From the Washington State Department of Financial Institutions:
DFI Advises Homeowners To Verify The Licenses Of Anyone Offering Loan Modification Services Before Hiring Them
OLYMPIA – The Washington State Department of Financial Institution’s Consumer Services Division advises homeowners who are delinquent on their mortgage to be cautious about using the services of someone offering to help them work with their lender to modify the terms of their home loan.
The Department of Financial Institutions (DFI) has received a number of inquiries regarding the legality of providing this service in this state. While there is nothing inherently illegal about this business, those providing this service in the State of Washington must be licensed as loan originators, mortgage brokers, or consumer loan companies and be overseen by the Department of Financial Institutions. Additionally, under applicable law, the loan modification provider associated with mortgage brokers have a fiduciary relationship with the borrower and must act in their best interest.
“DFI is concerned that homeowners in desperate situations may pay substantial fees for loan modification services and not take advantage of the HUD-approved counseling services offered for free by numerous non-profits,” DFI Director Scott Jarvis said. “The non-profit providers can often negotiate better deals because they have formed working relationships with many of the lenders.”
“We are concerned because loan modification businesses are using high-pressure tactics to get people to pay for their services, in some instances claiming a 100 percent success rate in negotiating their loan,” warns Deborah Bortner, DFI’s Director of the Consumer Services Division. “The truth is, not every loan is fixable.”
DFI advises homeowners to make sure loan modification providers are licensed as a loan originator before using these services. Verify a license at www.dfi.wa.gov or by calling 1.877.RING.DFI. DFI is also warning consumers to be especially wary if one of these companies asks for a fee up front. Consumers may also wish to seek free homeownership counseling. For more information, visit www.homeownership.wa.gov or call 1.877.894.HOME.
The unanswered question remains: Is helping a consumer negotiate the modification of a deed of trust the unauthorized practice of law?
If the answer is “yes,” then the nominal, paperwork intake performed by an LO must stop at some point and the file handed over to a local attorney.
I’ve submitted an inquiry to the WA State Bar Assoc on this issue asking for an “unauthorized practice of law” opinion.
Attorneys do not split their fee with non-attorneys. This means the consumer could choose to pay the LO a nominal fee for work performed such as counseling and gathering the homeowner’s information and then the consumer will pay a licensed attorney a separate fee.
I’m not sure why a consumer would choose to pay an LO a fee for doing what could be performed for free by working directly with their lender or by working with a HUD-approved Housing Counseling Agency. If a consumer does decide to pay for loan modification help, it seems more rational to just hire an attorney direct. I’ve surveyed 10 attorneys and so far almost all of them are quoting in the $1500 range for a loan modification. Some charge more if there are more liens on title. Why pay that fee, along with a separate fee to an LO?
Why pay a loan mod salesmen $3500, $4000, and upwards of $5,000 for something you can get for $1500 from a person with a law degree whose conduct is heavily regulated by the Bar?
The percentage of loan originators who know anything about loan modifications is at about one half of one percent right now because nobody up until a few weeks ago was doing them. Instead, the industry just refinanced people over and over again.
Mortgage brokers and LOs are fiduciaries. This means they must put their client’s interests above their own interests. There can be no undisclosed secret fee splitting. The consumer must be told everything, including fully disclosing and explaining your fee. Brokers and LOs are still coming to grips with what it means to be a fiduciary.
True story from the classroom this week:
I was delivering a 20 min lecture on fiduciary duties. One loan originator sitting in the front row with his arms crossed was not taking any notes while his colleagues were feverishly writing down everything on the board. At the conclusion he raised his hand and said, “My broker has an agreement that we have all our customers sign and in that form, it says that we are not their fiduciary so I don’t have to know any of this stuff.”
It’s going to take a while before some mortgage brokers and LOs choose to fully embrace these higher duties. Sooner if we end up with a court case.
Just take a look at this craigslist ad: Make $15,000 per month doing loan modifications….no experience necessary.
There are many options for getting help with a loan mod. Prices range from free to predatory. Washington state Licensees ought take great care before moving in this direction.
In closing, it’s worth mentioning that Indymac loan modifications are re-defaulting at a rate of 58% at the six month mark. This begs the question of whether a homeowner is well-served with a loan modification. This is something fiduciaries would ask themselves as well as disclose and discuss with their clients before recommending this option.
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.
So there are some out there that believe it is better to have the homeowner back at the mercy of the loan officer who put them in the bad loan to begin with.
I would rather see an experienced settlement agent or title professional or real estate attorney help homeowners out there fix their problem.
Preventing title professionals, escrow agents, and settlement agents from doing this work deprives at risk borrowers of the help available through some of the most experienced people in the business.
What say you all?
Are Gravatars enabled here?
This was a very interesting article and shines the light on how so many desperate homeowners looking for a loan modification are not armed with the knowledge they need to best help themselves.
With the advertising and heavy pressure done by brokers and LOs preying on the desperate, I’m surprised that attorneys and counseling agencies haven’t amped up their advertising on this issue.
I think the biggest factor that disturbs me the most comes not from the article itself but of Jillayne’s story of an LO so ready to dismiss his duty as a fiduciary. LO’s that do not have the customer’s best interest in mind are one of the leading causes of homeowners needing modifications in the first place. I agree with Dan that at-risk borrowers are deprived if they are not given the best solution by their LOs
I think to go back to LO’s for loan modification is not a good idea even if they are licensed. For distressed homeowner they have to go directly to their lender, and if lender are playing hard to get in which it actually happened to some, then they could hired a real estate lawyer to do the loan modification, it really doesn’t cost much with them rather than going thru some companies that employ LO’S to generate business for them.
