Loan Modification Fees: Is it Justifiable for a Fiduciary to Charge for a Free Service?
Mortgage brokers and loan originators have become curious in learning about loan modifications. When I ask why, they say that they’re hearing there’s good money to be made doing loan mods. What? Wait a second. I thought loan modifications were done by the lender for free.
More and more spam is popping up in my spam bin targeted at LOs and selling “loan modification referral programs,” so I decided to call one of these LOs after sending an email late last night asking for more information and receiving no reply.
This particular person goes by the title of ”mortgage planner.” On her website, she advertises a wide variety of mortgage products including the pay option ARM and the hybrid ARM (are those even available anymore?) but there’s nothing on her website about loan modifications. None of the staff bios show any experience in doing loan modifications. Here’s what I found out. The upfront fee charged to the homeowner is $3500. But the LO assures me that all the work is handled by attorneys, she says. The borrower’s up front fee is placed into escrow. If a request for loan modification is accepted by the lender for loss mitigation (statistics were offered that 93% of loans are being modified) the full fee is due. If the loan does not get modified, $2,000 is refunded and the remaining $1500 is not. I asked the LO why a homeowner wouldn’t just work directly with an attorney. She said that she works with a network of attorneys with a high loan mod approval rate and homeowners are always free to hire their own attorney and not work with her.
I asked her how much of the $3500 goes to the attorney and how much of it she gets to keep. Her response was, “why are you asking me that?” To which I replied, “because if the attorney is doing all the work, then I’m wondering how much of that fee is going to you.” She said “Well I work with the clients. I put a package together and follow up with the lender.” I said, “but a few minutes ago you mentioned that everything is handled by attorneys.” If I were to guess, I’d say that the LO earned $2,000 for a successful loan mod and the remaining $1500 went to the attorney. There are forums out there confirming my guess.
In some states, including Washington State, Mortgage Brokers and their LOs now owe fiduciary duties to consumers. A fiduciary is a person who has the power and obligation to act for another under circumstances that require complete trust, good faith and honesty. Fiduciaries are obligated to avoid self-dealing and conflicts of interests in which the real or potential benefit to the fiduciary is in conflict with the best interests of his or her client. All fees earned must be disclosed to the consumer. The fact that this mortgage planner/LO felt uncomfortable discussing his portion of the $3500 and the actual work performed is a big red flag.
Loan modifications are performed by a lender with no fee to the homeowner. HUD-approved Housing Counseling Agencies perform loss mitigation/loan modification services for free. These agencies are supported by our tax dollars.
I suppose the argument is this: “Well the loan servicing departments are really busy and by paying our $3500 fee, you have a 93% chance of getting your loan modified.” But doesn’t the homeowner still have that same 93% chance going at it alone or with the help of a housing counselor?
If I had $3500 to spend, then I think I’d rather spend the whole $3500 on legal counsel, instead of just $1500. How many homeowners headed toward foreclosure have $3500 to be paid up front? One of the hallmarks of a sham operation listed on the FDIC website is if a lender requires an upfront fee, before any service is performed.
Loan originators, a fee for services rendered is fine, but what are those services being performed? This particular person shows zero experience in loan modifications and admitted to me that the attorneys are doing all the work. Is “gathering papers together” worth $2,000? A fee earned that is not commesurate with services rendered has been catagorized as an illegal kickback via RESPA’s Section 8. Loan Servicing companies are also subject to the provisions of RESPA. All lenders are subject to RESPA whether or not the LO owes fiduciary duties to consumers. Any amount over what’s considered normal and customary for services rendered is considered a junk fee and subject to challenge.
Sigh. I suppose we need to consider that we’re coming out of a mortgage orgy where LOs actually did just gather together some papers, threw them on the processor’s desk, and picked up a fat paycheck. Why wouldn’t they believe this could be their ticket back to the good old days?
Loan Originators, before you begin earning these referral fees for basically doing nothing and handing the file over to an attorney, consider what would happen if the homeowner did not feel that he or she was well served.
Your regulator ends up with a phone call, which turns into an investigation. Perhaps you’ll end up having to refund all those fees back to the consumer. It could happen.
Loan originators, my advice is to refer your financially distressed homeowners to legal counsel and free HUD counselors. Loan modifications are performed free of charge by lenders.
As a fiduciary, is it possible to justify charging anything above zero when you know free services are available for your client?
Okay all you banker types. Help me analyze this trend. If banks/servicers are offering upwards of $3500 to outsource loss mit/loan mods, that can mean several things. It surely means that a large percentage of these people who are receiving a temporary interest rate freeze on their ARMs will be back in 3 to 5 years with their hand out again, asking for another loan mod; IF they even make it that far. 40% of recent loan mods have already re-defaulted. Random, desperate loan mods without common sense underwriting means we’re just pushing this whole mess further down the road, delaying the eventual recover until many years into the future.
Apparently one of these companies coming to town in September to sell this system to LOs immediately following the WAMB convention. They’re charging LOs a pretty hefty set-up and monthly fee to participate in their referral program. Someone is definitely getting rich quick off of desperate LOs.
If you’re interested in learning what it really takes to process loan modifications, I’ve been teaching Realtors how to successfully negotiate Short Sales for 8 years. Attend one of NAMF’s Short Refi classes (yes, this is approved for CE credits) and you’ll get a better feel for if loan mods are worth the time and effort.
I agree with you about moving towards a more professional acceptance of the fiduciary responsibility - it will make more ...
The protection for the consumer from goverment is welcome, of couse, the time consumed would be a function of direct ...
Comment by Kurt Jackson on 4 September 2008:
Jillayne,
While I agree with a lot of what you have said here, do you really think that the consumer is smart enough, or ambitious enough to do it on their own SUCCESSFULLY? I mean many of these folks weren’t smart enough to understand the loans they were getting themselves into, what makes you think they will be savvy enough to make sure they are getting themselves through this complicated process?
As far as the goverment provided sources go, do you really want to trust the government to provide that type of help? Are they really getting qualified help or half ass help from underqualified pencil pushers?
I think that a properly trained mortgage professional working with an attorney well versed in the laws surrounding the lending industry can create an effective team to help the consumer achieve the best possible outcome for them- whether it is a refinance, a loan modification, a short refinance, a short sale, deed in lieu, BK Chapt 13 or Chapt 7, etc.
Comment by Jillayne Schlicke on 4 September 2008:
Hi Kurt,
Thanks for visiting the NAMF blog. Yes, I do believe consumers are smart enough and ambitious enough to go it alone. I have heard of many consumers successfully obtain a loan mod these days on their own, and some have hired consumer protection attorneys.
Kurt asks, “do you really want to trust the government to provide that type of help?”
