Category Archives: Law

Loan Modification Salesmen in WA State Must Be Licensed LOs, Mortgage Brokers, or Work at Consumer Loan Companies

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From the Washington State Department of Financial Institutions:

DFI Advises Homeowners To Verify The Licenses Of Anyone Offering Loan Modification Services Before Hiring Them

OLYMPIA – The Washington State Department of Financial Institution’s Consumer Services Division advises homeowners who are delinquent on their mortgage to be cautious about using the services of someone offering to help them work with their lender to modify the terms of their home loan.

The Department of Financial Institutions (DFI) has received a number of inquiries regarding the legality of providing this service in this state. While there is nothing inherently illegal about this business, those providing this service in the State of Washington must be licensed as loan originators, mortgage brokers, or consumer loan companies and be overseen by the Department of Financial Institutions. Additionally, under applicable law, the loan modification provider associated with mortgage brokers have a fiduciary relationship with the borrower and must act in their best interest.

“DFI is concerned that homeowners in desperate situations may pay substantial fees for loan modification services and not take advantage of the HUD-approved counseling services offered for free by numerous non-profits,

Loan Modifications

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This is Part Three of a series of articles on the foreclosure process.
This article does not constitute legal advice.
Foreclosure laws vary from state to state.

Homeowners in financial distress should always hire legal counsel. Call your local state bar association for a referral.  Reduced or free legal aid may be available in some states. Ask for a referral from the state bar association or through a LOCAL HUD-Approved Housing Counseling Agency.

Loan modifications are becoming quite fashionable at the moment.  With underwriting guidelines continuing to tighten, some folks facing financial distress and possibly foreclosure may not qualify for a refinance at the retail level, meaning, going back to the bank, credit union, or mortage broker that helped the first time around.

At the present time, loan modification salespeople are completely unregulated.  This means a person can be working at Taco Time in the morning and selling loan modifications in the afternoon.  This is similar to the situation with unregulated loan originators during the real estate bubble run-up.  Advertisements that say, “Earn Six Figures. No Experience Necessary” are now making the rounds in the mortgage lending community. (Don’t believe me? Go to craigslist jobs and do a search under “loan modifications.” Current ads are saying: Make $15,000/month and Make $5,000/day). For the consumer, this means you are once again in the one-down position and it brings me great unhappiness to tell you that at this time you cannot and should not trust your loan modification salesperson.  This problem stems from the unfortunate situation LOs face as their six figure income dried up during the subprime meltdown but their desire for a six figure lifestyle is still around.  This is a systemic problem that our government regulators seems uninterested in addressing at this time. I’m predicting mass government intervention in foreclosures anyways. Perhaps the government is not worried about loan mod salesmen because they’re going to whack them with a big ugly stick quite soon.

In the meantime, we’re stuck with loan modification salesmen. The author of this blog post is of the opinion that consumers should be extremely wary of salemen asking for an upfront fee, even if they are claiming that all or most will be refunded if the modification should fail to be approved.

A loan modification is a good choice for a consumer whose financial distress is such that they are currently unable to pay their mortgage, prefer to stay in the home and not sell (I’m assuming owner occupied property), WILL be able to pay if the loan were modified at a lower interest rate or longer term, and the homeowner is able to fully document income and assets. The idea here is that it’s in everybody’s best interest to keep the homeowner paying the mortgage, even if it means lower bank earnings. (For other options, see part 2 of this series.)

Terms
Common loan modification terms include fixing the interest rate at a lower amount for a short period of time.  3 years, 5 years, 3 years with a gradual, stepped-up interest rate after the third year, longer amortization times such as amortizing the loan over 40 years instead of 30, are very common. Voluntary, principal balance haircuts offered by your bank are not common at this time, unless you are working with an attorney or an aggressive, pit-bull non-profit housing counseling agency. Before you think that a loan mod is the answer, take a long time to consider how much interest you’ll be paying over the life of that 40 year loan.  If you’re thinking “I can just refinance later” there are many people who now have a foreclosure in their recent past, who were given that same sales pitch in 2006.

Past Predatory Lending
If you were a victim of predatory lending, your attorney can use the evidence to extract better terms for your loan modification.  FIND YOUR ORIGINAL LOAN DOCUMENTS from the last time you refinanced or purchased the home: The original disclosures and then the final disclosures you recieved when you signed papers during escrow. If you cannot find them, call any local title insurance company. Give them your address. Ask them to pull the last deed recorded against your property. On that deed, the title company’s order number will be hand-written in the margin.  Call that title company, ask them to pull your file, and to tell you who the escrow company was that handled your file.  If your escrow company went out of business, your state department of financial institutions will have information on where those files are now.

