DFI has released a first draft of an interpretive letter on loan modifications for Washington State.
DATE: March 10, 2009
FROM: Deborah Bortner, Director, Division of Consumer Services
RE: Loan Modification Services – License Required under the MBPA or CLA
QUESTION PRESENTED: Must loan modification service providers be licensed to offer services to Washington residents?
BRIEF ANSWER: Yes, under the Mortgage Broker Practices Act (MBPA), chapter 19.146 RCW, or Consumer Loan Act (CLA), chapter 31.04 RCW.
DISCUSSION: The Division has received many inquiries regarding the applicability of the MBPA or CLA to loan modification services. According to callers, individuals are communicating directly with borrowers and lenders in order to negotiate loan modifications. In most of the calls, the caller inquires as to what restrictions are applicable to loan modification services.
For purposes of this Interpretive Statement, “loan modification
Jillayne, what impact do you think Obama’s loan modification program will have on the loan mod industry?
Here’s an idea… why not create a designation similar to LPO for those who want to be a Loan Mod Professional…where they have limited powers to do specific duties for the consumer. Like an LPO, it would take clock hours, training, insurance, etc. and they would be licensed with the State.
Because of the nature of the business, dealing with homeowners in distress, the Loan Mod person should have more training and responsibility.
Have you sent DFI a link to your post?
Hi Rhonda,
Regarding the loan modification part of President Obama’s Making Home Affordable program, it’s like a lottery. If a homeowner is lucky enough to have their loan held by Fannie or Freddie, they have a chance at a modified loan.
Most subprime loans are not held by F&F but are held by lender/servicers in pools of mortgage-backed securities.
Homeowners not winning the lottery are left working with banks where the bank’s participation is voluntary.
I do not believe that the program will have a widespread impact, nationwide. There are just far too many people facing default without stable, verifiable monthly income.
President Obama went on record as saying that he believes we “have to” try and help, and that the role of government is not to stand by and do nothing.”
He did not guarantee that everyone would receive a modified loan.
Hi Rhonda,
Regarding the loan modification part of President Obama’s Making Home Affordable program, it’s like a lottery. If a homeowner is lucky enough to have their loan held by Fannie or Freddie, they have a chance at a modified loan.
Most subprime loans are not held by F&F but are held by lender/servicers in pools of mortgage-backed securities.
Homeowners not winning the lottery are left working with banks where the bank’s participation is voluntary.
I do not believe that the program will have a widespread impact, nationwide. There are just far too many people facing default without stable, verifiable monthly income.
President Obama went on record as saying that he believes we “have to” try and help, and that the role of government is not to stand by and do nothing.”
He did not guarantee that everyone would receive a modified loan.
Good points, Jillayne. I’m still encouraging home owners who are in the “loan mod” camp to call who they make their mortgage payment to first.
Won’t DFI’s efforts stop out of state loan mod companies or at least cause them to be licensed (testing, background checks, revenue for the State….yadda yadda)
Listening to the most recent Mortgage Broker Commission podcast, it sounds like there was legislation proposed this session that addresses companies that want to “modify debt” for a fee and makes this only possible if the company is a non-profit.
We need to find this and take a look at it. DFI was not in favor of pushing this legislation forward at this time and wanted more time to review it.
John Long asked, “Which disclosures are needed for a loan mod?”
GFE
TIL?
Maybe not needed if the payment is just going down. However if the mortgage balance is increasing, these items may be required.
John asked about Fees
Why can’t an upfront fee be held in a trust account, with specific terms upon which it can be released?
Another member of the audience was asking DFI for more guidance on appropriate fees to charge for a loan mod.
Listening to the most recent Mortgage Broker Commission podcast, it sounds like there was legislation proposed this session that addresses companies that want to “modify debt” for a fee and makes this only possible if the company is a non-profit.
We need to find this and take a look at it. DFI was not in favor of pushing this legislation forward at this time and wanted more time to review it.
John Long asked, “Which disclosures are needed for a loan mod?”
GFE
TIL?
Maybe not needed if the payment is just going down. However if the mortgage balance is increasing, these items may be required.
John asked about Fees
Why can’t an upfront fee be held in a trust account, with specific terms upon which it can be released?
Another member of the audience was asking DFI for more guidance on appropriate fees to charge for a loan mod.
Rhonda asks “Won’t DFI’s efforts stop out of state loan mod companies or at least cause them to be licensed (testing, background checks, revenue for the State….yadda yadda)”
Yes, provided they actually *know* that WA State has this requirement.
Look in your spam bin. Many loan mod companies are doing massive sales campaigns to get people signed up to sell-sell-sell loan mods and they’re saying “no state licensing required.”
Jillayne, would DFI be able to go after out of State companies/individuals who are not MBPA/CLA performing loan mods?
