Loan Modifications – Real Program Or Scam?
Written by: Tom Sawyer
Do you know anyone who has successfully had their home loan modified? Personally, I don’t know anyone who has had success trying to get their monthly payments lowered. I’m not sure if that is due to me not knowing anyone who needs it or if they have just been turned down; people understandably don’t want to talk about their personal affairs.
From the beginning I’ve thought this was another smoke screen to keep banks going, and executives paid, while the recession impacts others. I’m naturally cautious when it comes to believing things that come out of Washington DC, especially after living in the area for three years. I would love to have been wrong about this, but according to an article I read I might be right.
Those Who Have And Those Who Haven’t
“Since its debut, the plan has led to offers of more than 190,000 mortgage modifications with lower monthly payments, according to the Treasury Department. During that time, lenders either have started or advanced foreclosure proceedings against more than 1 million homes, according to RealtyTrac. About 20% of those were foreclosed upon and repossessed. The Center for Responsible Lending says 2.4 million Americans are at risk of foreclosure in 2009, and 8.1 million could be over the next four years.
Homeowners who apply for mortgage modifications are finding that banks typically are taking 45 to 60 days to respond to inquiries, according to a report this month by NeighborWorks America, a provider of foreclosure-prevention counseling.
Some homeowners who applied for mortgage modifications five months ago still have no answer on whether they will be able to arrange smaller monthly payments, leaving them uncertain whether they’ll keep their homes or lose them shortly.”
The above is from an article in USA Today. I know some people may think that these homeowners brought this upon themselves, but the banks still have the money to modify the loans regardless. Why isn’t the money being used for what it was intended? Remember, $68 billion was recently returned to the government from banks. Hmm, interesting.
What Are The Banks Doing?
Even though banks have money to modify mortgage loans many seem to be doing something else with the money. Banks are asking for paperwork to process modifications over and over; seemingly “losing” the paperwork somewhere along the process. Some applications are closed, without the bank contacting the homeowner to notify them of the bank’s decision. Finally, some people are just kept in a holding pattern; some experts say delaying an answer is more politically correct than giving an immediate answer.
Who To Blame
Many people blame the homeowners for getting themselves in a bad situation by buying more house than they could afford. While I understand this way of thinking, I think the economic environment and market at the time should be taken into account. Many people, smart people, got into a mortgage loan that they previously wouldn’t have been able to afford. Others could afford the loan at the time, but the recession has changed their financial situation. Taking all of these factors into account, it isn’t necessarily accurate to make a blanket statement and say the homeowners are to blame.
Owning a house is the ultimate dream for some and when given an opportunity to buy, they jumped on it. We cannot forget the fact that many don’t know/understand all of the fine print associated with buying a home and some things got past them. Missing the fine print is something that happens to many people and it is one reason the Obama administration is making an effort to simplify the paperwork associated with buying a home.
The banks should shoulder most of the blame in my opinion for two reasons, loan practices and lack of action. First, the term “predatory loans” has become common when talking about the recent housing boom and collapse. The banking industry took advantage of eager home buyers who, for the most part, didn’t know any better. Secondly, banks have been slow to modify loans, stringing some homeowners along before denying their application. What are they doing with the money if they are refusing so many people?
The popular choice, for some, is to blame President Obama and his administration. After all, the Obama administration is being blamed for many of the problems in our country. Sure, he hasn’t made all the right decisions, but it isn’t like he had 7 years to gain experience running the country. Look, I don’t agree with everything the Obama administration is doing, but I also realize he inherited a bad situation and he has at least done something different to try to initiate change. The saying goes something like if you keep doing the same thing, you will have the same results. Obama is trying and I wish some people would just come out and honestly say they just don’t like him because of political party, race, etc. Even those who don’t like him for what he has done must admit there are many who don’t like him for other reasons.
Where We Go From Here
I think the banking industry is out of control in some ways. They had the money, didn’t necessarily to do what they were/are supposed to and gave a lot of money back. I would say they hid their actions to the largest extent possible and just returned what they couldn’t hide. Even though that opinion may be harsh and simple, these situations are often made more complex to divert attention.
