Do Loan Mods Really Suck?

THE MARKET

Challenges

The industry has to be one of the most maligned. Bad Publicity is due to the actions of some predatory companies as well (if not more) due to lender incompetence. Also, lenders don’t want homeowners to be on a level playing field, by having knowledge of their gudilelines and criteria.

One of the common complaints is that “They Take Too Long” which is due to lenders not investing in infrastructure, i.e. personell, software and systems. Unlike a refinance, this can drag on for many months with no end in sight by the homeowner.

If you’re involved with your client, you may have to live with process for 3-6 months and in some cases even longer. So, thiscan impact you’re relationship with your clients and your ability to focus on your core business.

Another common complaint is poor communication. This is due to the incompetence of the lenders as well as the many layers of management Law Firms and Modification Processing inside these companies. This makes getting a simple paystub require a Lender’s negotiator to talk to a processing manger who talks to an assistant, who talks to a sales person who talks to the client. And then once the paystub is retrieved it goes back up the chain all over again. Where there are extenuating circumstances regarding the documentation, critical details can get lost in the process.

Probably the most disappointing facet of the business is that even when a successful modification is attained it doesn't always meet the client’s expectation. This is due to several factors. The primary reason is that since the process takes so long and riddled with ongoing requests for updated documentation, clients are frustrated. The other reason is that sometimes the sales person who is trying to justify charging thousands of dollars by promising monthly savings that are best case.

For the modification companies who get paid on the back end it is sometimes hard to collect final payments. Most of these clients are squeaking by making their payments and coming up with the money required does not come easy. Many of these homeowners are credit challenged and setting aside money by budgeting for it is no usually something that takes place, making that final payment hard to come by. Of course, this brings about a strained relationship.

Finally, one of the biggest reasons that homeowners are left with few choices to turn to for help is that compliance issues have forced companies out of the business. Between the backlash from predatory companies taking advantage of distressed homeowners and the lenders own propaganda machine try to dissuade homeowners from seeking help, they get caught coming and going

The Opportunity

The number of foreclosures and homeowners with late payments are growing monthly. Even when things start to level off, there is still going to be an ongoing number of distressed homeowners. Unemployment is growing and as we mentioned earlier, with legislation and compliance requirements eliminating help, there is a tremendous void to fill.  

Right now, distressed homeowners have four basic choices. We will detail the advantages and disadvantages.

1.    Go Direct to the Lender

2.    Non – Profit

3.    Modification Processing Companies

4.    Attorneys  

This represents the lowest chance for success.  Lendders have specific guidelines regarding debt to Income with both the mortgage, taxes and insurance and with the mortgage expenses and all the other monthly expenses. This calculate both before and after the modification. It’s no wonder than less than 5% of those who apply are approved. This represents the worst option for success. Not to mention that they are incompetent, won’t invest in people, software or systems. On the plus side, there is no cost and they do like to work directly with their clients which they do eventually anyway.

Non – Profits

They generally don’t charge anything although some charge minimal fees. They usually pay minimum wages and don’t have the most competent people working for them. Due to lack of budget and personnel, there are usually long lead times for them to respond. They lack in training and many are overworked, so they are not a reliable way for homeowners to get the results that they are looking for. In this case, you generally get what you pay for. With the mortgage representing a homowners biggest liability and the home being their biggest asset, risking it with this type of represenation, is usually not worth the risk.

Modification Processing Companies

Some of these were the same companies that were involved in predatory lending practices. They were the same sub-prime lenders types that caused much of the current problems in the first place. They tend to go in and out of business and are generally unstable. Not to say that all or even most of them are in that category, it’s just very difficult for the homeowner to know who is honest and competent. They are expensive with fees running from $1,500 to $5,000. Many times their sales people are not properly trained and since they are trying to justify fees of several thousand dollars, they tend to over exaggerate the potential savings and end result. There are many layers of management and sales people who create a lot of expenses which wind up costing your clients money and it makes communication inefficient. Lenders generally don’t like working with these types of companies. On the plus side is the do perform and represent the client on a level playing field.

Attorneys

The last solution. They are by far the most expensive and share many of the same shortcomings as the modification companies. They sometimes use the angle of finding inconsistencies, fraud, as their way of getting a loan modified. But they know the business and will represent tbe homeowner. They are necessary for certain types of clients depending on their situation, but it’s the extreme case.