State or Federal Law Violations
If your loan originator violated any state or federal laws when originating your loan, an attorney will be able to spot this information, which becomes extremely valuable when hammering on your lender to offer you the best loan mod terms, or to even bring action that will slow down the foreclosure process, buying you more time.

Process
Loan modification salesmen do nothing except collect a finders fee for finding and delivering you to the people who really do the work.  The loan mod company will ask you to assemble a wide variety of documents similar to when you applied for the mortgage loan.  Unless you went “stated income” the first time around.  This time it will be different.  Common documentation required includes two years of tax returns, two to six months worth of bank statements, 2 years of w-2s, paystubs for the last 4 months, a list of assets and liabilities, and a household budget showing the amount of money you CAN afford to pay on a monthly basis. The most important things lenders must analyze are 1) determining that the homeowner has zero assets/money in the bank and; 2) the homeowner’s ability to pay the modified payment.  There will be a worksheet to complete in which you will lay out your monthly budget.  This is the tricky part. You’ll have to prove that you cannot qualify to repay your current mortgage but that there is enough income coming in to qualify for a modified loan.

Legal Counsel
All loan modification candidates should retain their own, LOCAL legal counsel.  Loan Mod salesmen will tell you that attorneys will cost thousands and thousands of dollars. In one letter, the salesman is saying that attorneys will charge tens of thousands of dollars.  Wow. I’m scared now.  I’m so scared that I polled a handful of local attorneys and found that loan modification charges range anywhere from $1500 to $2500 depending on how many liens there are against the home.  In contrast, loan mod salesmen are charging anywhere from $3500 to $5000 UP FRONT and they use “a pool of attorneys” in god-knows what state. If you can’t do the math on that, then it’s time for you to think about renting.

Questions to ask a loan modification salesmen
1) What is your fee and how is it split between you, the loan mod company, and the attorney?
Failure to answer this question in a swift and forthright fashion is a big giant red flag.
2) What will YOU be doing for the fee you earn?
Listen to the answer very carefully.
3) What will the loan modification company be doing for their portion of the fee?
This question will typically be answered like this “They process the paperwork.”  Now repeat question 2.
4) May I talk directly with the attorney?
If the answer is no, find a local attorney.

Finding a local attorney
Use your favorite search engine to find your local state or county Bar Association.  Look for their “Attorney Referral Service” and seek out a real estate attorney or a consumer protection attorney. Make an appointment with a local attorney that you can talk to face to face. Trust me on this. Interview at least two if not three local attorneys. All may have a varying range of fees. Compare them with the loan mod salesmen’s fee.

Selecting a licensed loan originator to help you
In some states, it is not even possible for a loan originator or a Realtor to collect a fee for loan modification services. In Washington State and elsewhere, loan originators who work for a mortgage broker owe fiduciary duties to their clients. They are able to charge a fee-for-service (provided the fee is disclosed prior to the work being performed.)  Loan originators who are still left in the business as of this writing, are generally likely to be somewhat more competent than Taco Time/Loan Mod salesman.  But I am making an overgeneralization. A licensed LO has at the very least a nominal background in computing debt-to-income ratios and gathering documents. At this time, there are approximately zero loan orignators who have accumulated some experience performing loan modifications.  This is because nobody needed one up until about the year 2008…..the industry just refinanced you over and over again. If you select an LO who owes you higher duties, you are more likely to select someone who is conscientious of these higher duties because if you are not well-served, the LO now holds higher liability.  Fiduciary duties means that LO MUST put their client’s interests above their own interest in making a buck. They must set aside self-interest and work on behalf of you.  Hiring a loan originator to do the paperwork-gathering seems reasonable.  The loan originator MUST hand off your file at some point to an attorney.  Consumers, please demand that the attorney be local.  A fiduciary may not engage in secret fee-splitting deals. The fiduciary owes the highest degree of honesty and good faith to the consumer.  The LO/fiduciary has a duty to answer you honestly about how much of the fee goes to the LO and how much will go to the attorney.  A good scenario is to hire the LO/fiduciary to do the nominal processing work, for which you would pay a nominal “paperwork processing” fee and then pay your local attorney separately.

Working with Non-Profits
A HUD-Approved Housing Counseling Agency can help homeowners obtain a loan modification at no cost. 