This is not entirely accurate. Do you mean to say HUD-approved housing counseling agencies? These are non-profit agencies supervised by HUD. HUD has a long history of keeping a watchful eye over their approved agencies. If you’re asking me if I trust HUD-approved agencies, the answer is yes.
Often, these agency employees have ZERO conflict of interest with what the client needs. Further, these agencies employees are often trained in counseling skills. I have met very few LOs with ANY counseling skills, yet all LOs are taught “selling” skills. The exception to this is LOs who came into the industry with a degree in psychology and a state therapist credential.
Kurt asks, “Are they really getting qualified help or half ass help from underqualified pencil pushers?”
We could ask the same question about LOs.
Comment by Jillayne Schlicke on 5 September 2008:
I received confirmation from Mortgage Law Central this morning that unearned referral fees (for doing no work; just refering the client) on a loan mod are a violation of RESPA Section 8:
“Section 5(b)(6) of Regulation X exempts from RESPA “any conversion of a federally related mortgage loan to different terms that are consistent with provisions of the original mortgage instrument, as long as a new note is not required, even if the lender charges an additional fee for the conversion.” Hence, if you do replace the note (which would be a refinancing) and you do not change the terms of the mortgage, the loan modification is not subject to RESPA. By implication, any conversion of a mortgage loan to terms that are different from the original mortgage is a transaction subject to RESPA.
You might argue that no amendment of the mortgage is recorded and, therefore, the loan modification is not subject to RESPA. That is not quite correct. The proper legal analysis asks whether changing the terms of the loan to a fixed rate from a variable rate is consistent with the terms of the ARM Rider to the mortgage. The answer is that the ARM Rider permits the lender to modify the interest rate and P&I payments, but the loan modification does away with these rights. It is irrelevant whether the changed terms are noted in the public records. The fact remains that the terms of the mortgage instrument have changed, and the loan modification is a transaction subject to RESPA.
This begs the question of whether loan modification assistance is a “settlement service,” since only referral fees for settlement services are barred by Section 8(a) of RESPA. For this, we go back to the definition of a “settlement” and a “settlement service” in Section 2 of Regulation X:
Settlement means the process of executing legally binding documents regarding a lien on property that is subject to a federally related mortgage loan. This process may also be called “closing” or “escrow” in different jurisdictions.
“Settlement service means any service provided in connection with a prospective or actual settlement, including, but not limited to, any one or more of the following…..Provision of any other services for which a settlement service provider requires a borrower or seller to pay.”
A settlement occurs when the borrower or the lender signs documents that commit to change the terms of a loan from an ARM loan to a fixed rate loan. Because the borrower is required to pay the loan modification company to complete this transaction, the $1500 fee bootstraps the loan modification company’s services into “settlement services,” and the $500 paid to our inquisitive reader is an illegal referral fee.”
http://www.mortgagelawcentral.com
Comment by David Hopkins on 2 October 2008:
Fee for service is the American way, fiduciary duty or not. As long as the person doing the service does something for the money they are charging (per RESPA). There are alternatives for just about everthing in the country and competition sets a fair price. As for the free government help. I wouldn’t trust them to have the knowledge or the savvy to push for the best deal for me.
Comment by Stephen Harris on 24 October 2008:
I would be interested to know if Jillayne has ever completed a modification? If she really understands the procedures involved, if she understands what these consumers go through every day with their servicers, investors and/or state agencies/non profits in order to get modifications completed. Does she have data of a self mod compared to someone completed professionally. Does she realize the additional cost the consumer bears going alone or with a state/non profit?
I have always wondered how people who never did can pontificate on those that do.
And when we speak of ethics, sure there are unethical people in the lending community, just like any other field, they should be punished. Just as I believe media should be held responsible for their body of work.
Comment by Jillayne Schlicke on 24 October 2008:
Hi Stephen,
Thanks for stopping by NAMF. To answer your question, I use to work inside loan servicing/loss mitigation for a national mortgage lender.
In terms of ethics, I disagree. I do not believe unethical people should be punished.
I believe (with some very minor exceptions) we all have the capacity for moral growth and people in the industry can all help each other in this way by talking about ethical problems and discussing all the possible choices we have, and then setting a path for the industry to follow.
Comment by Sandi Paradiso on 27 October 2008:
Wow! this is great. I’m a new LO, matter of fact I’m not working as a LO now, so all this is so new to me. As I read this a couple of things came to mind. I feel that allot of consumers out their are confused about what they can get. A lot of greeding lenders and LO a like. I think we need to educate the consumer to be care full. For me it’s all about helping individuals with their needs and if loan mods are one of them, then we need to do it to the best of our ability, when need to be trusted and if there is help that doesn’t cost, why wouldn’t we want to send our client that way. If we take care of our clients, our clients will take care of us. We want them to come back, better yet, we want them to tell their friends. Isn’t a mod the same thing as a re- fi? If not please explain to me. As Jillayne said, most people can’t afford $3500. I am a financial counselor and I see clients every day that are in a big mess with there morgatge, they don’t have the funds to pay for a re-fi or they are afraid, some one screwed them once it can very well happen again, this is why I decided to become a LO to protect some of them and make sure they get treated right. I like what Jillayne said “she hasn’t meet any LO’s with counseling skills, but all LO’s are taught selling skills”, I want to be the exception.
Comment by Michael Belisle on 3 November 2008:
Loan Modifications seem like a pre forclosure bail out to me. I do not know the work involved for a loan modification. I am sure I will find out soon enough. $3,500 for someone to handle the process with the attorney’s and home owners does not seem out of the questions. I do know that most people struggling to pay the bills do not have time during there work week to deal with the endless phone calls and transfers and hangups it will take to get a modification done. I am sure its not a five minute phone call.
Comment by Jeff Rafuse on 5 November 2008:
I can see both sides of this subject. There is definitely a huge value added by someone who is experienced and can help a client through the loan modification process. That experience could very likely translate into either a quicker resolution or a more favorable modification and that would add value and justify the fee. Particularly is this is offered as one alternative out of many, and the mortgage professional is essentially providing a consulting service to the borrower, than they deserve to be compensated for their time. Does anyone have any feedback on how efficient the non-profit groups are at these?
Comment by John Mayfield on 6 November 2008:
My brain at first could just not comprehend that a borrower having trouble with their mortgage would even have $3500! I don’t entirely trust our government but it looks like they did something with our tax dollars on this one. Free help in Housing Counseling Agencies.
Shame on those trying to take advantage of those already hurting. Kicking a dog while its down, does not help the dog get up! I don’t know how these scammers are getting away from it. We need some more media coverage on this issue for those that need it.
Comment by Garry Carlin on 7 November 2008:
Wow, this opened up quite a discussion. Since I’m a “Loan Officer” and not a modifyer I’ll never be doing any of these.
