Loan Mods Pro and Con, from Grapevine Posters
The following is a compilation of portions of several threads regarding loan modifications posted on the Mortgage Grapevine website in the past few weeks.
CJAX: Many brokers and non-brokers are jumping into the biz making quick money. I think it's a good idea as long as you're with a processing company that delivers good service and keep the clients in communication on the status of their loans. Also a money-back guarantee is the way to go. Are you in the game or sitting on the sidelines?
Psc: Servicers and lenders now are dealing with the borrower to do this, providing they meet the income criteria for the new loan and this service is free to the borrower.
CJAX: Be realistic! Lenders are not going to be able to handle the volume of borrowers coming. Of course they will need a middleman or women (brokers), don't you think?
Psc: Regardless who calls the servicer or lender (borrower or the third party), the servicer or lender must do the work. So the volume is the same. The only difference is that the third party takes a fee from the borrower. So help your client; tell them to go direct and no fee.
CJAX: I was told that in Florida and California you must have an attorney doing the negotiating if not you will be fined. Is this true?
Sneaky_pete: Why does a borrower need you to call their current lender for them? Are consumers really that stupid? Next there's going to be a broker who will dial your phone for you, change the channel for you.
Getsmartaz: It is not as easy as you may think. I work for a HUD-approved nonprofit agency and have done hundreds of loan mods. We usually find that most borrowers do not give the lender the correct financial information, so they are denied. They come to us, we review their financials, resubmit the packet, and we usually get a better response. I agree though, that borrowers could do it themselves if they had the tools and the education.
CJAX: I agree with you 100%. Consumers could do it themselves, however hiring someone who knows the ropes just makes sense.
GoldenDomer: The lenders/servicers aren't doing their own loan mods entirely for free. They themselves receive subsidies of $1,000 for a loan mod, in addition to another thousand annually for three years. Many charge additional fees as well.
Fmasontex: I am thinking of adding loan modification to my services but I am getting different information on commission structure. One company told me that they pay $375 for every deal while another told me they pay $1,500 but they offer no guarantees or refunds to clients. Can anyone tell me more about how to find a good loan mod company/program, how commission structures work in loan mods and which companies are good/bad?
ICD's No. 1 Groupie: Take them to their lender. No refund to clients is illegal. The whole process is under scrutiny. I'd stay away from it if I were you. Anyone can call their lender's home retention department and negotiate themselves.
FIREWALL: Note, most departments of banking require that you forsake your LOs license and be licensed as a debt adjuster. Check your state DOB license requirements first.
Indyofficer: I keep seeing ad for loan modification branches. Do you have to be a licensed broker to do them for homeowners? Any suggestions on how to get started?
Coach: Many states (especially California) are requiring licensing plus other requirements. Also, the best firm to go with is one that is both a licensee and has attorneys on staff. One more item, 100% money-back guarantee is a must. If the mod cannot be done in 30 days then stay away. Interview lots of firms (I did). Make sure they are not just the same predators that were doing bad loans before, and now are doing mods. Make sure they are looking at the client with the idea of trying to do an FHA loan, mod and debt settlement.
JustplainMarvin: Watch out. States are coming down on these. HUD is upset over them. Mortgage licenses are required by some states. You can get busted over the contract wording and how fees are paid. It's best left to an attorney.
Mortgage_gawd: I am trying to understand when it is appropriate to suggest that a homeowner do a loan modification vs. a short payoff refinance? Besides the obvious difference (one has a refinance, one doesn't) when is it appropriate to do either?
Jose Morales: Unholy cow, Batman. Day and night diff. On mods the owner gets to keep the prop. On shorts the owner is going to lose the prop. On shorts someone is going to negotiate the mortgage way down then provide a buyer and make a fortune on the newly created equity. I'd give you a complete lesson on shorts but it has taken me hundreds of dollars to go through short school (yes, there really is one or two) so you would have to pay me as an advisor.
Deep River: Here are some rules of thumb.
Do a short refinance:
1.) When the current balance exceeds value.
2.) When there is a significant opportunity for rate/payment reduction.
3.) When the borrower qualifies for a refi on credit, income, employment and DTI.
4.) When the borrower is current on the note.
Do a loan modification:
1.) When the current balance exceeds value.
2.) When the current note is due for adjustment or full amortization.
3.) When the borrower will not qualify for a refinance on credit, income, or employment.
4.) When the borrower is seriously delinquent on the note.
JustplainMarvin: I disagree with loan mod No. 3. All the loan mods I've tried wouldn't do anything, not even a one month payment deferral, unless the borrower qualified.
Mortgage_gawd: Marvin, I don't understand what are you talking about.