DIY
Lenders charge zero to perform a loan modification.  If you’re an adventerous type that does not need hand-holding, call your lender direct in order to begin your loan modification.  I still advise hiring a local attorney to review the lender’s loan mod paperwork with you.

Currently, 40 to 50 percent of all loan modifications are re-defaulting.  This is astronomically high and will translate into higher bank losses and lost time for the homeowner to begin rebuilding his or her credit rating. This means some folks may simply need to re-enter the housing market as a renter. In part 4 of this series, we will discuss what it means to start rebuilding after foreclosure and in part five we’ll tackle what is surely ahead: massive government intervention.

Part one: Foreclosure; Losing the American Dream
Part two: Options for Homeowners Facing Foreclosure
Part three: Loan Modifications
Part four: Government Intervention in Foreclosure
Part five: Foreclosure; Letting Go and Rebuilding

Options for Homeowners Facing Foreclosure

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This is Part Two of a series of articles on the foreclosure process.
This article does not constitute legal advice.
Foreclosure laws vary from state to state.

Homeowners in financial distress should always hire legal counsel. Call your local state bar association for a referral.  Reduced or free legal aid may be available in some states. Ask for a referral from the state bar association or through a LOCAL HUD-Approved Housing Counseling Agency.

For homeowners who are facing financial hardship, denial is a warm, safe comfortable place to stay, where tough decisions can’t hurt and the decision-making process is put off one day at a time.  There is FREE help available from your local state non-profit agencies.

Local, HUD-Approved Housing Counseling Agecies received 1.5 million dollars from Washington State when Gov. Gregoire signed SB 6272. State agencies are already whining that they are “overwhelmed”. Hmmm. How much of that 1.5 million dollars was spent hiring and training competent counselors and how much went into executive salaries, high paid consultants and task force meetings?  There are plenty of out-of-work mortgage production people who are (at this point) probably willing to work at non-profit agencies. Put them to work.  Perhaps I am in denial as to the extent of the problem at our state agencies. If so, agencies: please enlighten me and RCG readers.  If the problems are with the banks and their ability to handle the calls, that doesn’t mean we throw more money at the state agencies.  In part five of this series, I will ponder about massive government intervention. For now, we’re left dealing with the problems at hand.

If you are a homeowner reading this article, that means you’re starting to come out of denial.  Maybe a friend or relative forwarded this to you.  Welcome to raincityguide.com  How are you? Don’t say “fine” through tears or clenched teeth.  Not so good, right?  Okay then. Is your financial distress temporary or long term?  THIS is perhaps the most important question you’ll need to answer. This is going to require that you get real with where you are in life.  Long term, permanent financial distress situations are going open up options that might be different for a homeowner who has a short term financial distress problem.  Let’s try to break things down even more.  Long Term: You’ve been laid off and have been unable to find work at your former pay level for along time and you have third party confirmation that the chances of being able to reach that pay level again are very low. Short Term: You’ve been laid off and have been unable to find work at your former pay level but your prospects are good or you’ve recently been re-hired at a similar pay level.

Reinstatement
If you are payment or two behind, which may happen with temporary financial distress, your lender will be thrilled beyond your wildest expectations to accept the total amount owed in a lump sum.  Reinstatement often happens simultaneously with a forbearance agreement.

Forbearance Agreement
Your lender agrees to reduce or suspend your payments for a short period of time.  These two options are good for people whose financial distress situations are temporary.

Repayment Plan
Your lender helps you get “caught up” by allowing you to take missed payments and tack them on to your existing payment each month until you are caught up.

If your financial distress is long term and will permanently affect your ability to continue making your payments:

Consider Selling
With home values going down, if you do have some equity remaining in your home, you may be better off selling NOW rather than waiting until next year when scads of REOs (already foreclosed-upon homes that the lenders must dispose of) will continue to hit the market, driving inventory up and home values down.  If you owe more on your home than what the home can be sold for in today’s market, you have probably already heard of the term Short Sales.  In this case, the lender is asked to reduce the pricipal balance and allow the loan to be paid off in order to facilitate a sale.  Most lenders are not radically motivated to approve short sales unless foreclosure is imminent.  This author does not recommend that you stop making your mortgage payment in order to force the bank to approve your short sale. All homeowners in financial distress should have an attorney holding their hand the entire time.  If you have assets, you do not qualify for a short sale. Short sales are reserved for homeowners with NO MONEY and you will be asked to provide proof that you have no money.  If you have money, this is a different kind of transaction. It’s called “Making Your Downpayment in Arrears” and you’ll be asked to bring that money at closing.  Don’t ask anyone to help you hide your assets. Doing so may constitute mortgage fraud which is now a class B felony in Washington State. I could go on and on about short sales. If you need more education in this area, we’ve covered the topic in these RCG articles:

Short Sales
—-
Question From Today’s Short Sale Class
—-
Should You Buy a Short Sale Property?
—-
Is a Short Sale a Bargain?
____
Why Do Banks Take So Long to Approve a Short Sale?