It all gets back to the basic idea of lending. If you are a licensed originator then that should be the only thing that such a license allows you to do. If the lenders who are getting these requests are too busy to handle all the calls that are coming in then maybe there is a need for a facilitator but it sure shouldn’t be one of us unless he/she has a law degree.
Comment by trianglelossmitigation.org on 7 November 2008:
In my experience as a Loss Mitigation Professional and Counselor, it is surprising yet true that many folks who are behind in their mortgage can very well afford $3500. This is primarily because their lender is not accepting their payments and sending them back if they don’t cover the arrearages and late fees, etc. Most people actually save their rejected mortgage payments believing that they can save enough to get back on track until they realize that it is a very steep uphill climb to get back on track.
Most of my clients are responsible people who just happened to have experienced a temporary hardship that caused them to get behind. They are generally eager to get back on track, and feel that our representation is the best option for them because of our 20+ years experience in Loss Mitigation, AND our fees are not even half of $3500 in most cases with a money back guarantee in all of our written agreements. There are no upfront fees however we do require a deposit in escrow (along with the necessary paperwork) to show your commitment to the lender and to cover the fee when they agree to a workout.
As far as homeowners attempting to do this themselves with Free Counseling Agencies, while it is definately an option that I explain to all of my clients BEFORE I take their case, it is often very likely that they will not get the best solution to their situation. They don’t realize that even though they may have a valid and proven hardship, lenders simply don’t care about anything but their bottom line and will usually offer an aggressive plan that often result in the homeowner having to pay MORE than they originally (couldn’t) pay. It takes deep financial analysis and sometimes hard negotiation to get what’s in the best interest of my clients and experience tells me that most homeowners just don’t have the knowledge and skill or in our case, a great rapport, that it takes to get what’s in their best interest. It’s like going to court without representation and expecting the best outcome.
Free Counseling firms have the burden of having a backlog of cases that require extensive processing times that most often exceed 90 days with a fairly modest success rate where we close cases on average from 3 weeks to 45 days with a 97% success rate. Like they say, you get what you pay for.
Comment by Denise Swafford on 10 November 2008:
I work on modifications for numerous brokers. I make sure that they sign a full disclosure that they have the option to check with a mortgage law attorney, a not for profit orginization, and different federal agencies. I find that most of the customers that come to me for the negotiation process have tried to do this on their own unsucessfully. The reason is that they don’t have the time to dedicate to the phone calls and follow-up required to make it happen. They don’t understand the options and they are so emotional with the situation that they become overwhelemed.
Comment by Harlan Delgado on 12 November 2008:
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Comment by Tiffany Grosely on 18 November 2008:
Wow, that sounds like a great scam. I can only imagine how many people buy into the “get rich quick schemes.” The funny part of this article to me was how loan originators get paperwork together, shove it on a processors desk, and get the fat paycheck. I agree 98% with that statement, aside from the 2% of LO’s who actually do a lot of the work. In my personal opinion the processor should get a good portion of what the LO makes on a loan because they do a majority of the work, but that is never the case. If you have a good processor, you should definetely praise him/her for everything they do, because they help make it all happen.
Comment by Catherine Rawlins on 19 November 2008:
It is interesting to note that loan modifications don’t seem to be working as well as people thought they would. We are seeing a rise in people defaulting on their modified loans just like people defaulting on a Chapter 13 payment plan. See this article posted on CNBC today…
http://www.cnbc.com/id/27807558
So there is real ethical question about charging for services that may not be beneficial to the customer…The comments from trianglelossmitigation.org were good and to the point. But, it is apparent to me that the average Loan Originator would be not acting as a fiduciary without receiving some accredited training first.
Comment by Sam Tabatabai on 20 November 2008:
if you help bring some benefit to a person, it is fair to charge them. The amount you charge them is set by three things: the market and also the amount of benefit and the quality of the benefit. If it took you three months more than someone else to make it happen, will you should repay the borrower in some form for the inadequacy of your service. Charging a fixed amount up front and then not doing anything for the people is immoral and should be illegal. Over the years I have helped many of my borrowers better their credit and have charged a couple of hundred dollars if I also got to do their loan and I told them if for any reason you did not want to do the refinance of the purchase, then pay me a little more. No body ever complaied and they were all happy to pay it because it made sence, it was “fair”.
Comment by jeremy hickling on 2 December 2008:
Loan modification is a concession by banks so they dont loose everything – wise move. And Im still convinced that a sinking ship full of attorney’s is a good start (old joke.)
Fiduciary is clear though – the woman referred to above is clearly scalping loan mod opportunities at a hefty profit.
Since lenders can only deal with attorney’s in these matters, more exposure of the malpractice should be in place. Seems to me some gov sponsered public bulletin’s would help.
I have met a guy out of San Diego- nameless for now- he is a CA licensed LO and working the Seattle market for loan mod referrals to attorney groups. And he’s doing quite well.
Comment by Brad Toft on 5 December 2008:
For the sake of discussion, what if she just started a website, myloanmod.com to market for these leads and then referred them to attorneys and charged the attorneys an advertising fee to be on the site? Thsi would not be a RESPA violation. Housevalues.com is doing the same thing.
Comment by Greg McAnally on 6 December 2008:
Hi Jillyane:
After reading your article, I was shocked that you appear to be so down on loan modifications. This is no different of a service to consumers then paying a premium for gasoline to have someone stand there and pump it for you in the full service lane. There is always a need for some folks to require assistance with something. Yes, there is always the possibility that borrowers can get a free service or that they can do it themselves directly with the lender, but like anything else there are some that would rather have someone else do it for them. Yes, I can do my own taxes but I pay a CPA to provide that service for me. Yes, I can try my own case in court but I would choose to have an attorney do it for me. Yes, I can go directly to a lender and ask for a home loan, but I would use a mortgage broker for the convenience and security of proper packaging. You get my point! This United States was founded on free enterprise and providing a service to individuals willing to pay for that service. Loan modifications are one of those services. It doesn’t make people stupid, it just shows that they would prefer to have someone do it for them. Done with honesty and a true commitment to the borrowers needs, loan modifications have emerged as a great opportunity to help people stay in their homes.
By the way, my partner and I are involved in modifications through an attorneys office. We take the approach of educating the public through free seminars to help folks be aware of the in and out’s of loan modifications, refi’s and other options (including free ones).
Thanks for this opportunity to vent.
Comment by mf on 6 December 2008:
Hi Greg, Jillayne here.
I’m not down on loan modifications. I’m down on loan originators believing they can make hundreds of thousands of dollars by doing little more than taking an app for a loan mod.
Yes, we hire an attorney and a doctor when we need a pro. This is a false analogy here.
NO ONE knew how to even DO a loan mod at the beginning of the summer. Now all of a sudden you’ll have me believe that LOs have as much experience and training as a doctor and a lawyer?
