Are Free Loan Modifications Really Free? Are Non-Profits Really Who You Want to Stop Your Foreclosure?

We have all heard the saying, “You get what you pay for.”   So what do you get if you pay nothing?

In today’s troubled economy more and more people are feeling the financial pressures of paying the monthly bills.  The mortgage crisis has affected an amazing percentage of American homeowners.  Sub-prime lending and Adjustable Rate Mortgages (ARM) are the main culprits.  Unfortunately, these “no proof of income” and ARM loans are beginning to catch up with those who did not have the fundamentals of these loans properly explained upon their originations.

Loan Modification is a rapidly growing solution for those with mortgage payments which are too large to fit comfortably into the monthly budgets.  There are numerous ways to address the process of a Loan Modification.  One of these is to attempt it on your own forgoing assistance from a professional company specializing in all forms of Loan Modification.  To do this, millions of Americans have gone to government subsidized sites such as

President Obama’s Plan, which includes more than $70 billion dollars of financial assistance through a Government Loan Modification Program, gives financially strained homeowners some much needed hope. However, there is a good possibility that the families who need this help the most will not be able to use HopeNow’s services to complete their modification. A recent Ezine article by Alfred Sant illustrates this:

“Because of the numerous and strict requirements enacted, plus the intense analysis involved, most of these needy families will be unable to meet the criteria for help.  Since there is so much red tape involved with the Government Loan Modification Program, only a small percentage of the homeowners affected by possible foreclosure will get any assistance from this Loan Modification Program.  Banks and lenders are not required to work with homeowners, since the Government Loan Modification Program is voluntary. However, depending on each case, if it is financially lucrative for the banks or lenders, then the homeowners have some hope of getting assistance.  After forms are completed, documents and paperwork processed and all questions answered in great detail, the banks will make a determination as to which borrowers provide the greatest reward and least risk to them financially.”

The fact is HopeNow has come up short (to say the least) in performing long term modifications for Americans who are no longer able to keep up with their monthly mortgage payments.  Don’t listen to me.  Do the research on line and see for yourself.

“One of the biggest disappointments of the foreclosure prevention fight has been HOPE for Homeowners, a plan Congress passed in an attempt to help as many as 400,000 underwater, delinquent borrowers from going into foreclosure.
In its first seven months, HOPE for Homeowners helped one family stay in its home.”
May 21st, 2009

HopeNow promotes itself as providing a place where distressed homeowners can attain a loan modification for free.  The issue then becomes who is helping you on the other end of the phone when you call for help.  What level of vested interest does this not-for-profit individual have in improving your financial situation by adjusting your mortgage rate/payment to a more manageable level?  What are they getting out of it?

“Hope Now, the coalition of regulators, servicers, lenders, and community advocates helping sub prime borrowers, is being criticized as ineffective and too narrowly focused.  Even its own members are piling on.  Sources associated with Hope Now, most of whom spoke on condition of anonymity, tick off a list of problems: infighting among members, inflated loan modification statistics, and empty public relations moves.   “Hope Now is nothing,” said a representative of a Hope Now member. “It’s hard for it to do anything. It has no authority over investors or even its own members. And, surprise, people have different ideas about the best way to proceed.”

-American Banker; February 2008

If the above wasn’t disturbing enough The Mortgage Insider states in a December 2008 article:

“According to a study published yesterday by the OCC, defaulting mortgages lucky enough to get modified are going back into default within six months 53 percent of the time. This is a shocking statistic to me as well as to the Comptroller of the Currency, John C. Dugan.  Mr. Dugan in the press release said, “After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent,” the Comptroller said in remarks at the Office of Thrift Supervision’s National Housing Forum today.”  How can folks be so cavalier with their “second chance”?  Mr. Dugan speculated, “Is it because the modifications did not reduce monthly payments enough to be truly affordable to the borrowers? Is it because consumers replaced lower mortgage payments with increased credit card debt? Is it because the mortgages were so badly underwritten that the borrowers simply could not afford them, even with reduced monthly payments? Or is it a combination of these and other factors?”

In short, you get what you pay for.  Free is not always free. This trend of re-default is not due to the loan modification industry itself, it is due to incorrectly performed loan modification by individuals lacking the necessary knowledge and resources.  One would be wise to consider hiring a professional to negotiate the terms of a note held on the single largest asset they have.

We all choose to hire people, based on their expertise, to take care of those things in our life which we’re unable to do ourselves.  This may be due to lack of knowledge, time or patience.  Whatever the reason we trust these individuals will, in a professional manner, give us the service for which we pay.  That’s WHY we pay for them.  Would you opt for a free child care service or pay for a license facility to watch your children while you’re working?  Do we choose the free medical clinic if we are able to go to our family doctor instead?  Do we opt for the “discounted” meat or do we pay for the fresh stuff?

If, after considering all this, you still feel you want to tackle a loan modification on your own; be sure to avoid the following common mistakes.  Many before you have tried and inadvertently fallen into one of these pitfalls.  Unfortunately, for many of them, by the time they realized their error(s) their home is too far into foreclosure.

MISTAKE #1: Applying with your lender prior to knowing the way the entire system works and being unaware of lenders requirements in order to approve your application.

MISTAKE #2: Paying huge sums of money as upfront charges to a loan modification company before establishing its credentials and loss mitigation expertise. Many home loan owners have surrendered thousands of dollars without positive returns, instead of starting with their own do it yourself loan modification application process.

MISTAKE #3: Time is of essence. Do not end up wasting it by speaking to employees who under the pretext of assisting you end up extracting last dimes from your pockets. They actually belong to collections department and will probably never help you in providing an actual loan workout. You need to know the right contact person in order to derive the desired results.

MISTAKE #4: Unconvincingly written hardship letters will not help your cause. The description should be compelling in order for the lender to empathize with your situation. It is imperative to understand that if you do not convince your bank that you deserve a Loan workout plan due to circumstances which are beyond your personal control, your chances of approval are very minimal.

MISTAKE #5: Error of Omission – Incomplete information or omitting relevant fields on your application form can be the most common reason for the delay and in some cases even rejection of your proposal. Are you aware that your local bank shall verify all the information provided by you? It is a full disclosure procedure, in which, delays can be avoided by disclosing all your income and debts in totality. There is a method available to ensure that you do not leave or miss anything on your proposal.

MISTAKE #6: Submitting a Loan Workout proposal which does not meet the criteria or requirements set forth by your lender. Each lender has their own criteria that must be met. When your forms do not conform to set criteria of the banks, then in all probability your proposal will be declined. Ensure that you know your banks lending guidelines and then complete your loan modification forms. Are you aware of method to gauge your target mortgage payment so it is within your budget and also confirming to lenders guidelines for approval?

MISTAKE #7: Not providing your lender with the entire loan modification package that includes all forms and documents needed for their review. Remember, your lender has thousands of borrowers like you who need similar assistance.

MISTAKE #8: Not being persistent in communicating with your lender can allow for your case to fall through the cracks and remain un-resolved. You must ensure you are in constant communication with your lender to ensure you get a speedy resolution to your application.
Do know what happens to the package when items are missing or incomplete and cannot be further processed? It is brushed aside and relegated to the bottom of the pile which effectively barriers your chance for a possible loan workout program.

-Jonathan Gillham

Nathan Jeffcoat is a novice writer who enjoys long walks on the beach and current events. His views, although always correct, are not necessarily the views of this website or any of its affiliates.

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