Rhonda, I’m going to paraphrase to make sure I understand you. Do you mean companies/individuals who are doing loan mods on property located in WA State….
Not licensed under the MBPA (Mortgage Broker Practices Act)
Not licensed under the CLA (Consumer Loan Act)
and not exempt from licensing (examples of exemptions include licensed attorneys, non profits, banks, etc.)
With limited resources at the state level, I believe DFI would likely investigate companies IF they received consumer or industry complaints.
In past cases of blatant mortgage fraud and egregious predatory lending, at times, DFI received NO COMPLAINTS from anyone.
The limited resources at DFI is a concern…but there are fewer LO’s to regulate…maybe the loan mod’s will be new meat…it should save a few State jobs at DFI.
By the time consumer complaints trickle in…the damage is done.
I’d love it if some sort of campaign could be done to let everyone know when this regulation goes into effect… at the very least for consumers so they know, as you mention in your post, they don’t need to pay for this.
RE: Loan mods for sliced and diced loans – from a WSJ article yesterday, I think they are still working on that. Investors are pushing back hard on what happens with the 2nds. I don’t think investors are speaking with one voice, either. Depending on what side of the bet you are on, you could win or you could lose.
There are definitely going to be losers, and I think some people are starting to realize it’s likely to be them.
Jillayne, it doesn’t surprise me about predatory loan mod salesmen. Anyone who has been around this business awhile can see the progression of where the car salesmen go:
First it was subprime, then when that dried up, the jumped on the Option ARM band wagon. When the Option ARMs dried up, then went to selling condotels. When condotels didn’t pan out, money merge accounts were hot. Now that MMAs aren’t doing anything, now everyone is modifying loans. Meanwhile, all the real professional originators are stuck trying to clean up the trail of destruction and continue to operate under day late and dollar short legislation from the politicians.
Until the real estate industry as a whole (both banks and Realtors) raises the standards of across the board, we will continue to have these problems. These business could survive and do very well without 80-85% of the people in it.
The loan modification was dead on arrival.
I am surprised by how much has happened this year. The value of property, not just price, has dropped like a rock. With all that has gone on in the housing industry who will want to get involved going forward?
The loan modification is just another example of how investors have turned a blind eye to the asset. You have appraisals today that are based on today’s comparable sales, and yet what I believe is that banks, the servicers of loans, are holding tons of unwanted assets on the books.
The term is unwanted assets. People have sent them back to the bank literally. Only short sales, that have gotten much harder to do, show up on the appraisal.
Now there is the question of the seconds. Those are tricky little documents, they have to be paid.
Loan modifications from the bank have been suspect. It seems to me lenders want to continue to do business as usual, and I don’t think they should be allowed to get away with it.
The loan modification was dead on arrival.
I am surprised by how much has happened this year. The value of property, not just price, has dropped like a rock. With all that has gone on in the housing industry who will want to get involved going forward?
The loan modification is just another example of how investors have turned a blind eye to the asset. You have appraisals today that are based on today’s comparable sales, and yet what I believe is that banks, the servicers of loans, are holding tons of unwanted assets on the books.
The term is unwanted assets. People have sent them back to the bank literally. Only short sales, that have gotten much harder to do, show up on the appraisal.
Now there is the question of the seconds. Those are tricky little documents, they have to be paid.
Loan modifications from the bank have been suspect. It seems to me lenders want to continue to do business as usual, and I don’t think they should be allowed to get away with it.
Jillayne,
All states should tighten their disclosure laws to protect consumers and your suggestions look very good. As is well-known today a swarm of so-called loan mod experts are descending all over the country trying to take advantage of the dire mortgage foreclosure situation. A good example is this person your describe in the post.
I was trying to help a former client, who may qualify for a loan mod, under the Obama plan (nope, it’s not Fannie or Freddie)
The lender has a big warning upfront to steer borrowers away from loan mod people, with numbers to call non-profit counselors.
Checked a few other lenders and found the same warning.
That said, I would not trust the bank to operate in the borrower’s best interest, but rather, in their own best interest.
Best to get some kind of outside help.
Everyone is new at this, and for those LO’s that genuinely want to help their clients (AND stay in business) the waters are still very uncertain.
Thankfully, at least for now, I can help most of my clients with an actual refinance to better terms.
Roger, when you try to help your clients with a loan mod, how are you compensated?
“which is drawing in the predatory lenders like Realtors to free food at broker’s opens”
I’m surprised that RE Brokers are still putting on the feedback for agents. Are we talking quality hor’dourves (cocktail weenies with bbq sauce)?, or just chex mix?
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File Under Epic Failure for “Hope Now”….
“As it stands now, we’ve only gotten 752 applications,
Amazing.
The media should definitely keep track of how many people are being helped by the Obama Administration’s “making home affordable” program.
Amazing.
The media should definitely keep track of how many people are being helped by the Obama Administration’s “making home affordable” program.