Maybe you would prefer not to sell. Consider taking on a tenant or moving out into more affordable living quarters and renting out your home.

Refinancing is a tough road for homeowners in financial distress. On the one hand, they have been hit by some kind of financial hardship and this typically affects their credit score, which means lender’s rates and fees will be higher.  In addition, tightening underwriting guidelines is something banks do in order to help stop the rising tide of foreclosures. People who hold mortgage loans today might not be able to re-qualify for that same loan if they had to requalify under today’s guidelines.  Income and assets must be fully documented. Find a licensed, local mortgage lender with FHA-approval to see if you might qualify for an FHA loan.  For people who made the conscious decision to state their income higher than reality are out of luck, unless they can prove that they were coached to do so by their lender.  Consult a local attorney for further guidance.  Since refinancing might only be yesterday’s dream for some, Loan Modifications are all the rage in my spam bin. We’ll cover Loan Mods in Part Three.

While doing research for this blog post, I stumbled upon even more money that went from our state government’s rainy day fund, into a state fund to help low to moderate income Washington State homeowners in foreclosure refinance into new loans through the Wash State Housing Finance Commission.  Read more here. I sent an inquiry asking the WSHFC how many WA State Homeowners have been helped this far by this new law and they said, emphasis mine:

Dear Ms. Schlicke:

Thank you for your interest in the Smart Homeownership Choices Program. To date, we have not made a loan to a prospective applicant.  The good news is that when we have talked to the delinquent homebuyers, it seems they have not been able to make contact with their lenders to discuss foreclosure options.  So, we have been able to facilitate getting them to the right person for loan modifications, etc.  There have also been homeowners who have not been pleased with the fact that the assistance is in the form of a loan and not a grant.  They believe the government should be giving them the money to save their home. While we cannot respond positively to these folks, we do send them to one of our homeownership counseling partners to help them with other options that   might be available.

If you know someone who might benefit from the program, please feel free to give them my contact information.

Sincerely,
Dee Taylor
Director, Homeownership Division
Washington State Housing Finance Commission
1000 Second Avenue, Suite 2700
Seattle, WA 98104-1046
(206) 287-4414

Part one: Foreclosure; Losing the American Dream
Part two: Options for Homeowners Facing Foreclosure
Part three: Loan Modifications
Part four: Government Intervention in Foreclosure
Part five: Foreclosure; Letting Go and Rebuilding

Are Washington Consumers Safer Working with DFI Regulated Lenders?

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I’ve always thought so and you may say I’m biased since I work for a company that is regulated by Washington State Department of Financial Institutions.  At the very least, home owners who have been wronged by a loan originator under DFI’s watch can rest assured that the company has much higher odds of having actions taken.  When a borrower contacts me because they want a second opinion or they have a complaint about their lender, the first step is trying to figure out what type of lender they are (mortgage broker, mortgage banker, correspondent lender…) and determine who regulates them.   It’s a mess and there are no innocents.  Bankers are not more ethical than brokers or vice versa.

Here’s an example, from the front page of this morning’s Seattle PI:

In a typical case in late 2002, state bank examiners believed that National City Mortgage was violating the state’s Consumer Loan Act by charging extra fees on mortgages…when asked to explain the costly “discount loan fees, underwriting fees, processing fees and marketing fees,” National City Mortgage sought intervention from federal regulators, records show.

The investigation was stopped by federal decree….the federal Office of the Comptroller of the Currency wrote National City a letter…saying the state had no right to examine or even visit its offices.  Because National City’s parent bank…was chartered with the OCC, the federal agency preempted the state’s authority….

The federal agency didn’t go after the mortgage fee complaint because it had no authority to enforce state consumer protection laws…

Also from this article:

Banks are governed by a patchwork of federal and state laws, which are notably weak at the federal level in areas of predatory lending and consumer protection, according to  to law professors, attorneys and other experts.  Some states…have passed tougher predatory lending laws with provisions holding Wall Street liable for financing bad loans.  But the two federal agencies in recent years have increasingly shielded their chartered banks…from state laws.

