out of a paper bag.
I think Jillayne is unduly biased against pay-for-performance loan modifiers. If a good result is obtained, there’s nothing inherently “predatory” about charging for it. A workman is worthy of his hire.
Wow, sorry for the late entry. I just found you guys. It seem that Jillayne has started this conversation in several arenas with the same opinion of loan modifications and those who provide the service to borrowers, negative. At least at this site several of you have a great deal of positive advise (Caitlyn Coyle & Dan Harris) for borrowers and agree with previous things I have said regarding free enterprise and providing a service to homeowners. I had mentioned that loan modifications are no different a service than paying a premium for gas to have someone stand there and do it for you. You could do it yourself for free, but you don’t. It is no different than paying a CPA or Tax service to do your taxes. The IRS lets you do it yourself for free and provides free assistance but the fast numbers of tax professionals are making money off of us who could if we wanted to, do it for free. Most of us would rather pay someone to do these things for us. Jillayne also offers that sky high rates are being charged for this service. I think it was Dan who said that the market will find a balance and a fair rate will prevail. Way to go Dan, thanks for your comments and advice. Wish you lived in Hawaii. I told Jillayne that we can only control what we do and while there are folks that do not take the best interest of their clients to heart, I still sleep at night knowing that I have helped many folks who needed assistance. It is hard to believe that there is so much discussion on a topic that is just a service to folks. New or old people have always wanted to pay someone else to do a task that they did not want to do, even if they know they can do it for free. It’s the American Way, just as you Jillayne charge for your teaching skills when folks could just buy the training manual and read it themselves for free, but we feel that we need you to help us learn.
Dan wrote: “My opinion is that the unauthorized practice of law is something that can be easily defined and having in house counsel can help to avoid crossing the line.”
It’s not even 100% clear that Redfin isn’t involved in the unauthorized practice of law. You really need to read the Washington cases and the Law Practices Board opinion to understand Washington law.
Here is the opinion of the LPB:
http://www.wsba.org/Lawyers/groups/practiceoflaw/0402realestateagent.pdf
Ardell wrote: “What is the penalty for explaining the Inspection Contingency to my client these days, Kary? What authority does this Board have over me, a non-member?”
They obtain an injunction against you.
They contact the prosecutor to bring criminal charges against you.
If you make a mistake, your client sues you under the consumer protection act, which allows for attorney fees and treble damages up to $10,000.
Of those three, the biggest risk to a real estate agent is probably the third–being sued by your client. Being sued is not fun.
I agree the opinion of the Law Practices Board isn’t entirely clear, and it’s not clear the Supreme Court would back them up on that opinion. I think you can clearly tell a client what number was filled in on your inspection contingency for the deadline. Beyond that anything you do is at risk, and the further you go the more at risk you are.
Are there any cases in the Country where a real estate agent was prosecuted by a local Bar Association for explaining a real estate contract to their real estate client?
I’ve had this discussion with many attornies. It’s ludicrous to suggest that an agent does not have to explain that 5 days or less is quite different than 6 days or more because of the “weekend and holiday” kick in. If they don’t want agents explaining contracts, they should at the very least change the method of counting the number of days a client has to complete an inspection.
Sorry this is off topic for this post, but telling everyone agents simply fill in blanks is never said by anyone except an attorney. It makes it look like only an attorney can be an agent…somewhat self-serving…no? Clearly not reality. How many agents are explaining a contract provision to a client today? The answer is not none.
Ardell, I wouldn’t assume that other states have the same laws on this as we do. We have the two cases that are cited in the LPB opinion. They are not clear at all.
And again, you seem to be missing the point I made about the greatest risk being simply being sued. Most real estate transactions go off uneventfully. It’s only when things go wrong that this becomes an issue. That’s when the attorney will look for causes of action against the agent, and the unauthorized practice of law is an attractive and obvious cause of action. And being sued is not fun!
How many transactions have you seen where the agent has written in a couple of sentences into Form 22D? Unless they did that verbatim from a contract approved by an attorney, that is almost undoubtedly the unauthorized practice of law. If that clause gets their client into trouble, they have trouble. If it doesn’t and everything goes fine, that doesn’t mean they didn’t engage in the unauthorized practice of law.
If you want to actually read the Washington Case Law on the unauthorized practice of law and what realtors can and cannot do….click on this link from my website: http://www.cblawsavedmyhouse.com/whyusealawfirm.html
The reality is that Washington real estate licensees are authorized to practice law in a limited scope of 5 factors as set forth in Cultum v. Heritage House as cited on on the link above.
The other reality is that it is beyond the limited scope of a real estate licensee’s license to advise a client concerning the terms of a loan modification.
