Most homeowners that are experiencing financial difficulty have probably heard of loan modifications by now. In the past year or so, loan modifications have gone from being a little-known niche industry, to one of the most controversial topics in real estate and in America today.
As soon as homeowners falls behind on their mortgage, many are immediately swarmed by mail and phone calls from "foreclosure rescue" companies. Pundits on TV cry out such as: "call your lender to negotiate. They want to keep you in your house..." Or better yet, "help is freely available from the government!"
Obviously, these same so-called pundits haven't experienced luxuries such being on hold for over 2 hours with loss mitigation at Bank of America before getting disconnected, or other realities of the current mortgage crisis.
The reality is that homeowners who have tried to get their own loans modified or use so-called "free services" have been met with frustration, deceit, incompetence, bureaucracy, and failure due to a system which is rigged to favor the banks, not the homeowners.
My Personal Experience with Financial Hardship and Loan Modification
I speak from personal experience. Hurricane Katrina wiped out my real estate business and I had to do my own loan modifications. I spent over 2 years trying to get insurance claims paid on damaged properties after hiring several attorneys, public adjusters, and engineers.
The irony was that lenders only allowed a 6 month grace period and they wanted their money. 6 months and 2 years left a bit of a gap as you can imagine. I scrambled not only to rebuild my business, but also to save my own home after this catastrophe.
I learned a very hard lesson after the events following Katrina. The banks are definitely not looking out for you. Having a professional on my side would have leveled the playing field.
Former Subprime Brokers Swoop To Take Advantage of the Mess They Created
While government help has been ineffective, many former subrpime mortgage brokers have swarmed in to offer "loan modifications" to desperate homeowners. These individuals have not only scammed homeowners who were already in financial desperation, they have tarnished an industry that serves a vital role in getting our country out of the mess that is in.
This report is dedicated to help those that realize that hiring a professional loan modification firm with a track record of success, is their best solution in keeping their home.
My guarantee to you: after reading through these eleven questions, you will be confident on how to evaluate a potential loan modification firm, and to seperate the scammers from the professionals who can actually help you keep your home.
Ready? Let's get started.
1.) How long has the company in question been representing clients for loan modifications?
While the fact that a company is new by itself doesn't necessarily mean that you are going to get a bad modification, you're less likely to be scammed if the business you are dealing with has some sort of track record.
If it is a brand new company, or they just started doing loan modifications, you want to use more caution. Even attorneys and law firms are no exception to this rule. Law firms have been hit by the downturn as well, and as they have seen their billable hours reduced, some scramble to find work in other areas such as loan modifications.
Whether they are actually competent enough to get a successful modification done is a different matter, and they must be evaluated as stringently as any other company.
2.) What is the loan modification company's success rate in achieving successful loan modifications?
Most loan modification firms will claim to have above a "90% success rate".
If the company can't tell you their success rate, this is an immediate red flag and you should run, not walk the other way! Ask yourself: if you were in a service business like this, would you take the time to know how many loan modifications you had taken on, and how many had been approved?
Second, you need to dig further when a company gives you their so-called "success rate". What does that mean? That the company got a modification with a payment higher than before and the homeowner defaulted 3 months into it - is that considered a "successful modification"?
The definition you should hold of a "successful loan modification" is where the borrower is able to keep their home. Any loan modification company that takes fees after they have a client's budget and knows they can't afford the payment, is inherently unethical.
If the loan modification company can't give you a solid idea of what their real success rate is in getting quality loan modifications done that allow the borrowers to stay in their homes at their current income level, then you need to look elsewhere.
3.) Do you have recent examples of successful modifications you have done?
The loan modification company should be able to produce some documentation of the work they have done. Since the loan modification documents contain personal financial information, you may see the specific new terms such as interest rate and fixed term, but not the homeowner's personal information such as name, address etc.
If the company cannot produce examples, or they reply "...well I haven't done any yet but I've been a loan officer and a real estate agent for 3 years, how hard can it be?", let someone else be their guinea pig. Saving your home is too important of a task to put in the hands of an amateur.
Also, make sure that the examples are modifications performed by that particular company. A typical scam operation will use "generic" testimonials and loan modifications, or will take the liberty "As Seen on TV" because they talk about loan modifications on TV shows, but not that actual company. If a company cuts corners on testimonials, what makes you think they aren't going to cut corners when it comes to negotiating with your lender?
4.) What criteria do you look at when deciding whether or not you can do loan modifications?
Examine the answer to this one carefully, and try to get the loan modification company to answer it before they know about your situation. This is a true test of whether they fall into the boiler room category, or a professional advisor.
If the loan modification rep gives a song and dance about how they can do any modification and can save your home no matter what, you know you are dealing with a scam.
A reputable loan modification firm will need to obtain a full analysis and assessment of your hardship, income, assets, liabilities, with supporting docs before they can make any promises, and will be upfront with you that they cannot help every person that contacts them.
Unfortunately, not every homeowner qualifies for a loan modification. If you currently have no income, or any prospects of becoming re-employed in the near future, you may not qualify for a loan modification.
If your lender is not doing loan modifications at this time, you may not qualify. Every situation is different. A competent, professional loan modification company, that does hundreds or thousands of loan modifications each month is going to have a general idea of what lenders are willing to do in terms of modification. These criteria are changing literally weekly, due to the current financial crisis and bailout legislation.
It is up to the professionalism of the loan modification company to not take your fee if they know they cannot help you, or better yet, have a results-based money back guarantee to hold themselves accountable.
5.) How long does it usually take to successfully negotiate a modification for your client?
Today's lending environment is always fluctuating on a near daily basis, with new legislation being proposed, failed banks, and many other factors. Still, a good loan modification company should be able to give you some idea of how long the process is going to take.