To use your analogy in a more workable fashion, you’re talking me into directing consumers to HIRE AN ATTORNEY to do their loan mod.
If it is true that loan mod salesmen are required to work in tandem with legal counsel, why not direct LOs to just refer consumers to local legal counsel?
Most attorneys I’ve called (I’ve surveyed 10 so far) charge $1500 for a loan modification and more if there are multiple liens on title.
Lopan mod salesmen are asking for upfront fees of 3500 to 5000 for doing little more than taking an application.
This is predatory lending all over again.
As Sponge Bob would say, “Good luck with that.”
Comment by Greg McAnally on 6 December 2008:
Hi Jillayne:
Thanks for your comments. Food for thought. I guess that for arguments sake your right. Folks can hire an attorney directly to do this for them and pay less. Not everyone knows how to do this or that they even can. They need assistance. When our clients come to us we review the file to see if they can do a regular refinance first. If they cannot qualify, but they are having hardship we then reccomend that a loan modification may alleviate some of the stress they have with their current loan terms. We have already done the work of collecting documents. packaging the file and review. We see ourselves as professionals, not used car salesmen looking for a quick buck. We live on a small island and our reputation is everything. I guess if you were to argue, not everyone has these same standards. Shame on them. You are also right about most loan officers not knowing About loan modifications until the beginning of summer. I feel that this is a product of the times. It has become a potential solution to the credit crisis we find ourselves in as a direct result of lenders offering unique loan programs to consumers. And yes, mortgage brokers are to blame as well for not marketing them properly to the right consumer. The consumer is to blame as well, as most knew the terms of their loans when signing. I cannot believe that someone smart enough to buy real estate can now scream that they never knew that their payment was going to go up. It seems to be a big game that everyone is participating in to see who can get something for nothing. It’s the American Way. Thank you Jillyane for your comments and guidance. I can only know and control what I do, and I still sleep well.
Comment by Deborah Cook on 9 December 2008:
I agree with Jillayne, this is against RESPA. If I want to help someone I will and I won’t charge them. I have done it before. My payments have come over the years in the form of referrals. We don’t have to make money everytime we turn around.
You would be surprised how much people really appreciate it when you care and do things for them without always expecting a paycheck. I always ask for payment of referrals of friends, family, co-workers or anyone else they come across that could use my help. It has kept me in business all these years. I have past clients kids calling me now.
Clients for life not just during the loan process!
Comment by Michael Knoll on 9 December 2008:
What became of the unsavory originators of the subprime meltdown?
What happened to the loan officer who falsified the application of Clarence Nathan, the NPR interviewee whose entire take-home pay was probably smaller than his mortgage payment?
We know where they came from.
They started out in high school or college, in small scams like counterfeit prom tickets or elevator passes in one-story buildings.
After flunking out for debauchery, they wandered into the mortgage business and started hawking those silly biweekly payment kits. Remember the $500 notebooks of payment coupons that achieved no more “savings” than you could get by simply calling Countrywide and bumpuing up your monthly auto-pay?
After that goofy scheme went into the dust bin, the scammers graduated to the bigger commissions of the seedier side of subprime — until it imploded.
Now they’re back, spam machines cranked up full blast. This time, instead of option ARMs, they’re hawking the latest gimmick: overpriced loan modifications.
If Jillayne is correct, RESPA frowns on charging $2,000 for simply referring $1,500 worth of business to a lawyer. Sorry, spammers.
But what about those who ostensibly provide legitimate service beyond being mere messengers? Is it ethical for them to charge a fee – even if somebody else will do it cheaper or free? And how big a fee is exorbitant?
We could argue these questions of philosophy all night, but we’d arrive at the bottom of the whiskey bottle before we arrived at a consensus.
Superimpose Washington State’s new fiduciary duty makes it as much a legal question as an ethical one.
The issues with modifications closely parallel the issues with credit clean-ups. No doubt there are consumers who want help beyond what the for-free agencies provide, are willing to pay for it, and would benefit from honest and competent service that delivers what it promises – and doesn’t promise what it can’t deliver. Seems to me that in such cases it should be legal and ethical to charge a mutually agreeable fee.
If gullible borrowers pay fat fees for little work, competitors will swarm to distressed mortgagors like vultures to carrion. Judging by the volume of spam in my in-box lately, the rush is already underway. Let’s hope some of them will be legitimate, and that beleaguered borrowers have some success sorting the good apples from the bad.
I just wish I could make my e-mail address vanish from those spam lists.
Comment by Vance Won on 11 December 2008:
I recently helped my brother-in-law get in contact with his current lender and modify his current ARM loan that was about to reset to a higher rate. All it took on my part was some phone calls and a little paperwork. I didn’t make dime on the deal but it was the right thing to do. Some company called him my brother-in-law couple weeks ago to help him with the loan modification and asked for a credit card upfront. Lucky for him I told him about this kind of scam and he avoided a costly mistake.
Comment by Laura Shields on 12 December 2008:
There are just some times that you have to make nothing on a loan and hope the borrower gives you a referal and then comes back in the future. I don’t believe legal advise is to be given, but if you have the knowledge you may want to communicate, if not do go find the answers as knowledge is power. Every situation is different so to answer the question if there should be charges, that is very complicated to answer.
Always look out for the best interest of the borrower is the best case senerio in my eyes.
Comment by Dan Harris on 15 December 2008:
“Indymac has reported that 58% of loan modifications are re-defaulting at the 6 month mark. This begs the question as to the future of loan modifications at all.
if 58 percent of ANY loan program went into default within 6 months it would be gone.
We should not be surprised when lenders announce changes to this program.
This begs the question…what are we really doing here other than rolling the dice.”
The reality behind the re-default rates is that the banks FORCED homeowners to accept loan mods that didn’t fit the bill.
NOW in order to stem the tide of modifications (after being bailed out with taxpayer money) they have embarked on a major PR campaign designed to make it seem like homeowners who are getting loan mods are deadbeats who can’t/won’t pay no matter what you do for them.
Lowering someone’s rate to 7% from 8.99% and allowing them to capitalize the arrears might seem like relief to a homeowner facing foreclosure.
But if those modified payments are too tight they will re-default.
What is needed is someone to expose the truth behind lender initiated loan mods and what the terms were. An in depth review will reveal the truth.
Lenders and servicers have continued their drive to maximize returns and minimize their losses by modifying loans and lowering payments as little as they can get away with.
Now that they have government money in their coffers they see no need to modify, and if they turn public opinion against modifications they won’t have to.
That is the truth!
Comment by Jenn Fick on 15 December 2008:
To answer the question “As a fiduciary, is it possible to justify charging anything above zero when you know free services are available for your client?” – I believe, no it is not. I think that a lot of people have the attitude these days that “nobody
works for free” and thats how they justify it.
since fees earned that are not adequate with services rendered are considered illegal kickback by RESPA (and CLEARLY there is a ton of this going on) why are these being permitted? Are there any investigations underway?
