An Interview with Attorney and Consumer Advocate, James M. Parsa from the National Loan Modification Center
Mr. Parsa, first of all, how does a homeowner qualify for a Loan Modification?
Attorney James Parsa from the National Loan Modification Center:
Fortunately, or unfortunately, depending on your point of view, our difficult times call for bold measures. And the banks and lenders out there are at the present time willing to work out deals with homeowners that take the initiative to present their case and are serious about keeping their home.
Almost anyone that is having a hard time making their mortgage
payments will qualify for some kind of Loan Modification. I am hard pressed to think of any lenders that are not currently willing to negotiate a Loan Modification with a struggling homeowner, because the bottom line is that they don’t want another foreclosed property on their books.
So can people just call up the bank and get a Loan Modification done themselves?
Attorney James Parsa from the National Loan Modification Center:
Absolutely, but they have to be ready. They need to be willing to make a big investment in terms of being on hold for hours on the phone… multiple times. In addition, they need to be prepared to gather, prepare and submit the required paperwork to their lender, keeping in mind that each lender has different requirements to initiate a Loan Modification. So the first step is to have a clear and firm grasp of what they require to qualify you, evaluate your situation, and finally offer you a Loan Modification based on how you have presented your case. You also need to be sure to keep a consistent schedule when following up with the bank or lender, and always keep notes and records of all communications.
You should understand that the home retention divisions at these lenders are severely overwhelmed and have a hard time keeping up with all the details of every case. I personally know clients that would have to explain their particular situation from the beginning every single time they spoke with a representative. Banks and lenders were not prepared for this foreclosure crisis and are just now catching up in terms of staffing.
The process will typically take anywhere from 6 to 8 weeks once they have all of your materials, but sometimes much, much longer depending on the size of the lender. Once you have a Loan Modification offer, you should carefully read and evaluate the terms. I’ve seen some offers that require an exorbitant up-front good faith payment, sometimes in the tens of thousands of dollars, other offers are only good for a year or two, and still others require that you give up any equity in your house to the bank once the market comes back… these are not ideal terms for a Loan Modification.
So what are the ideal terms for a good Loan Modification?
Attorney James Parsa from the National Loan Modification Center:
The best Loan Modifications are achieved when:
1. There is a reduction in the principal balance, which usually means your your mortgage amount is reduced to the current market value
of your home.
2. The loan is modified to a lower fixed interest rate.
3. There is an extension of the loan term (to 30 or 40 years) if necessary.
4. No good faith payment is required, or the payment is reasonable, usually the size of one or two mortgage payments.
5. The bank does not require any transfer of equity back to them when the market rebounds.
6. Any late fees, attorney fees, late payments and other charges are added to the end of the loan, or forgiven all together.
7. The terms of the Loan Modification are permanent for the life of the loan.
Keep in mind that it is very difficult to get your bank or lender to agree to every single one of these items, but it's not impossible. At my firm, we have cases where we have negotiated all of these favorable terms for our clients. However, most of the time the goal is to reduce the monthly payment on a mortgage by any means necessary. That way, the family has a permanent solution and they can stay in the home as long as they like, or at the very least they get several more years in the home while the real estate market comes back, then they can sell their home, get their investment back, buy a different home, etc. Simply put, their options open back up.
Sounds like quite a bit of work especially for homeowners that are working full-time, are there organizations out there to help people through this process?
Attorney James Parsa from the National Loan Modification Center:
Yes, there are several non-profit and government funded organizations out there that help struggling homeowners to get through the Loan Modification process. However, just like the banks and lenders, these groups are overwhelmed. They do honorable, necessary work, but they just do not have the staff, funding our resources to do it all for you. They typically just serve as a guide to get you through the process and unfortunately cannot give you definitive legal advice once you get your offer.
What options exist for someone that does not have the time, patience or confidence to do this on their own?
Attorney James Parsa from the National Loan Modification Center:
You can hire a Law Firm that specializes in Loan Modifications. But make sure it is a Law Firm, and not some fly-by-night operation, or a Mortgage Broker turned “Loan Modification Specialist”. At a Law Firm, the staff usually takes care of all of the paperwork and phone calls on your behalf, and an attorney will advise throughout the process, check your loan documents, and give you valuable counsel at the end, when you get an offer from your bank or lender. On top of that, the firm will usually review all of your loan documents for fraud, misrepresentation or abuse on the part of your broker, brokerage firm or lender. If inconsistencies are found in compliance with real estate law, then you have even more leverage with your lender because in a successful lawsuit they would typically have to refund every last cent that you have paid them in mortgage payments, including interest, and they would have to give you a new loan at fair market value. However, legal action for mortgage violations is best used as a bargaining chip, and only initiated as a last resort in specific Loan Modification cases.