What really frustrates me is to hear the media and our elected officials wrongly use the term “mortgage brokers” when discussing the current mortgage crisis we are in.   It’s clear that there was not enough regulation and enforcement for all mortgage originators (regardless of type of institution they are employed by).

The federal OCC took about a dozen formal enforcement actions against banks for “unfair and deceptive practices” in the current decade, agency spokesman Robert Garsson said.  The other federal agency, OTS, took about half as many, in “the five to six range,  OCC Cheif Operating Officer Scott Polakoff said.   States…took 3,694 enforcement actions against mortgage lenders and brokers in 2006 alone…

The feds were set up as rivals.  Bank oversight is “the only place I know where regulated entities get to pick their regulators,”said Kathleen Keest, with the Center for Responsible Lending.

Last year, in a case involving Wachovia, the Supreme Court ruled that “the OCC has the absolute right to insist on exclusive oversight without states intervening.

According to the Seattle PI article, Barney Frank has indicated he might try to overturn the current system…until then, it’s my opinion that consumers are more protected by selecting lenders who are regulated by DFI rather than relying on the Fed or the banks to look out for them.   Our State’s system is not perfect but atleast a consumer can visit DFI’s site and verify on a local level if a loan originator or their company is licensed or has had actions taken against them.

With the recent passage of HR 3221, the SAFE ACT was passed to help protect our nation from unsavory mortgage originators.   Once again there are different rules for originators who work for banks and those who work for state regulated institutions.   On a comment at RCG, “DFI Examiner” confirmed that “LO’s with FDIC insured banks and credit unions need to register, but they don’t need to be licensed.”   Ahh…but that’s a whole post on it’s own!

When your financing evaporates, do you lose your earnest money?

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This is not legal advice. For legal advice, consult an attorney, not a blog.

In this challenging market, many buyers are discovering that their loan program is no longer available. This is a particular problem with new construction, whether condo or house. The buyer signed a purchase and sale agreement (PSA) several months or even years ago. Back then, in the “good ol’ days,” lenders offered a variety of financing options. Some buyers relied on some of the more “aggressive” options (e.g., an option ARM) in order to qualify for the new home. Today, that financing option is gone, gone, gone, and the buyer can no longer afford to buy the property. What happens then?

Well, the short answer is that the buyer loses the money. In almost every new construction contract, the builder’s addendum will note that the financing contingency, if any, is waived within several weeks of signing the PSA (and months or years before closing). Once the financing contingency is waived, then the risk of a failure of financing rests squarely on the buyer. At that point, if financing fails, it is the buyer’s problem, not the seller’s. Accordingly, if the buyer cannot close as a result, then the buyer will lose the earnest money as the buyer is in default of the PSA.

However, there may be more to the contract than what is seen by the untrained eye. There are a variety of state and even federal laws that apply to the sale of property, and in particular new construction. In many instances, these laws create “loopholes” in the contract that allow the buyer to at least arguably rescind the contract. Thus, depending on the terms of the PSA at issue, these laws can be used to exert negotiating pressure on the seller to at least return some of the earnest money.

Certainly, a buyer should not rely on these laws when signing the PSA originally. Every buyer should be aware of the risks and obligations created by a contract. But sometimes, the buyer’s situation changes (to put “America’s Money Crisis” mildly) and the buyer can no longer perform. Heck, sometimes the buyer may just decide that the purchase is actually a bad idea and not want to complete it. Under those circumstances, the buyer should consult an attorney to determine if there is a mechanism by which the buyer can get some or all of the earnest money back.

MILA's Bankruptcy

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The bankruptcy trustee in charge of MILA’s Chapter 11 case says there is evidence that MILA’s founder and CEO allegedly collected $32 million from MILA during the years before its demise, “improperly draining the Mountlake Terrace company’s assets as its fortune declined.”

From the Seattle Times:

“I think the executives at MILA knew by 2004 that this bubble was bursting and did their best to take out as much money as they could before it became obvious to everyone else,” says Brian Esler, who represents the bankruptcy trustee in the suit.

The suit claims Sapp, who owned about 90 percent of MILA, paid himself more than $10 million in dividends in 2004 and 2005 when the company was already “functionally insolvent,” meaning it had insufficient capital to continue normal operations and should have been preserving cash.

