If you’re considering getting into the loan modification business, you’re probably wondering how much you can and should charge your clients. That’s a great question, and one that will ultimately determine your success as a loan modification consultant.
The simple answer is that, while fees can range anywhere from $0 to $10,000 or more, most reputable companies tend to charge somewhere between $1250 and $2500. $2000 is a good target, depending on home values in your area. Just be aware that many of your clients won’t have a lot of extra cash lying around, otherwise they wouldn’t be behind on their payments.
If you are an attorney, or plan to employ the services of an attorney to help with the modification process, you will likely be able to charge more than the average. Attorneys can carry extra clout when negotiating with lenders. They also provide some insurance against litigation from frustrated clients.
If your state allows it (and some don't), take an up-front down payment (say…$1000) in order to weed out the clients who can’t or don’t intend to pay you. Then collect the remainder upon successful completion of the modification. You may need to be flexible with your total fees on a case-by-case basis, especially with homeowners who have inexpensive homes, small mortgages, and modest budgets. If a particular client’s mortgage payment is only $500, and their home is only worth $50,000, then $2000 amounts to four full payments and 4% of the property value. This is probably more than they can afford, but you may still want to compromise and help them anyway.
You could also charge points, such as 1% or 2% of the loan amount, instead of a flat fee structure. Or you can charge $1000 plus the equivalent of one full mortgage payment. Another strategy is to use a tiered pricing system, where you charge a set amount for loans under $200,000, more for loans between $200,000 and $500,000, and still more for loans over $500,000. Lastly, if you a real estate broker, you could attempt the modification for free, and then get the short sale listing if the modification fails. You can use any of these structures, just keep in mind that the higher your fees, the less competitive you will be. Also realize that it will be difficult to justify charging three times as much for modifying a loan three times as large, since the work you do on each is exactly the same.
Consider charging an additional $500 to attempt the modification of a second mortgage. The work will be duplicated, even if the second is with a different lender, so you probably won’t need to charge more than that.
Investment property mortgages are extremely difficult to modify, so you should probably turn them all down outright. However, if you do decide to attempt one (after informing the client of the long odds, of course), you may want to work on an hourly basis regardless of whether the modification is successful. Have your clients sign a contract/disclaimer/release form, collect a retainer check of maybe $500 or $1000, and then go for it.
One parting thought: while your amazing services may very well be worth the extra cash, and even though you may even have a higher success ratio than the average, extremely high fees may render you uncompetitive and even predatory. Fair pricing combined with great service will generally net you the most clients and highest revenues.