Comment by Dan Harris on 15 December 2008:
OMG…
There are all sorts of FREE services in almost every field of industry.
If the local dental school gives does free dental work, should all the local dentist work for free also.
Then there’s “Legal Aid” and the ACLU. Should all attorneys work for free.
Never mind the fact that the services available to at risk borrowers for free have been run over and inundated with request. The folks there are overworked and under paid.
Much of the releif provided is sub-standard and does not provide a long term solution.
I have spent alot of time taking on some of the local overflow one case at a time at no charge and work with them regularly.
Unfortunately the service provided there is similar to the paperwork processing done at the DMV, post office, and social security office, you get the picture.
They are well meaning but just don’t have the umph to push through the lenders front line to get beyond the intial barriers established to slow down loan mods.
The 53% re-default rates are directly related to direct lender to borrower contact and the local free services.
I have also had many, too many to count; people who went to the local free agency and were told that they didn’t qualify, only to find that I could get the lender to modify.
I believe the industry should be regulated, and up front fees should be illegal.
Pay for performance will weed out the charlatans and have the effect of boosting performance thereby helping the at risk homeowner.
The recent announcement in Washington
“DFI Advises Homeowners To Verify The Licenses Of Anyone Offering Loan Modification Services”
tosses the homeowner back into the waiting arms of the LO’s who helped to create this mess in the 1st place.
What say you all?
Comment by Tom Strain on 16 December 2008:
Once again their are those screweing the customer. I have worked on a loan modification for myself from before I got into the industry. Not all the lenders are easy to work with. If our lenders and mortgage service providers are under staffed and we have an increasing prolem with increasing unemployment, devaluation and adjusting rates what is the solution/ Well if as a tax payer i put in my share of that 800 billion then I want my loan modified from an ARm that went up $500 a month in November, i want a solution. That 800 billion should be going to help give a fixed rate that works 9% doesn’t make it and there is plenty of room. I understand the business and am working through it, for most people it is a living hell. I say no more than a $500 fee should be earned by anyone doing a modification. if the lending institutions put this into effect they could hire more loan officers who do 20 modifications a month make $10,000 and help a ton of people keep their houses. its really quit simple.
Comment by Luis Diaz on 18 December 2008:
Regarding LO participating in loan modifications, I belive that this is a free market where you get paid for what you can do; and ofcourse a due diligence is always appreciated by customers as well as an LO knowing where they are getting into. Regarding taken care of current customers in hardship needs, I had heard form customers and even friends that they had gone to the bank for a “free” loan modification and not get the modification payments for them to really aford. It is righ, “you get what you pay for” that is the bold true!. It is also true, there are and will always be “BAD APPLES” and there is where the customer should be smart!! enough to get the proper help they really need. How much they can pay?, That is where they got be ambitious to decide how much they want to pay and to look for the future years of benefits that a Loan Modification can do in ther house’s budget. If they are ambitious enough, they will be able to figure if the future years will bring them the benefit in dollars to offset the fee they are willing to aford to pay.
Comment by Chuck Robillard on 20 December 2008:
My personal opinion is that LO’s should not participate in loan modifications. Rather they should refer those customers who need the assistance to someone who knows the ropes and has the experience. One of the earlier comments posed the question about “trusting the government to provide that kind of help”, well I think I might prefer the government agency over some LO who wants to make a quick buck and lacks the necessary tools to get the job done quickly. The loss mitigation counselor sounded like he had a workable plan to assist with a loan modification for a decent fee. As is the case in many financial/real estate transactions “time is of the essence” and if someone can get it accomplished quickly then they should receive adequate compensation. Consumers will gladly compensate an attorney when they need professional assistance and I see no difference with compensation for an “experienced” modification consultant. It may sound like an easy process and that may be true if all you have to do is refer someone, but the again the question of “fees for service provided” comes into view.
In this business you should limit yourself what you know and do best until you are fully qualified to diversify. I have seen many residential LO’s take on commercial and/or income property financing
without the proper knowledge. I believe this modification process is complicated and requires the services of an experienced counselor. Better off to leave it to the experts.
Comment by Toby on 20 December 2008:
I would have to agree with Dan Harris when he writes that “There are all sorts of FREE services in almost every field of industry.
If the local dental school gives does free dental work, should all the local dentist work for free also. Then there’s “Legal Aid” and the ACLU. Should all attorneys work for free.”
I also agree with Jillayne that there are plenty of consumers out there who are perfectly capable of doing it themselves….and if they are, the should!
That being said, if someone does not have the time, ability, or inclination to do it themselves, I see nothing wrong with them hiring a loan officer to do the job.
Comment by mike on 20 December 2008:
Jillayne, awesome and informative website. I had some quick questions. I was a former manager at a mortgage company and I sure do miss the business. I loved educating and helping people. I agree that this loan mod biz is a mess to some extent. I have been approached from all angles and have actually been to a few shops and I didn’t like what I saw. Basically they were hiding behind an attorney (who rarely came in the office) and making claims of “years” of experience in an industry that didn’t even exist for years. I have an attorney friend and he wants me to come into his office and “process” his deals. I would handle all the paperwork, contact the lender to submit the file, and he would handle the negotiations. His leads are coming from realtors. The realtor would take the application and collect the docs along with myself and I would keep both of them (client and realtor) abreast of the status. He pays the realtor for the work they do (like $100) and pays me on a per file basis ($400). He claims we are not fee splitting because the retainer agreement breaks down the fees and where they are going. I think I’m ok because I would be his employee but I don’t think he can pay those realtors the way he is??
Comment by Jillayne Schlicke on 20 December 2008:
Hi Mike,
Thanks for stopping by the NAMF website. As long as you are an employee of the attorney, he can pay you that way.
As far as the $100 to the Realtor, I’m guessing “yes” because the fee earned matches the amount of work performed. If the $100 was for basically doing nothing, we all know Section 8 of RESPA says “no” to unearned fees.
In addition, if the Realtor was being paid $2500 for doing work that costs $100 the $2400 would likely be viewed as a section 8 kickback.
Your attorney is on the right track. The last step I’d take is to check your own state laws to see if there is any state law prohibiting the Realtor from receiving that fee.
I have met a handful of LOs who are now working at attorney offices as w-2 employees doing exactly what you’re doing.
A great way to ride out the down market.
Comment by David Nelson on 24 December 2008:
Thank You, your article may keep a bunch of loan officers in the business. It would be a tough way to leave through the cplaint and audit door.
Comment by Dan Harris on 25 December 2008:
In a Comment by Catherine Rawlins on 19 November 2008:
It is interesting to note that loan modifications don’t seem to be working as well as people thought they would. We are seeing a rise in people defaulting on their modified loans just like people defaulting on a Chapter 13 payment plan.
