A story today in the NY Times contains interviews with salespeople who worked for an attorney-backed loan modification firm in California that is now under state investigation for defrauding desperate homeowners.
“Despite making promises of relief to homeowners desperate to keep their homes, FedMod and other profit making loan modification firms often fail to deliver, according to a New York Times investigation based on interviews with scores of former employees and customers, more than 650 complaints filed with the Better Business Bureau, and documents filed by the Federal Trade Commission in a lawsuit against the company. The suit, filed in California federal court, asserts that FedMod frequently exaggerated its rates of success, advised clients to stop making their mortgage payments, did little or nothing to modify loans and failed to promptly refund fees…For fees reaching $3,495, with most of the money collected upfront, they promised to negotiate with lenders to lower payments on the now-delinquent mortgages they and their counterparts had sprinkled liberally across Southern California. “We just changed the script and changed the product we were selling,
Jillayne,
I am frequently reminded how little people really know about financing. This weekend I showed a property here on the Eastside that was a short sale. The owner commented it was the lender’s fault for not approving their loan mod.
It was pretty obvious that the high loan balance was well above where it should have appraised, even in the peak housing market. The very nice woman kept saying “everyone keeps asking me what I “do”. She wasn’t making the connection that they were not going to do a loan mod until the owners of the home had reached the limit of what they themselves could be doing to help themselves. The fact that they were a one income household was apparently blocking them from getting a loan mod. They lacked a good reason why the woman wasn’t working.
Expecting your mortgage holder to reduce the loan payment so you can stay at home and not work, was not realistic. But she kept asking “why does everyone keep asking me what I DO?”
I think the basic problem with the loan mod system is the processing of requests that have no hope of approval. It clogs up the system for those who have a legitimate and likely to be approved request.
Still, people run with “there’s no harm in trying” when there is in fact a LOT of harm in trying. Often people buying homes ask me, “No harm in asking…right?” The answer is wrong. There is often a lot of harm in asking.
Jillayne,
I am having a fascinating conversation on twitter this morning with an agent who is dealing with FHA loan request files being “closed” prior to decision.
Apparently there is a fine imposed when the processing time on an FHA loan exeeds x days. So lenders are closing the file out before the fine kicks in, and before they have an answer for the borrower.
Sometimes we trade old problems in for new ones when we “fix” things 🙂
Loan Mods do not work……The Fed is finally realizing this. The focus MUST be placed squarely on the VALUE of the property and what the homeowner owes…If not they will walk at a future date anyway. All the statistics demonstrate this with a nearly 70% redefault rate in NV and CA after successful Loan Mods.
People will NOT stay in their upside down homes and sooner or later it will become a short sale or foreclosure anyway.
Its not a question of if……………Just when…….
Nice post, Jillayne, and consistent with what I tell people when they call me asking for my services in modifying a loan. I stress that an attorney is not necessary and that they can (and should) contact their bank directly to discuss their situation. Given the recent federal laws, lenders have a direct incentive to work with borrowers who qualify for a loan modification.
That said, if you can find an attorney to help you, he or she will probably add value as the lawyer should be able to compile your information necessary for the loan modification into a coherent and clear package, that presumably will facilitate modification. In addition, some people may simply rather hire somebody to deal with the issue rather than spending their own time doing so. If that is the case, then hiring a WA licensed lawyer is a good idea given the many restrictions on a lawyer’s practice (basically, and in a nutshell, a lawyer will get in trouble with the Bar if he/she does not provide legitimate services for a reasonable fee). Thus, you are less likely to get “scammed” if you hire a local lawyer vs. a national “loan mod” business.
Virtually all of my modification clients tried it on their own and were turned down. Servicers will turn a borrower down and not tell them why. There are many tricks and techniques which we have learned with are not commonly known. It is to the advantage of servicers for modification to fail. Servicers get paid more if there is a foreclosure, while the home owner and the investor are the losers. Yes, many borrowers do succeed with their modifications, however, many just get the run around. The non-attorneys have for the most part been put out of the modification business because they cannot charge up-front fees, and that is good. Modifying a mortgage is the practice of law. Non-attorneys should never have been doing modifications in the first place. If you hire an attorney, it should be an in-state attorney. It is important to look at all sides of a borrower’s situation, including the first and second mortgages and other debt. Maybe the second can be discharged in a Chapter 13. Maybe it can be negotiated away for a greatly reduced payoff. Bankruptcy attorneys are not always the best qualified to handle modifications. They often focus only on bankruptcy as an option, and maybe bankruptcy is not necessary. The goal is to help the borrower get the 2% rate with a 40-year amortization. If that can be accomplished, it is worthwhile to keep the house even if it is underwater. There are now numerous attorneys in Washington doing modifications, and the attorney fee is typically less than the cost of a refinance. Most borrowers do not have the time to figure out all the technical rules, so hiring legal counsel can be a wise move. Attorneys generally do not want to take on a modification unless the numbers look right and the modification can be done. Some people do not qualify because income is too high or too low, and these people should apply for short sale. My point is that just because a lucky few can do their own modifications for free does not mean that everyone should avoid hiring an attorney who has worked on hundreds of these. You get what you pay for.
James I agree with you…if a homeowner needs hand-holding, why not hire a law firm to help you instead of going with a loan mod salesman that’s not affiliated with a law firm? For the same or less money, the homeowner gets legal advice along with a loan mod.
In the story I linked, the journalist from the NYT is talking about a group of loan mod salesmen who are hooking up with a law firm and calling themselves “attorney backed.” but there was very little supervision going on and many ppl ended up with no loan mod. We’ve continued to see problems with attorney backed mod companies in many states.
I have not seen as many problems when the attorney is the one doing the modification work himself/herself.
You’re James Robert Deal!
You are absolutely correct that a loan modification, in my opinion, is a legal action. The servicers have no skin in the game, and are racking up late fees. They have no interest is modification of the loan, and the lender, again, in my opinion, never knows what the problem is.
James Robert Deal is the real deal. There would be no better resource to consult, if he’s not too busy.