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Inside a loan mod factory
Kudos to Peter S. Goodman of the Times for listening in behind the scenes of a loan modification company (unnamed) in pursuit of understanding why so few mortgages are being successfully reworked to make them more affordable for borrowers.
Let’s charitably assume that Goodman tried and didn’t succeed in getting a HUD-sponsored nonprofit to agree to the arrangement. As Goodman notes, the company he visited charges $3,000 for a loan modification. So what the heck is it doing putting a college student intern – “intern” almost always a synonym for “unpaid” – on the front lines of the transaction?
Somewhere on earth, there must be a more difficult task than this: persuading American mortgage companies to lower payments for homeowners who can no longer afford their loans. But as Karina Montenegro struggles to accomplish this feat for a troubled borrower, she strains to imagine a more futile pursuit.
As the article notes, the customer will get a refund if the loan is not successfully modified – that’s the law in California. What it doesn’t explain is that the company can hold onto a deposit that can be one-third to one-half of the total amount. What’s more, pretty much any change to a loan terms can count as a successful modification if the borrower can be persuaded to accept it – even if it simply forestalls unpayable bills to a later date, which is often the case. Even with the new federal incentives, it’s extremely rare to get a principal reduction – and that means mortgage who overpaid and overborrowed are recommitting to pay too much. Which is all to say that having loan servicers lose the paperwork isn’t always the worst outcome.
More here, in my March Salon story on California’s loan modification companies.
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How the homes we live in turned into the monsters that ate our economy and the United States became a nation obsessed with real estate.
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Not to mention that you only have once chance to modify. A “refund” in many hopeless homeowners eyes really isn’t sufficient when they lose their home. If the borrower is trying to stall the lenders through court to get free rent, yes this loss of paperwork might be at their advantage, but how many of the hundreds of thousands actually play Russian roulette?
Loan Modifications can be tackled relatively easy from the homeowners stand point if they possess the knowledge on what the lender is looking from to modify the original note. Most homeowners looking to use a DIY kit don’t really learn exactly what to say to the lenders and either claim over or under the optimum guidelines to be guaranteed a loan modification. It really depends on the borrower to whether a short sale maybe more optimum; if they are going to lose the house anyways.
Great post