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,
It really is good that they are trying to regulate the people who apply the modifications. It would be sad to see the devastated home owners get scammed.
I agree if the basic structure of the loan is too far above their means, it is not worth it.
From DFI regarding “net tangible benefits:” …..”DTI ratio of no more than 31 percent.” Really?
What were the DTI ratios on loans entered into during 2003-2007? Some over 50%? It could also be easily argued that DTI’s were not really even considered in underwriting during the go-go days. Of the Short sales I’ve seen, the debt loads are enormous. How would DTI’s get to 31%? By a lender reducing principle substantially.
I hate to say it, while the spirit of DFI is good, they may end up over reaching, similar to the Wa. Legislatures Distressed Homeowner Law problems encountered by the real estate community in assisting Short Sale candidates and homes within a stones throw of foreclosure.
Also disconcerting is the idea of what constitutes “customary fees.” As much as I dislike consumers getting the short end of the stick, I am equally opposed to Government trying to dictate or heavily influence free market “fees.” We already are seeing the “net tangible benefits” of Government intervention into our economy (as well as lack of regulation) and its long term ramifications for our Country.
From DFI regarding “net tangible benefits:” …..”DTI ratio of no more than 31 percent.” Really?
What were the DTI ratios on loans entered into during 2003-2007? Some over 50%? It could also be easily argued that DTI’s were not really even considered in underwriting during the go-go days. Of the Short sales I’ve seen, the debt loads are enormous. How would DTI’s get to 31%? By a lender reducing principle substantially.
I hate to say it, while the spirit of DFI is good, they may end up over reaching, similar to the Wa. Legislatures Distressed Homeowner Law problems encountered by the real estate community in assisting Short Sale candidates and homes within a stones throw of foreclosure.
Also disconcerting is the idea of what constitutes “customary fees.” As much as I dislike consumers getting the short end of the stick, I am equally opposed to Government trying to dictate or heavily influence free market “fees.” We already are seeing the “net tangible benefits” of Government intervention into our economy (as well as lack of regulation) and its long term ramifications for our Country.
Hi Tim,
The loan modification person can charge a higher fee than the $750 for each phase…..DFI is just putting them on notice that if the fee is higher, then the loan mod person better be well prepared to justify the higher fee or face fines and having to refund the difference to the consumer.
Interesting that you bring up debt-to-income (DTIs). There was a federal reserve study released late this afternoon that said the DTI isn’t as important as we all think it is and instead, right now it’s negative equity that’s the biggest problem. Let me find the link. Here it is:
http://www.calculatedriskblog.com/2009/04/fed-paper-on-reducing-foreclosures.html
They say that since loan modifications re-default at such high rates, that these could end up costing the bank MORE compared to if the bank had just foreclosed. Their study suggests it’s negative equity that’s the real problem. This is something Sniglet hammered home in a SB forum dialogue with me about 8 or 9 months ago.
I wonder if DFI means DTI as being the front ratio and not the total debt-to-income (back ratio). Even so…what if the most a loan mod person can do is bring the DTI from 50 to 35?
It will also be interesting to see how this plays out with Geithner’s efforts to go after scammy loan mod companies.
I wonder if DFI means DTI as being the front ratio and not the total debt-to-income (back ratio). Even so…what if the most a loan mod person can do is bring the DTI from 50 to 35?
It will also be interesting to see how this plays out with Geithner’s efforts to go after scammy loan mod companies.
If loan mods are going back into default at such a high rate, what is the point of doing them at all? It is obvious that the borrowers cannot afford the home under any circumstance. Most people are in trouble due to job loss, divorce, or medical issues. Lack of income and personal responsibility cannot be fixed by a loan modification. All it is doing is delaying the inevitable. I think the banks should try to work with people, but at some point the consumer just needs to accept that life threw a curve and they struck out.
The problem I have with loan modifications is that if they were renting instead of paying on a mortgage, they would be getting evicted. No one does a “rent modification” so why should banks be doing loan modifications? I can understand getting a loan mod if the terms of the loan changing are going to cause hardship, but if you can’t afford the payment…. you can’t afford the home. It is time to move on and get on with your life.
Some days I feel like a sucka for buying a house I could afford, saving my money for a rainy day, and just trying to be a nice guy all the while Joe Sixpack down the street stretched to the limit and now wants the bank to modify his loan.
This IS interesting.