Maybe later we will find out what is really going on. Or, maybe things will stay hidden in typical Washington DC fashion.
Tags: banks string loan modification applicants along, Loan modification isn't happening as planned, Obama administration loan modification plan not working
June 22nd, 2009 at 6:53 am
I have handled hundred of modifications for clients and I can tell you that while there is “lost paperwork” by the banks, having to resubmit the same items over and over, there are many people who have been modified.
I think the common misconception is that people can just call up and ask for a modification and they will get one. It is much more complicated than that. There is a detailed multi-step process that must be completed in its entirety with no shortcomings. Further, every bank has their own requirements for the documentation they need/want and it must be done properly (i.e. some banks want 1 month of paystubs, some banks want 6 months of paystubs, some banks want 2 years of tax returns, some banks want 1 year of tax returns).
Its a highly complicated process and that is why in New York State it is required that the only people who can charge an upfront fee for a loan modification is an attorney or a mortgage broker. Both of whom should know and understand the process extremely well.
Stefanie Devery, Esq.
The Devery Law Group, P.C.
sdevery@deverylaw.com
June 22nd, 2009 at 2:52 pm
Tom,
First in regards to Obama. Is it really hard to believe that people like myself don’t like him purely on policy? For me as I’ve stated in the past many times, race has nothing to do with it. Sure you can say it has something to do with party but that’s not the sole reason for it. I only say party has a role because the parties generally follow suit with policies and it is indeed his policies and views that I despise.
In regards to the home loan modifications. Obama certainly has to own up to some of the blame as it was his administration that designed the programs but he’s not alone. In my opinion you are right about the banks doing something else with the money other than modifying/refinancing loans.
Shortly after we found out that Crystal (my wife) was losing her job due to the company she had been employed with for over five years going out of business I decided to do the responsible/considerate thing and contact my lender to fore warn them of our predicament and to see if they could post pone our payments until we received our first unemployment check (At that point unemployment checks were taking 6 + weeks to get). There response tells a story. I was told that they couldn’t even put my name in the computer to see what options they could give me until I was more than 90 days behind on my payment.
So let’s take this for face value; the banks aren’t willing to throw you a life preserver until you’ve already drowned to death. They are basically throwing water on the grease fire that is home foreclosures. It wasn’t this particular policy that started all of the chaos but it is what will continue to add to the amount of homes that get foreclosed upon due to so many Americans losing their jobs.
My story doesn’t stop there. We were very fortunate, Crystal found a job after only two weeks of unemployment so we didn’t fall behind. However, I decided to contact my lender to see if we could qualify for a home loan modification or refinance seeing how our loan was held by Fannie May which is one of the requirements. I received the runaround time and time again claiming that they were waiting for the new program to be put in to place only to be given the same information weeks later. As they sit there and give us homeowners the runaround the interest rates continue to climb and at this point making it pointless for a responsible home owner like myself to refinance. This is quite irritating as people who were irresponsible and got in over their heads are now sitting in loans as low 4.5% and I lost out on what would have saved us nearly $200 a month.
In regards to blame for the purchasing of homes the borrowers couldn’t afford, I blame the lenders and borrowers equally. As they say, ignorance isn’t an excuse nor is greed. This isn’t where I’d place the blame for the whole crisis but as for homeowners buying more home than they can afford it’s 50/50 Borrower/Lender.
.-= Ryan Kazinec´s last blog ..Is Rush Limbaugh Good for the Repulican Party? A JealousBrother Guest Post by Robert Barr =-.
June 22nd, 2009 at 3:36 pm
@Stefanie Devery – Thank you for your response Stefanie. Actually, your response brings up another angle. Maybe part of the bailout money has gone towards lawyer fees. What is the real benefit of putting a lawyer in the middle now when lawyers weren’t part of the loan process to begin with? If it is that way in your state, I can see where someone can make quite a bit of money from this. I’m sure modification approval isn’t a stipulation for you getting paid so that money has to come from somewhere. I would think the Obama administration, since they created the program, is to blame for allowing this especially since one of his ultimate goals is to make the home buying process simpler with less fine print.