I answered this comment with—->
“Comment by Dan Harris on 15 December 2008:
“Indymac has reported that 58% of loan modifications are re-defaulting at the 6 month mark. This begs the question as to the future of loan modifications at all.
if 58 percent of ANY loan program went into default within 6 months it would be gone.
We should not be surprised when lenders announce changes to this program.
This begs the question…what are we really doing here other than rolling the dice.”
The reality behind the re-default rates is that the banks FORCED homeowners to accept loan mods that didn’t fit the bill.
NOW in order to stem the tide of modifications (after being bailed out with taxpayer money) they have embarked on a major PR campaign designed to make it seem like homeowners who are getting loan mods are deadbeats who can’t/won’t pay no matter what you do for them.
Lowering someone’s rate to 7% from 8.99% and allowing them to capitalize the arrears might seem like relief to a homeowner facing foreclosure.
But if those modified payments are too tight they will re-default.
What is needed is someone to expose the truth behind lender initiated loan mods and what the terms were. An in depth review will reveal the truth.
Lenders and servicers have continued their drive to maximize returns and minimize their losses by modifying loans and lowering payments as little as they can get away with.
Now that they have government money in their coffers they see no need to modify, and if they turn public opinion against modifications they won’t have to.
That is the truth! ”
_____________________________________________________
Now, in an article from Monday December 22nd an Indmac Spokesman has confirmed what I said:
THIS IS EXACTLY WHY LOAN MODS ARE RE-DEFAULTING
A spokesman for IndyMac federal bank, which was taken over by the Federal Deposit Insurance Corp in August, said up until a few months ago, lenders were only tinkering with loan terms and not doing true modifications.
“Modifications in the past were never about finding the borrower an affordable payment,” Evan Wagner said. “So I think it shouldn’t be surprising that you are seeing a lot of these folks redefaulting.”
Quoted from this article:
US mortgage re-defaults rise, no sign of slowing
Comment by Dan Harris on 25 December 2008:
Why don’t the Gravatars work here?
Comment by Dan Harris on 25 December 2008:
Testing Gravatar
Comment by Dan Harris on 25 December 2008:
OK so your email address MUST be in all lower case letters.
Sorry I went off subject folks.
BTW
Merry Christmas
Comment by mf on 27 December 2008:
@Dan “But if those modified payments are too tight they will re-default. What is needed is someone to expose the truth behind lender initiated loan mods and what the terms were. An in depth review will reveal the truth. Lenders and servicers have continued their drive to maximize returns and minimize their losses by modifying loans and lowering payments as little as they can get away with.”
There are a couple of different issues here being bunched up together. Let’s sort them out.
1) corporations have a duty to maximize profit/minimize losses under the bounds of the law. There are no “laws” that direct banks/lenders to lower a homeowner’s payment to an affordable level. At this point, banks/lenders are trying as best they can to minimze losses. This means not offering a super low interest rate reduction.
We should not ever expect a bank to do that.
The opposite approach, enacting new laws forcing banks to lower interest rates or offer the borrower a substaintial loan mod, would have disasterous consequences for the FUTURE of mortgage lending.
2) We must separate federally chartered banks holding these loans in their own portfolio from lender/servicers where the mortgage loan is held in a pool and investors are in charge of whether or not a loan mod goes through. A bank has way more control over the modification of those loans when comparted with a lender/servicer.
We should expect BOTH groups to do their best to minimize losses and maximize profit.
Expecting banks and lender/servicers to put the homeowner’s interests above their legal obligation to their shareholders is not rational.
3) the monthly mortgage payment is only half of the equation. Frequent raincityguide blogger Kary Krismer has mentioned this at least once or twice now. The other side of the equation is the homeowner’s OTHER monthly debts: their credit cards, car loans, maybe student loans, or other debt obligations.
Without addressing this second set of debts, the homeowner’s chance of re-defaulting is extremely high.
So offering a modest, 1% loan mod only buys the bank more time before having to write off their losses.
In the case of substantial consumer debt, a 1%, 2% or even 3%+ loan mod may not have been in the best interest of the homeowner. IMHO, this particular homeowner needs legal counsel from a consumer protection/debtors attorney and not a loan modification salesman.
Comment by Bartholomew Henning on 29 December 2008:
I have read through the article and many of the comments made. It seems very clear to me which side people are on. On one side you have the person who is wanting to act ethically 100%. Look, the fact is that if there is free help out there for people who require loan mods, why are you trying to justify charging thousands of dollars to do the same work? I know your justification is “I am making sure they are getting the correct help they need and deserve.” Yet, there is still a high default rate after the loan mod. So, are you really doing an ethical service? If you are REALLY helping your client, your default rates after loan mods would be MUCH MUCH lower. That’s getting some value in paying for a service.
Now, on the other hand. You have a professional who is used to making a lot of money and they don’t want to leave their industry. They are willing to accept that changes in the industry need to be made. One change is taking on new challenges and new products. Enter the loan modification. Sweet! We can make a great living by helping 2 or 3 people a month with this new service! All you sub-perime LO’s know you are doing the same thing with this service that you did in the sub-prime market. Making people feel good up front, and after you collect your check you could care less. “OH, I’m sorry for getting you into this mess, let me charge you another $3,500 to get you out of this mess.” Then they default anyway – are you feeling bad? Probably not because you are making $$$$. IS THAT ETHICAL?
Comment by Rand Wood on 3 January 2009:
I have to question gov’t counseling agencies, find private counsel to be the most effective.Private counsel usually comes with a fee. Seems like there could be a place in between. As is often the case attorneys are paid to get the job done, contrary to going it alone with moderate or no success. Found this out the hard way!This issue requires a little more research for me.It is absolutely to the borrowers advantage if, in fact, the lenders will perform this task with no cost and with borrowers best interest in mind.I would really like to know beyond a shadow of a doubt how to best serve these people. They are potential future borrowing customers once again.
Comment by Teresa Tait on 8 February 2009:
This is definately a topic that can be viewed in more ways than one. While it shouldnt be right to charge a client for a service that he/she can get somewhere else for free,LO’S have done it for years(A Bank originated no cost heloc vs. a Broker originated heloc with origination charged). Is ethics in question when the Loan Officer(working for a Mortgage Broker) fails to advise his/her client that he can go to his local Bank and get the same product with absolutely no costs? That one has always bothered me, but I saw it happen all the time.In the real world, we do have to have options for everything and everyone. I dont believe anyone should take advantage of a homeowner who very well may end up loosing their home anyway.But, I also can’t pay my bills working for free.
Comment by Lawrence Sowell on 26 February 2009:
What percentage of people can actually afford to pay the $3,500 for a loan mod? Does anyone know? I have a client that I’m trying to find some statistics for.