So, in general a successful loan modification will pay a loan originator $1,500, and possibly a bit more if it can be justified by extra time and expertise.
It doesn’t seem to address whether attorney fees could be charged in addition to that fee.
A few practical problems occur to me.
“Licensees are prohibited from collecting fees via direct access to a borrower’s bank account or via use of the borrower’s credit card.”
Folks desparately needing a loan mod are not all that likely to have $750 in cash, while they may have that amount available on a credit card.
Also, Jillayne I do think you are overly optimistic about attorney fees. Attorneys like money just as much as loan originator/modifiers, and perhaps more. While there certainly are examples of attorneys that charge as little as $1,500, there are probably MANY that charge more, including some that are on your link.
No argument from me that attorneys are likely better qualified regarding the laws than are loan originators, I just would argue that they do not expect to work for less than the optimal fee.
Regarding “net tangible benefit
This IS interesting.
So, in general a successful loan modification will pay a loan originator $1,500, and possibly a bit more if it can be justified by extra time and expertise.
It doesn’t seem to address whether attorney fees could be charged in addition to that fee.
A few practical problems occur to me.
“Licensees are prohibited from collecting fees via direct access to a borrower’s bank account or via use of the borrower’s credit card.”
Folks desparately needing a loan mod are not all that likely to have $750 in cash, while they may have that amount available on a credit card.
Also, Jillayne I do think you are overly optimistic about attorney fees. Attorneys like money just as much as loan originator/modifiers, and perhaps more. While there certainly are examples of attorneys that charge as little as $1,500, there are probably MANY that charge more, including some that are on your link.
No argument from me that attorneys are likely better qualified regarding the laws than are loan originators, I just would argue that they do not expect to work for less than the optimal fee.
Regarding “net tangible benefit
Hi Roger,
I did a random survey of 10 attorneys here in the greater Seattle area. All of them quoted $1500 for a loan modification with one exception. One attorney said he would charge more if there were multiple liens on title.
I think the biggest problem for most loan originators is the collection of upfront fees: A large percentage of mortgage brokers in this state do not have a trust account.
From what I have seen, DFI has not been slacking off. I get calls every week from loan originators who have let their license lapse, and were called by DFI and now need to quickly do their continuing ed in order to re-apply for their license. They’re even looking further into the mess that was A+ Mortgage in Tukwila by going after the individual LOs who took part in that train wreck.
http://www.dfi.wa.gov/cs/adminactions_2009.htm
Hi Roger,
I did a random survey of 10 attorneys here in the greater Seattle area. All of them quoted $1500 for a loan modification with one exception. One attorney said he would charge more if there were multiple liens on title.
I think the biggest problem for most loan originators is the collection of upfront fees: A large percentage of mortgage brokers in this state do not have a trust account.
From what I have seen, DFI has not been slacking off. I get calls every week from loan originators who have let their license lapse, and were called by DFI and now need to quickly do their continuing ed in order to re-apply for their license. They’re even looking further into the mess that was A+ Mortgage in Tukwila by going after the individual LOs who took part in that train wreck.
http://www.dfi.wa.gov/cs/adminactions_2009.htm
Hi Russ,
“If loan mods are going back into default at such a high rate, what is the point of doing them at all?”
Excellent point. If your new originations defaulted at a rate of 50%+, your lenders would probably be cutting you off, right?
Sometimes I wonder if loan modifications are helping the BANK more than the homeowner….how? By pushing their losses down the road into the next quarter, thereby dragging this out for years.
Yes, yes some folks are able to maintain their modified payment. But don’t you think we should tighten the approval criteria?
That would mean more foreclosures *today.* I don’t think that’s something the banks or the politicians can live with, so the banks and politicians are spreading this out over many years.
Hi Russ,
“If loan mods are going back into default at such a high rate, what is the point of doing them at all?”
Excellent point. If your new originations defaulted at a rate of 50%+, your lenders would probably be cutting you off, right?
Sometimes I wonder if loan modifications are helping the BANK more than the homeowner….how? By pushing their losses down the road into the next quarter, thereby dragging this out for years.
Yes, yes some folks are able to maintain their modified payment. But don’t you think we should tighten the approval criteria?
That would mean more foreclosures *today.* I don’t think that’s something the banks or the politicians can live with, so the banks and politicians are spreading this out over many years.
Hi Rhonda, “Even so…what if the most a loan mod person can do is bring the DTI from 50 to 35?”