It also alleges he took $11.5 million in salary for each of those years, though “by March 2005, MILA was already delaying payments, even to important customers, to conserve cash.”

The trustee’s suit also claims that Sapp damaged MILA — and its creditors — in other ways:

He “surreptitiously seized” the mortgage software MILA developed and had another of his companies bill MILA for using it; charged MILA exorbitant amounts for his private yacht and business jets; and, in a “theft of corporate opportunity,” created separate companies to own a four-story office building and a parking lot that were leased to MILA, rather than having MILA buy the properties.

Sapp’s attorney, Jack Cullen, declined to discuss the allegations in detail but said: “We consider the claims nonsense. We don’t think they are founded in law or fact.”

Sapp did not return a call to his Hunts Point home.

Esler is asking the court to freeze $12 million in cash belonging to Sapp, to keep it available to creditors.

Bankruptcy Trustee Esler’s plan is to convince the court that MILA was technically insolvent for over two years before the company abrubtly closed it’s doors in April of 2007.  Esler cites improper accounting and a  twelve-fold increase in the number of loans MILA was required to repurchase from 2002 to 2004.

To protect creditors, the suit says, as early as 2005 “Sapp should have attempted to sell, liquidate or reorganize MILA at a time when it still had significant value, instead of continuing to manipulate and loot it for personal gain for another two years.”
The suit also takes a microscope to transactions among the various entities owned by Sapp. One example: The company that owned his 130-foot yacht billed MILA $395,374 over two years — although “MILA used that yacht only twice for asserted business reasons,” the suit says.

MILA’s creditor claims have ballooned up to 2 billion dollars.  By asking the court to freeze Layne’s personal assets, is the Bankruptcy Trustee is gathering evidence to try and make a case that the corporate veil was pierced? This means Layne might have co-mingled corporate assets with personal assets.  An example of that would be if personal expenses were paid for with corporate funds. This will be an interesting local case to follow.

Bankruptcy Trustee:
Miller Nash
Brian Esler
206-622-8484
Lisa Peterson or Bruce Rubin
360-699-4771

MILA Legal Counsel:
Jack Cullen
Foster Pepper
(206) 447-4689

Has the Distressed Conveyances law curtailed foreclosure rescue scams?

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In this Sunday’s Seattle Times there was an article on “foreclosure rescue scams.” I found the timing interesting given the recent enactment of the Distressed Conveyances law effective in June of this year. This law was specifically enacted to curtail these practices and even provides a rather large “stick” to use in convincing people that they should not lure owners into such transactions (in the form of punitive damages of up to $100,000).

Does anyone have any insight into whether these scams continue unabated? Unfortunately, I have no direct personal insight into the issue. [CAUTION: Plug Ahead.] Although I offer a very affordable consultation that is well-suited for anyone who has been approached by a “rescuer,” I have yet to generate much business. So, I really have no idea whether the new law is having the desired effect. Unless the Seattle Times is behind the curve, it would seem that the new law has yet to achieve the desired impact (i.e., make this practice less common).

Buying without an Agent — the Epilogue

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This is not legal advice. For legal advice, contact an attorney.

Over the last year, I’ve posted several times on using an attorney — rather than a real estate agent — to purchase a home. As discussed in those posts, one of the biggest challenges in doing so is getting access to the properties that you may be interested in purchasing.

I am currently working with a couple looking to purchase their first home together. The did their homework — they searched the listings on the web and looked at numerous properties before deciding to make an offer. I asked them about their experience and if they had any difficulty. They told me that they actually looked at perhaps 10 homes (as opposed to the “drive-by”), and in only one instance did they have any trouble. In that case, they got the old “that’s not my job” reply from the listing agent when they called to schedule a viewing. In every other instance, the listing agent either met them at the property or, in several cases involving new listings, allowed my clients to attend a brokers’ opening (at my clients’ request).

So, if you’re thinking of going this route and saving some money in the process, it appears that listing agents are coming around to at least tolerating this approach. A 90% success rate seems pretty good. I guess the times, they really are a-changin’…

Predatory Upfront Loan Modification Fees

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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.

Deceptive Advertising Update: Linden Home Loans, Paramount Equity and Assurity Financial

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Linden Home Loans received a “Statement of Charges” back in Dec of 2007  for a deceptive television and radio ad.  The Department of Financial Institutions discovered that Linden promised consumers residential mortgage loans at “1% interest, with no points and no fees,