Thanks
Comment by mf on 27 February 2009:
Hi Lawrence,
It’s possible to make the argument that none of the homeowners have an extra $3500 lying around.
It’s also possible to consider that there are homeowners with extra cash reserves who will soon be out of money.
From all the homeowners I talk to on a regular basis, none of them have the money, but all of them tell me they are capable of getting the money. This typically means that they’re going to do a cash advance on a credit card or borrow it from a relative.
Comment by Jahlila on 10 March 2009:
Quoted by Kurt: …do you really think that the consumer is smart enough, or ambitious enough to do it on their own SUCCESSFULLY?
Quoted by mf: Yes, I do believe consumers are smart enough and ambitious enough to go it alone.
Hi
C’mon now. It’s not really about having the smarts or ambition. Because, yes, some people do have one or both (smarts and/or ambition). The issue here is who WANTS to put in the time to do it themselves, even if it easy? And these LM businesses are very much aware that not all people want to take the time to do it on their own for whatever reason. Hence, part of the decision, if not all, why they chose to create the service and make it available to the world. On top of that, you have people who claim they are way too busy to even lift a finger.
You mentioned, is it justifiable to charge for a free service? Hmmmmm…let’s think for a minute and turn the tables a little. How many things can you do on your own for FREE? Too many to name, right? Now, how many things can you do on your own for FREE THAT you have paid someone else to do? Here’s an excellent example: obtained knowledge or not, why hire someone to do your bookeeping when you can do it for free by doing it yourself? Was is justifiable to pay them? Why? Another excellent example: travel (Orbitz, Hotwire, Priceline, and the list goes on). Why on earth would you go through them when you literally can call the companies yourself and negotiate a rate and it won’t cost you an additional fee like they charge you? I’ll let you answer those questions, as that will also answer the question about it being justifiable to charge for a something you can do for free yourself.
I believe people do appreciate that there are other people willing to put in the time for them. So much so, they are willing to pay them–for whatever reason–for making themselves available. We do it all the time. Justifiable? Yes. Don’t we all get paid for either our time and/or expertise (no matter how much we accepted upon getting hired)? Is that justifiable? Yes.
Better yet why not just tell the people you work for (whether a company or your own clients) that you will never charge them anything for the work you do for them? The world is full of free knowledge that is at their disposal at no charge. So, why should they pay you to do something they can do on their own for free?
One more thing I’d like to add. After receiving phone calls form LM businesses and doing some research on loan mods, my father decided to just do it alone by going straight to the lender. Personally, I feel he did great because he brought his payment down $300, but of course if you can get it lower that’s even better. He had a goal and he accomplished it. That’s success in my eyes. Moreover, he received a phone call after he had completed the transaction and it was a LM business (they keep calling him) and they offered a better deal where he could have knocked off an extra $200. But hey you live and you learn. He still did great for what he knew.
Remember, it’s a service they are offering to consumers who don’t want to do it alone for whatever reason.
No, I do not work for this industry. If I owned a house I’d probably go it alone like my father regardless of that call afterward. But that’s largely because I’m an all around diy kind of person. I love knowledge and the independence and pride it brings to my life. I can’t stand depending on people to do things for me; they just can’t be trusted. Ok, some can…heehee.
Nice article though.
Comment by mf on 10 March 2009:
Hi Jahila,
Thanks for stopping by the NAMF website. The question at hand is, “Is it justifiable for a FIDUCIARY” to charge for a free service.
Working as fiduciary is radically different from that of a salesman.
Google “fiduciary” or go look it up on wikipedia.
The majority of loan originators across the United States have extremely limited training and education on how to help consumers with loan mods. In fact, in some states, an attorney must do this kind of work.
The fiduciary’s client is often better served by paying for direct, local legal counsel instead of paying a loan mod saleman an extremely high fee in relation to the value received for that salesman’s services.
Homeowners should be given all their options:
Free: Help with loan mods from HUD Approved agencies,
Free: Do it yourself; working directly with their lender.
Attorney: $1500 on average, loan modification as well as receiving legal counsel.
Loan Mod Salesman: $3,000 to $6,000.
I’d say the better value and choice for the majority of homeowners is to hire an attorney for half the cost of paying for a loan mod salesman.
With the loan mod companies, the majority of the money goes into the salesman’s pocket which could be a questionable “unearned fee” subject to challenge under a federal law called RESPA.
The question we’re debating here is: How can fiduciaries justify their fee in relation to performing loan mods, when:
1) a consumer can receive better care for less money; and,
2) the loan originator is not well trained for that higher fee.
Comment by mf on 10 March 2009:
From Inman news today: “Anticipating a flood of requests from troubled borrowers hoping to participate in the Obama administration’s plan to modify or refinance up to 9 million loans, the HOPE NOW coalition of mortgage servicers is taking applications for assistance online.
Troubled borrowers can now apply for help from their mortgage servicer by submitting details about their financial situation at HopeNow.com, the Web site operated by the alliance of mortgage servicers and nonprofit counselors.
The online application form supplements the existing HOPE NOW hotline, (888) 995-4673, and servicers are promising to respond to applications within five to seven business days to confirm the process has begun.”
Here’s the Hope Now website:
http://www.hopenow.com/
Once again, a FREE process for homeowners.
Pingback by Nice Caller Wants to Modify My Mortgage | Rain City Guide on 18 March 2009:
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Pingback by Nice Caller Wants to Modify My Mortgage | Guilda Blog on 19 March 2009:
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Comment by FreeService on 3 April 2009:
After reading all the blogs around the internet, attending free counseling seminars, attending free training seminars. I have come to a conclusion that there is no such thing as “FREE SERVICE”
here is why:
1.) a lender/mortgage servicing company has a fiduciary duty to their investor or their own mortgage portfolio and that is to collect the interest at the highest level possible.
The new affordability home program that passed compensate these group of people to do the very same task that an attorney or a legitimate load mod company would do with a fiduciary duty for their investor. Do you think it is in their the best interest to give the homeowner a very good loan modification program? Where does these money come from? It’s going to come from your tax dollars and your future children and grand children’ tax dollars! lolz. So is it really free?????
2.) All these housing counseling agency out there that actually help homeowners to get loan mod done for free. Where do you think they have the money to pay for themselves and the employee? Most of them are granted by the government if not sponsored by the lenders. Where you think these money coming from??? It’s going to come from your tax dollars and your future children and grand children’ tax dollars! (Although, there are a lot of volunteers out there for a return of other services) So is it really free?????
3.) There are indeed a lot of scam commpany out there who claim to be working with attorney or experienced in loan mod and promises big and deliver nothing. Does that mean everyone who is in the business are the same? No. There are quite a lot of good loan mod company with reasonable fee and delivered good result to homeowners and they are satisfied. If every of these company do it for free, where would the money for them to pay for their employee, expenses, etc? A service is done and you can either do it your own or u hire someone whether you pay or you ask for money from the government. There is no SUCH THING AS FREE SERVICE. And if you do ask help from the government, expect to pay tax on it.