Also, I love the attempts at lawyer bashing. I agree that just being a lawyer doesn’t make them a good negotiator. However, the same is true about pretty much everything in life…just having a drivers license doesn’t make you a good driver. Just having kids doesn’t make a person a good parent and so on.
The thing to keep in mind though is this…just because a person is a good negotiator, doesn’t make them a lawyer and doesn’t mean they know the law. Think about that one.
Have a great day.
Chris,
Why not post a few “legal questions” regarding loan mods and test the knowledge of our gang?
No one is lawyer bashing, quite the opposite. Whether or not someone is a lawyer is only one aspect of anything and not the be all end all of all things. So far, Dan’s been fairly credible. Whether or not someone is good at what you need them to do, should not depend on their “Title”.
Just a thought…
On occasion I like to demonstrate the absurd by being absurd, so with that in mind please indulge me.
First, a question for the legal minds out there.
Exactly which documents or legal instruments does a loan modification company whether it be with or without an attorney’s supervision “select and prepare”?
Since it is held in Washington Law that the mortgage lender is authorized to prepare the legal documents that are ordinarily incident to its financing activities when lay employees participating in such document preparation do not exercise any legal discretion. AND in a loan modification the lender is “preparing and selecting” the loan mod agreement.
What is it that you contend the loan modification company is doing that constitutes the unauthorized practice of law?
The loan modification company is simply acting as a negotiator.
Where in Washington Case Law has it been held that “negotiating” terms of a mortgage is the unauthorized practice of law?
Be careful with this one, Lest Ye put attorneys in the unenviable position of being the only ones allowed to write a mortgage in the Great State of Washington. For, the act of aquiring a mortgage for a client entails “negotiating” rates between the mortgagor and mortgagee.
AND NOW for the “Novel” approach to the law…
In addition doesn’t this narrow interpretation of the law create pitfalls and difficulties for any business that drafts it’s own agreements/contracts without counsel?
Should a consumer consult his or her attorney prior to signing the credit card slip for dinner since it is deemed to be a legally binding “contract”?
OR More importantly since the credit card charge slip is a “contract”, isn’t the waitress thereby guilty of the unauthorized practice of law for having prepared this contract?
AND if she “negotiates” a FREE desert has she engaged in the unauthorized practice of law?
A new job title “In House Restaurant Counsel”.
DISCLAIMER: –> Easy… Remember I am being absurd
If I bring my brother in law (the family car expert) to the car lot with me (In Washington) and he negotiates a great deal on the new car for me, has he engaged in the unauthorized practice of law?
How about the salesperson (In Washington) who changes the terms of the sales agreement by giving me an extra 5 days to come back with the money, has he engaged in the unauthorized practice of law?
On my way in the young receptionist “advised” me to watch my step… Since we were in Washington, did she engage in the unauthorized practice of law?
Do I smell another new job title?
Now lets throw a real wrinkle into the mix, if a tree falls in the woods (In Washington of course) do the attorneys want everyone to ask them if it made a noise?
I sense a certain Washington flavor to the board.
How many of you are from Washington?
How did I get here, I don’t remember the flight…
Yes I am in a cantankerous mood this morning.
“No one is lawyer bashing, quite the opposite. Whether or not someone is a lawyer is only one aspect of anything and not the be all end all of all things. So far, Dan’s been fairly credible. Whether or not someone is good at what you need them to do, should not depend on their “Title”.”
I wholeheartedly agree, and in the interest of full disclosure I have a son in law school and 3 attorneys who work for me.
I simply have a problem with attorneys who try to protect their “turf” by claiming “the unauthorized practice of law” argument at the drop of a hat.
Hey, some of my best friends are attorneys…
Dan wrote: “What is it that you contend the loan modification company is doing that constitutes the unauthorized practice of law? The loan modification company is simply acting as a negotiator.”
Proposing different language to the mortgage company could be an issue, but what I had more in mind was I don’t see how you do a loan modification for someone without somewhere in there giving legal advise. It wasn’t the document preparation side of things. It’s more the real estate agent explaining terms of a contract side of this discussion.
Dan wrote: “I simply have a problem with attorneys who try to protect their “turf” by claiming “the unauthorized practice of law” argument at the drop of a hat.”
For what it’s worth, I’m a active attorney, not a practicing attorney. And I make the argument more from the other side. It isn’t a warning to consumers. It’s a warning to those doing the work that they [b]might[/b] be operating on the other side of the law in our state if they’re doing this work without being associated with an attorney. If they are associated with an attorney outside of a paralegal arrangement, I’m not sure what the legality of that would be. Depending on what the attorney does, I suspect it wouldn’t help, because in the mortgage production cases, I would suspect that the company had in-house counsel.