If I were a loan mod person, I would then work harder with the underlying lender, to achieve more of a principal balance reduction in order to get their DTI down further.
DTI constrictions make loan mod work a big risk (of not earning a fee) for a loan originator…..unless….right at the beginning of a transaction, the LO can pre-qualify the homeowner on their chances of obtaining that DTI with NO principal balance reduction.
Hi Rhonda, “Even so…what if the most a loan mod person can do is bring the DTI from 50 to 35?”
If I were a loan mod person, I would then work harder with the underlying lender, to achieve more of a principal balance reduction in order to get their DTI down further.
DTI constrictions make loan mod work a big risk (of not earning a fee) for a loan originator…..unless….right at the beginning of a transaction, the LO can pre-qualify the homeowner on their chances of obtaining that DTI with NO principal balance reduction.
Imee,
These rules are only applicable to loans on property in the state of Washington, but they do apply to out of state loan mod originators looking to transact on properties in WA state.
WA state and DFI have done comparatively well in responding to the mortgage crisis. Every state missed preventing the problems, and some over-reacted to correcting it.
At the federal level, the previous administration was utterly asleep at the switch, as far as limiting the damage, and it was the states that led the charge in protecting consumers, and establishing reasonable limits.
I’m not yet convinced the current administration is doing anything remarkably different from the previous one. It still seems to me that Wall Street is calling the shots.
Imee,
These rules are only applicable to loans on property in the state of Washington, but they do apply to out of state loan mod originators looking to transact on properties in WA state.
WA state and DFI have done comparatively well in responding to the mortgage crisis. Every state missed preventing the problems, and some over-reacted to correcting it.
At the federal level, the previous administration was utterly asleep at the switch, as far as limiting the damage, and it was the states that led the charge in protecting consumers, and establishing reasonable limits.
I’m not yet convinced the current administration is doing anything remarkably different from the previous one. It still seems to me that Wall Street is calling the shots.
OK, Jillayne….you win!
I did NOT do a random survey of 10 attorneys on loan modifications, like you did.
A client of mine was quoted $4,000, for 2 liens (from an attorney form your list). That kind of surprised me. I was also surprised that there was a recommendation to even do a loan modification (rather than a short sale), since it was clear (to me, at least), that a loan modification would likely fail.
But, I suppose poor loan modifications ensure repeat business. Not sure who that benefits, but I have a pretty good idea.
Here’s one reason for the difference in pricing.
Generally, attorneys require a non-refundable payment up front, right? A retainer? $300 to $500?
That makes the attorney’s work less risky for the attorney, guaranteeing the attorney that they get reasonable compensation for their work, up to a point, and then earn the remainder from a successful conclusion of the modification.
This is one of the flaws of the loan origination business model, and one of the reasons that loan origination and loan modifications are more expensive than they have to be.
Loan originators CANNOT be paid for their legitimate efforts, only for their results.
This model is less than optimal for loan originators and for borrowers. Loan originators (and banks, and mortgage brokers) have to factor into their pricing models their risk of receiving no compensation for their labors, and borrowers ultimately have to pay for that increased cost of business.
Yet, it is codified into law.
Strange, isn’t it?
OK, Jillayne….you win!
I did NOT do a random survey of 10 attorneys on loan modifications, like you did.
A client of mine was quoted $4,000, for 2 liens (from an attorney form your list). That kind of surprised me. I was also surprised that there was a recommendation to even do a loan modification (rather than a short sale), since it was clear (to me, at least), that a loan modification would likely fail.
But, I suppose poor loan modifications ensure repeat business. Not sure who that benefits, but I have a pretty good idea.
Here’s one reason for the difference in pricing.
Generally, attorneys require a non-refundable payment up front, right? A retainer? $300 to $500?
That makes the attorney’s work less risky for the attorney, guaranteeing the attorney that they get reasonable compensation for their work, up to a point, and then earn the remainder from a successful conclusion of the modification.
This is one of the flaws of the loan origination business model, and one of the reasons that loan origination and loan modifications are more expensive than they have to be.
Loan originators CANNOT be paid for their legitimate efforts, only for their results.
This model is less than optimal for loan originators and for borrowers. Loan originators (and banks, and mortgage brokers) have to factor into their pricing models their risk of receiving no compensation for their labors, and borrowers ultimately have to pay for that increased cost of business.
Yet, it is codified into law.
Strange, isn’t it?