Tag Archives: Loan Modifications

Calling a Piece of Junk Mail

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mortgage spam emailI just published about junk mail that I received on my blog… but it doesn’t even compare to the piece of garbage we received in the mail today.  In fact, it was so bad, that I decided to call them to learn more about their services.

The mailer looks very official. It states “important legal information inside – please open immediately”.  No where on this POS does it disclose who this is from.  Not on the upper left corner of the envelope and nor in the actual body.

It does reference our mortgage company who originated the mortgage (Mortgage Master Service Corporation) and in the tiniest of small print at the bottom, discloses they’re not related to the mortgage company.

It goes on to say that the letter is from the “Loss Mitigation Administration Office” and that we receiving the notice because we may be eligible for “special modification program guidelines in conjunction with the New 2012 Home Modification Program… HAMP2 is an aggressive update to Obama’s original program. This new program may enable you to modify your existing home loan and reduce your monthly mortgage payments, receive interest rate reductions…without the traditional restrictions of credit history, income or employment status, equity and reserves…”

It goes on to offer a 2% fixed interest rate and says our information is “on file”… and if we don’t respond by July 13, 2012, we may not get this swell deal because “only a limited number of people can qualify”.

GARBAGE!!

So… I decided to call the toll free number after googling it, did not reveal who was sending us this great offer.

The gentleman on the phone had a very pleasant, soothing voice.  He answers the phone “Loss Mitigation Department, can I help you?”

Me: Yes, I’d like to know who sent a mailer to my home regarding HAMP?

Him: [He reveals it’s a law firm – I’m not going to promote them here].

Me: Why did I receive this? I’m not behind on my mortgage? Don’t you need to not qualify for a regular refi or HARP to have a HAMP loan modification?”

Him: Our company has done searches to determine who may be at risk for a loan mod, perhaps you’re underwater? Lets say you have a $350,000 mortgage but your home is only worth $250,000.

Me: My home is not underwater and we’re not behind on our payments. I’m confused how I could qualify for a HAMP or why I would want one.

Him: Well you might want to consider a HAMP over a refinance because refi’s are so costly. Most have a 1% origination fee and 3.5% loan cost.

At this point, it’s hard for me to not totally blast him.  He’s so far from the truth…

Me: what are your fees?

Him: I really can’t say.  There’s a range depending on what you need.  Who is this?

Me: You can quote costs for refi’s but you can’t give me a range for you charge?

Him: We have a flat fee of $3700 on many of our transactions. Clients are grateful for the service we provide. We can often do better than what a home owner might when dealing with their mortgage servicer directly.

Me: How are you coming up with the fees  you’re comparing for a refi?

Him: You’re sounding like a “professional”, can I help you with a loan mod?

Me: No. You cannot. I am a mortgage originator you the fees you’re telling consumers for a refinance are way off base.

Him: Do you call on every piece of junk mail that you receive?

Me: I see we agree on something – this IS a total piece of junk mail and no, this is a first. It was so disgusting, I had to call to see who sent this to me.

If I were considering a loan mod, I would NOT select assistance by some scammy piece of junk mail. It sickens me when I think of folks who truly need help and might fall hard for something like this.

Why can’t they be upfront and disclose they’re an attorney’s firm and for $X, they’ll try to get you a loan mod.?

I’ll be sending this piece of solicitation to DFI for review.

Here’s information from DFI’s site regarding Loan Modifications and signs to watch out for.

DFI Releases Guidelines on Loan Mods and Sets Limits on Fees

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Washington State Department of Financial Institutions has released an updated interpretive statement on loan modifications late this afternoon. People who perform loan modification services for Washington State homeowners must be licesed as a loan originator and under the supervision of a broker, or be working under a licensed consumer loan company.  Attorney have a limited exemption and non-profit housing counseling agencies are also exempt.  Real estate agents are not exempt.

 Licensees that charge a fee for loan modification services in advance of the services being provided must obtain a signed fee agreement for loan modification services from the borrower. Any fees paid in advance of services provided must go into the company’s trust account prior to disbursement, or be submitted to an independent escrow or title company to be held until disbursed at the instruction of the parties consistent with the fee agreement. Licensees are prohibited from collecting fees via direct access to a borrower’s bank account or via use of the borrower’s credit card.

A loan modification normally begins with a hardship analysis which is an examination of the borrower’s current mortgage, income, expenses, and ability to repay. The hardship analysis includes meetings or conversations with the borrower(s) and a determination of the borrower’s eligibility for a modification based on the particular lender’s eligibility requirements or the eligibility requirements of a federal modification program. The hardship analysis, sometimes referred to as “Phase I services,

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,

Fannie and Freddie to Announce Mass Loan Modification Program

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From the Wall Street Journal:

Fannie Mae, Freddie Mac and U.S. officials are expected to announce plans Tuesday to speed up the modification of hundreds of thousands of loans held by the housing finance giants, marking the latest effort to try and prevent more foreclosures, people familiar with the matter said.

The announcement could mark the government’s most assertive use of Fannie Mae and Freddie Mac to help homeowners since the companies were taken over in September.

The streamlined effort will target certain loans that are 90 days or more past due, these people said. The program will aim to bring the ratio of mortgage payments for these homeowners to 38% of their income by modifying interest rates and in some cases forgiving portions of principal debt, these people said.

Borrowers would have to provide a statement or affidavit showing that they have encountered some sort of hardship that has impacted their ability to pay their mortgage. It would only apply to loans made on or before Jan. 1, 2008, and borrowers will be disqualified if they file for bankruptcy. The homes must be owner-occupied and escrows for real estate taxes and insurance must already be set up.

U.S. government officials plan to encourage big banks that hold loans in their portfolios to take similar streamlined modification measures.

The announcement is expected to come at a press conference at 2 p.m. at the Federal Housing Finance Agency, which temporarily has Fannie Mae and Freddie Mac in conservatorship because of their shaky financial condition.

Spokespeople for the companies, the Treasury Department and the Federal Housing Finance Agency weren’t immediately available for comment.

Servicers are expected to be paid $800 for a successful modification and loan investors are expected to reimburse servicers for certain fees associated with the modification. There will be a 90-day trial period, and if borrowers successfully make payments for those 90 days the modification will be formally approved. 

This is the beginning of massive government intervention to try and slow foreclosures. On a positive side, Fannie and Freddie could provide a template for servicers to follow which may help homeowners receive a “yes” or “no” answer faster.  On the down side, this may also slow the recover of the housing market, prolonging the decline of home prices. Currently 40% of loan modifications re-default. This may also further erode investor confidence in residential mortgage backed securities, the impact being even tighter underwriting guidelines than what we’re now experiencing.

I’d like to see provisions in there regarding proof that the homeowner did not commit fraud when receiving the original loan, and proof that the homeowner has the ability to re-pay the modified loan.  But these things take time to ascertain.

Update from Calculated Risk:

Here is the press release from the FHFA. Note that this does not include principal reduction as a solution to create an affordable payment, and is limited to: “extending the term, reducing the interest rate, and forbearing interest”.

This is intended to help “thousands” (a drop in the bucket unless it is several hundred thousand), and seems to encourage homeowners to stop making payments until they are 90 days late.

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

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.