.-= Tom Sawyer´s last blog ..Loan Modifications – Real Program Or Scam? =-.
June 22nd, 2009 at 3:51 pm
@Ryan Kazinec – The main reason for mentioning race in regards to the Obama administration is to put all the cards out there on the table. I have no doubt that there are people who despise him and his position based solely on race. Those are the kinds of people who will avoid the question entirely, but will send racial propaganda via email. Meeting something like that head on would indicate something other than racial bias to me.
Your situation seems to fit what the article was saying. You were strung along and the only way you could have got help is when it was too late. You aren’t the only one I’ve heard this from. It seems like banks tell people, directly or indirectly, that they should not pay and get behind to qualify for help. Even the short sale process takes way too long and possibly backfires on the homeowner. How long are potential buyers supposed to wait while the bank figures out if they will accept an offer in the short sale process?
As far as what the banks did with the money, our new friend Stephanie has shed some light on where some of the money may have went. I still think CEOs/executives used the money to make sure their income remained steady as long as it wasn’t made public like the bonuses paid by that one bank (AIG I think).
I agree with you that homeowners should accept part of the blame, but we have to put ourselves in others’ shoes when we think about it. There are those who are simply greedy and wanted to move from a perfectly fine house to something on a grand scale simply because the banks were allowing it. Then there are those who were trying to buy that first house. I will be the first one to admit making mistakes on our first house purchase, maybe the second and third too. But those mistakes don’t make me irresponsible, I just had to learn. Unfortunately, there are many people who got caught up in a trend that fell flat. You should be glad you aren’t one of them, I know I’m glad I’m not.
.-= Tom Sawyer´s last blog ..Loan Modifications – Real Program Or Scam? =-.
June 22nd, 2009 at 4:24 pm
I am glad Tom and I understand you point regarding race.
.-= Ryan Kazinec´s last blog ..Is Rush Limbaugh Good for the Repulican Party? A JealousBrother Guest Post by Robert Barr =-.
June 23rd, 2009 at 7:31 am
@Stefanie Devery – When you say only an attorney or mortgage broker can charge a fee, does that mean that the person who is filing for a loan modification has to pay this fee before they even get started? I’m totally confused. I think this is a total sham for the banks! It’s like they want the homes to go into foreclosure! If you have someone willing to do it all it takes to keep the home, why not help them?
June 23rd, 2009 at 7:48 am
@Kim Sawyer – You do NOT need an attorney for a loan modification. You can absolutely call your lender and start the process yourself. Some of the banks even have an online system of beginning the process. However, an attorney who specializes in Real Estate, will be able to help you through the process easier. Yes, I charge a fee for my services and no there is no guarantees (if someone offers you a guarnatee RUN!). However, I have handled hundreds of modifications and I understand the process much better than someone who is trying to do it themselves for the first time.
You can absolutely handle a modification by yourself. Feel free to call the bank and start the process. Then call me when you are having trouble, get denied, or cannot get an answer. Then we will start the process again (50% of my loan modification business is from people who tried to do it themselves first).
I offer no guarantees; however, if a client comes to me and I cannot help them or dont think that they will qualify, I do not take their money. Any attorney that you go to for a loan modification (or any legal problem for that matter) should evaluate your situation and help you make the correct choice in moving forward.
There are many scam artists out there and it gives the Real Estate community a bad name. Contact an attorney. That is your safest bet.
I also understand the frustration with the banks. While it does seem as though they want the house to go into foreclosure, trust me they do not. What they cannot have happen though is that they give you a modification and then you go into foreclosure anyway. It costs them time and money also on every file that is deliquent.
Stefanie Devery, Esq.
June 23rd, 2009 at 8:30 am
@Stefanie Devery – Okay, now I understand. I originally thought you were saying that an attorney/mortgage broker was needed to file for a loan modification.