If they duck and run at this question without a clear explanation, you need to give them the finger. (That's taking your finger and pressing the receiver!)
6.) Does the company offer a money bank guarantee for their services? Do they guarantee that you will have a lower payment than before?
This is a big one. Stories abound of people that were promised the world by a loan modification company, paid a fee of several thousand dollars, and ended up never hearing back from the company.
If a company does not offer a guarantee, or gives an excuse such as "..no one can guarantee results", buyer beware. If they do offer a guarantee, examine closely as to what they mean exactly. Some inexperienced loan modification companies do not have the skill to get quality loan modifications done, resulting in payments that are even higher than before!
Bear in mind that loan modification companies take significant risk in offering a guarantee. They are performing a service with up front costs, so it isn't like returning clothes that they can re-sell.
On the other hand, you as the homeowner are taking a gigantic risk in putting out your hard earned money to do a modification.
You see, by having a strong guarantee, the loan modification company essentially provides a check and balance on whether to take your fee or not - since they know if they don't do their job, or get a poor modification done for you, they bear a financial risk.
7.) Do they offer a free approval process or is there a charge up front to take an application? If your state requires that a loan modification company be registered, are they?
A good loan modification company will generally not charge an application fee, as their goal is to actually help people get their loan modified and stay in their home, not to collect as many application fees as they can. If a company wants an application fee upfront, you may want to investigate their success record a little more.
Certain states such as California are regulated in how loan modification companies can take upfront payments. However, California ironically also has had more modification start ups in the past 6 months (this report was written in March 2008). Many of them are not registered, are complete scams, and playing a cat and mouse game with the Attorney General's office.
Others, like Maryland, require that an attorney review the documents. Know the laws in your state before you contact the modification company, and listen to what they say either on the phone or on written materials to test their level of competence.
8.) Will I be kept informed throughout the modification process? Do I have multiple ways to stay in touch on the process - for instance, a way to track my case, phone number, fax number, etc?
You need to have a consistent mechanism to keep track of your file throughout the modification process, ideally a secure website or some form of automated mechanism. If your only source of getting an update on your file is to call and talk to a human, you can rest assured that will eventualy lead to frustration when you can't get in touch with them.
9.) What other lines of business is the company in besides loan modifications? What lines of business were you in prior to loan modification?
When evaluating a loan modification company, the one thing you need to realize is that the businesses are typically small (less than 100 employees). You want to know what professional credentials and experience they bring to the table.
If the principals in the company just closed the doors of their subprime mortgage broker office that was shut down...it may be a red flag.
Do a Google search and look for the names of individuals involved in the company.
While online forums can be useful, bear in mind that with the anonymous nature of text based sites, anybody (including competitors) can pose as a disgruntled customer...and they often do. Many legitimate companies have been ruined by well-orchestrated smear campaigns on behalf of their competitors. Look at the information, but use caution when evaluating what you see on internet forums.
10.) Will you modify more than one mortgage, and do you offer help with a forbearance agreement, short sale, deed in lieu of foreclosure? Do you charge extra fees for these additional services?
If a loan modification effort fails, you need to know what "Plan B" is. Even if you can't stay in the house, walking away and doing nothing is definitely not the right option.
A Deed in Lieu of foreclosure, where you give the house back to the lender, should be your last resort. There are consequences of this action, but they are far less than that of a foreclosure. It will generally leave you with less bruised credit and likelihood of a judgment against you compared to having the lender foreclose.
Some loan modification companies offer alternate services, such as a Deed in Lieu of Foreclosure free of charge if the initial effort to modify the loan is not successful and the homeowner is unable to keep the house.
11.) Do you have any complaints against your company with the Attorney General's Office, Better Business Bureau, etc?
This is important to know. If a company has complaints it doesn't necessarily mean they are a bad company, depending on their volume of transactions.
For instance, if a modification company has been in business several years and has processed hundreds or thousands of modifications, a few complaints over several years, is probably not a big deal. However if they started six months ago and already have 30 complaints, then that's probably a red flag.
If the business is reputable, see how they handled any customer complaints, since every business, if they've been around a while, will inevitably have them.
Also bear in mind that the Better Business Bureau rating is VERY subjective - for instance, Best Buy has an "F" rating, and Disney Films has an "E" rating! Ratings also change, so make sure you read between the lines.
Conclusion: We're currently experiencing an unprecedented era of economic turmoil, and it is unfortunate that many vultures have risen to swoop in and take advantage of people's desperation.
Hopefully this report has put you in a more empowered position than you were prior to reading it. By applying it to every modification company you look into, you give yourself a much better chance of finding a competent company that can solve your financial crisis.
Remember, while these questions serve as a measuring stick, you also want to take a step back and look into the "big picture" and as the saying goes, "trust your gut". Is the company run by people who are "visible" and put themselves out there publicly using new media tools like blogs and videos, or do they hide behind "template" websites?
Do you get the feeling that they are competent, and that they also truly have empathy for your situation?
No matter what happens, remember that a house is just that...a building. It doesn't define who you are.
Thomas Jefferson is considered the key author of the Declaration of Independence and one of the greatest presidents and Americans in history, yet few people know that he lived in substantial debt his entire life. He died in deeply in debt and his estate was unable to satisfy it. Should we think less of his accomplishments? No, exactly, and you should not think any less of yourself because of mistakes you may have made. What matters now is what you do going forward.
You can spend time asking yourself "why me?", or you can ask yourself "how can I use this challenge to find a way to solve my problem?" - either way you will get an answer. It is up to you to choose which question to ask.
I wish you success in your search for a solution to your housing crisis.