With the idea that the government is coming out, “if you pay-walk away” Then the idea of free market/capitalism is destroyed. With billion of dollars are being granted to these housing counseling, incentive going to the mortgage servicer/lender from the government. Where you think they get that money from???? Is it really free???
http://www.hopenow.com <== sponsored by the government. Of course it’s free. They are group of people who are hired by government to do your work with your tax dollars.
To have your loan mod done or anytime of products you want to buy for less that what it worth, you need to be aggressive with a negotiating skills. Not everyone has such a skill or can acquire it overnight.
To me, there is no such thing as free service. You either pay it or you go get it from the government which in turn tax you, your kids, your grandkids, your great grand kids and giving up your rights, your freedom, your free market where service is provided and a fee must be paid.
Comment by FreeService on 3 April 2009:
Add on to the comment, Attorney cannot pay any referral fee to an unlicensed attorney such as a licensed lo/realtor cannot pay referral fee to any unlicensed lo/realtor. if there is, it has to be a very nominal fee. Therefore, any attorney splitting fee/commission with an unlicensed attorney is in violation of the code of ethnics per california
Comment by Terry Birkland on 6 April 2009:
As a novice, what I still don’t know is: besides getting relief from the terms of the loan, what good is a loan modification to the consumer? What is the benefit to the lender other than hoping to not forclose to save a losing situation. The counseling I would guess is to coach the consumer on how to present their case to the lender. I also don’t get why you need an attorney to help sell your request for relief unless there is an implied threat of some sort of legal action for a possible flaw in the mortgage contract. This seems like a finacial planning issue to me. What is the smartest way for the home buyer to make the best of the situation. I understand that a lot of folks are at a big disadvantage in situations like this and really do need help. I guess the HUD approved counseling actually sounds pretty good after reading the comments. Lastly, I don’t like the idea of exploiting someones misery.
Comment by jeff pinter on 26 April 2009:
I found your blog on google and read a few of your other posts. I just added you to my Google News Reader. Keep up the good work. Look forward to reading more from you in the future.
Comment by Joe Dahleen on 13 May 2009:
Loan originators have no business being in any position to help customers with loan modification other than free advice on where they can get help. There should be a completely separate approval for licensing to be a legal loan counselor. Then at best a fee for service of now greater than the actual cost of the counseling (Max $150). That is the fee that CCCS gets for providing counseling to first time home buyers thru Fannie Mae Online counseling portal.
But its bad to even think about heading that direction. So what’s next. Well I am sure you know now that since writing your blog topic that more and more programs are becoming available.
Now we have legal loan mods for mortgage brokers called the Fannie Mae DU Refi Plus or the Freddie Mac Relief Refinance. Where at least this is a legal way of helping out the client there are still big draw backs for the originator.
For example: Freddie Mae Relief refinance allows up to 105% LTV for the first mortgage, now you have to get the second mortgage to subordinate to the new first mortgage. I have yet to see anyone get that subordination approved with a CLTV over 110% of the value of the home.
In addition the fee allowed for this service is only $2500 and that has to cover all of the closing cost. Whatever is left then the loan originator can claim that as Loan Fees. So considering that you have to pay title, Escrow, Appraisal, Credit, 4506-T processing, Impounds and recording fees – I can only see about $500 – $600 left for a loan fee. Is that enough? I guess if that is all you did is those type of loans and you could get all of them approved but that is tough in this market.
But it at least covers the fiduciary duties of the loan officer. You can do that in the loan mod business.
93% chance of getting your loan mod approved? I saw you write that but that doesn’t make any sense to me. How about a 7% chance that it will actually happen. That is more like it. Even the numbers put out by Hope Now don’t even show that much of an approval rate.
You also talked about the re-default rate. I think that the latest estimates are more like 50% but that really is not a good batch to review from because those early modifications were done without proper verifications.
Now with Mod in a Box by the Fed you have to show proof that you can make the payments. That will really trim down the re-default rates. Obama’s plan is to allow modifications but only if they truly qualify. Now hopefully more servicers will actually run the numbers. Instead of just printing the Modification Docs.
But back to your point. No loan modification referrals are not acceptable for a Fee for Service. The loan originator has a fiduciary responsibility and the obligation to work on behalf of the client. To preform a service that will actually work for the client. Loan originators only get paid when the loan the client picks out results in a successful funding of that loan.
What the servicing business needs is a better way to present that message to their clients so they don’t have to seek out other methods to get help with their loan.
Check out this new service for loan servicers and government non-profits:
http://www.mortgageworkoutcenter.com
Comment by Melissa Morgan on 21 June 2009:
This is just adding another layer of greed in an already messed up system. They should not even be allowed to operate. They are not a professional but giving legal and financial advice best suited to fill their own pocket.
Pingback by Everyone Does Not Qualify for a Loan Mod | Seattle Real Estate | Rain City Guide on 15 July 2009:
[...] before the services are actually performed (with the exception of when you hire an attorney.) If you part with cash to pay a loan mod company, you are setting yourself up to become re-victimized. They will tell you anything you want to [...]
Pingback by Everyone Does Not Qualify for a Loan Mod | Guilda Blog on 16 July 2009:
[...] before the services are actually performed (with the exception of when you hire an attorney.) If you part with cash to pay a loan mod company, you are setting yourself up to become re-victimized. They will tell you anything you want to [...]
Comment by John McCormick on 17 August 2009:
“Loan Modification Fees: Is it Justifiable for a Fiduciary to Charge for a Free Service?”
It is justifiable to charge, but obvisouly it is not ethical. It is justifiable because the LO, or “mortgage planner”, is offering their professional services to help in the re-mod process. In plain english, the LO is their to “speed” things up with the Lender. It might be frivolous assistance but justifiable if the client wants the help and is aware that they are paying for something they can get done for free but at a much slower pace. Even if I do not agree with the LO’s rediculous high fee, it comes back to the consumer not wanting to wait to do the re-modification of the mortgage. I wish the clients got better advice, and I wish the LO’s gave better advice. I am built on referrals and do a great ethical job because I like to sleep at night, but I also want to know in the end I helped someone. The LO’s doing this are only helping themselves to a paycheck unearned. They will get weeded out like the rest as we slowly build toward a better regulated industry. Thanks for the solid article Jillayne! John
Comment by herman on 13 November 2009:
Jahila,
I know you really don’t believe what you said, about people being smart enough to do their own modifications. I’ve modified loans and the client receives the mod package and the lender recinds the offer because it was done incorrectly or not in time, or I spend hours with clients going step by step. Remember these were mods that were already approved!!