I think the breakdown in the process comes in to play when the banks tell you you need to be behind in payments before they will even CONSIDER looking at your file. That’s a system that sets up the client to fail, don’t you think? I mean, if someone tries to be proactive and tells the bank, I’m having trouble and I don’t want to get behind, what can we do to prevent it and the bank essentially says, “become delinquent”, what kind of nonsense is that?
I don’t feel any sympathy for the banks because at the end of the day, they are still making a profit. The biggest concern with people nowadays is that some of the biggest lenders took bailout money to help curtail foreclosures and guess what? The money is not being used to help homeowners in trouble. So back to the original question in this post. What’s happened to the bailout money?
June 23rd, 2009 at 9:30 am
Ok, you absolutely DO NOT have to be behind on your mortgage payments before a bank can consider you for a loan modification. You must be in imminent danger of defaulting, but you do not have to be in default. Under the Making Homes Affordable Act (MHA), you do not have to be behind and a bank cannot require that you are.
Now, imminent danger of default is something different. What one bank considers danger of default is different than another. However, if you cannot save anything every month or are saving very little (less than $1000), then you are most likely in danger of defaulting.
Don’t get me wrong either…I have no sympathy for the banks either. They got themselves and everyone else into this mess and they should get themeselves out of it. The biggest problem is that everyone wanted an instant fix and its just not possible. The banks cannot train the people they need so the people answering the phone and handling a lot of these modifications are untrained. You will get a different answer if you call today versus calling tomorrow. But it is getting better. The banks are working on the problems and there has been vast improvement in the system.
Hope that helps…a little.
Stefanie
June 23rd, 2009 at 9:44 am
@Stefanie Devery – That helps a lot. I do not think a lot of people know that you DON’T have to be behind in payments before the bank can help you (see comment by Ryan). He was told you DO have to be behind and I know some other people who’ve been told that. This is why I think the banks are setting people up for failure. Granted, we should do research too, but we kind of go in thinking the banks are our friends, you know what I mean? And it turns out, that they’re not.
Thanks Stephanie for enlightening me and our readers. Please do not be a stranger on our site. You provide great input!
June 23rd, 2009 at 10:13 am
No problem. My website is under construction but I have been working on blog posts while waiting for it to be finished. After this exchange, I am definately going to write a blog post about modifications and the myths. Maybe I can help some others also.
I will definately keep reading your site.
Thanks for the compliment.
July 8th, 2009 at 12:36 pm
I found your blog on google and read this great post on loan modification. I just added this site to my Google News Reader. I Look forward to reading more here in the future.
July 8th, 2009 at 2:16 pm
I am glad I had a chance to read your post, if you have more information on loan modification elsewhere let me know or post it here.
July 10th, 2009 at 8:21 am
Hello, great blog, are you interested in doing a link exchange?
July 21st, 2009 at 11:54 pm
Interesting!
The loan modification process can be frustrating and confusing for many distressed homeowners. But you have to know what exactly is loan modification. A loan modification is a permanent change in one or more terms of a borrower’s home loan.
December 28th, 2009 at 4:02 pm
Well, now you can say that you have heard from one person who has successfully modified their mortgage. I actually have 2 and have applied for modification of both. The first was completed within 60 days, the second I am still waiting on. I did it all by myself, with a loan modification kit. I have been asked to submit new paperwork every month and this is because any documents dated 30 days earlier are no longer valid. Yes it’s the fault of the bank for taking that long, but I have no choice other than to agree to their terms if I want to get a lower payment on that second mortgage.
One bit of bright news is that the feds have said that all loan mods now in process must be completed by the end of the year. Hopefully this will help all those who have been waiting for months to hear about the status of their loan mod.
.-= LM´s last blog ..Options for Home Loan Modification =-.
June 24th, 2010 at 6:42 pm
Hello Can anyone recommend a good loan modification specialist? Or do you think I should try this myself. If so, can you recommend a good training kit so I will know what not to do?
Thanks!
July 5th, 2010 at 2:02 am
Interesting story, it is similar to an article I saw submitted about a month ago. I can’t remember the specific webpage, but I believe it was by George Redding, do you know them?
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