Many of the sub prime lenders (most are no longer with us )
set up thier loans to have the montly payments collected by a service providor to collect thier monthly payments .
These non conforming loans are not fannie or freedie
Litton loan company is one such providor collecting payments
for the former WMC mortgage company .They were set up to only get a small montly fee from collecting the mortgage payments . As you can guess they are short staffed, since they did not plan on 20-40%
of the borrowers late or no payments and cannot deal with modifications .If you call them they do not take incoming calls .
They also are in the business of debt collection so you can figure they are not the best customer service .Fannie and Fredie loans pay the servicer $800 for modifications , Litton gets no fee
for modifications , and it would greatly help the distressed borrower to have a third party represent them .Escrow & Title companies have good experience at dealing directly with these service providors and could greatly help the borrow in the modification , and if they could get paid somehow for thier work . Since many of the title offices have laid off staff it would give them needed business .
Until taking the foreclosure class I did not know that there were free negotiation services available to consumers. I have known several home owners who have tried to go directly to the lender and been turned down for a loan mod and do not have the financial resources to pay some one to negotiate for them. If you have clients in this situation these are great resources to provide them while not taking part in the issue of taking fees as discussed in this article.
In this uncertain real state market and volatil economy, I consider that DFI is taken a limited position to only advice customers on what to look for a profesional: Attorney, Escrow/Title Agent and Broker as well as LO’s. Customers are for the most part very limited on realstate education and for the most part poorly educated to make informed descicions on what’s best for them regarding Loans and Loans Modifications. I belive that if there is Non-Profits that can really help for free then DFI or any other Government agency should do somewhat of a massive campain for customers to become awar of such “free help”.
Unfortunatly, “Bad apples” you will find them every where: From unfare services to over charging desperate customers. Most of those bad apples are filtered so far with the DFI’s license regulation for Brokers and LO’s. I belive that DFI having the primary regulating control should implement a registration for each “Loan Modification” done in our state and protecting more our customers. For instance, the DFI maybe able to set up a top fee for Loan Modifications charged in our state and let the free market to compete among themselfs (Attorney; Escorw; Broker/LO-properly licensed, among other professionals)If its true that an Attorney or Law Firm can offer this services at a low charge, they should be taken over on this market. I insist that DFI may have to come with some direct control on all “Loan Modifications” done in our state for the good of our real state customers: specially those in desperate situations.
Hi Luis,
“I belive that if there is Non-Profits that can really help for free then DFI or any other Government agency should do somewhat of a massive campain for customers to become awar of such “free help”.”
Actually, DFI did this. Inside their press release, they direct people to the free website listing free help from the agencies:
http://www.homeownership.wa.gov
In my opinion DFI is providing a good service by warning or advicing all concern about the danger of fraudulant practices going on in the area of home modification .” Verify the license of any one who offers to modify your home loan ” !
It is important to pay attention to this advice because , due to the current bad mortgage situation many people are taking advantage and are using high pressure tactics to convince home owners to renegociate their loans . Most of these people do not have the experience to be successful while many others are involved in fraud for profit . According to DFI many are not licensed and therefore advice to use lo’s or an attorney . Yet an other route is to use non profit organizations approved by HUD .
First off, I was astounded by the amount of re-defaults AFTER loan re-modification. What was behind the default? Are people waiting too long before they even go for help – such that once they get the help they are still unable to keep up?
I think the reason people are apt to pay for loan remodification rather than calling their lender or one of the free agencies is that they simply don’t know their options. I hear advertisement after advertisement for loan remodification specialists…I don’t hear anyone saying call and talk to your lender or call and talk to these people who will help you for free. Let’s face it, everyone wants something for free – if people knew their options, they would be more apt to take advantage of the services.
As for LO’s getting involved…If the client doesn’t qualify for a refinance, or a refinance is not their best solution – then I think LO’s should be advising their clients to utilize the non-profits or call their lender direct. EDUCATE the client on their options. You may not get the deal right then and there, but you will get their future business WHEN they qualify.
The major reason for re-defaults is the direct lender to borrower modifications.
When the lender interacts with the borrower they weild a big stick (threat of foreclosure). They use this stick to coerce the already distressed homeowner into accepting a loan modification designed in the best interest of the lender.
Many lenders were originally modifying loans to 6% -7.5% rates.
Rates negotiated by third parties are coming in all shapes and sizes and should be designed to create real long term solutions.
I have seen stepped rate mods starting as low as 3%. Rates dropping from 9.75% down to 5%.
Real modifications designed to drop payments in the best interest of the borrower are not re-defaulting at the same rate that direct lender forced modifications are.
The recent PR campaign is part of a systematic approach by bailed out lenders who already have our tax dollars. This campaign is designed to turn public opinion against loan modifications.
Thak God for industry consumer advocates like Sheila Bair at the FDIC who are holding the line and pushing the lenders to do the right thing.
Somebody need to do some investigative reporting into the re-defaults to see the terms, rates, conditions and trends behind those re-defaulting loans.
I guess it’s hard for the local media outlets to bite the hand of their ADVERTISERS – The Banks!
I really haven’t heard a whole lot about loan modification but I thought this was a good article.
If a Loan Officer wants to assist with modifications they should probably be required to get some additional training and maybe a cap on fees.
The rate of re-default is shocking. I too would be interested in seeing what adjustments were made to the loans that are re-defaulting.
I am glad to see we are moving into fiduciaries duty direction. I do agree with Mark Cross’s comments.
Sounds to me like loan mods are best left to the professionals. If the average loan originator chooses to get involved, he or she may end up involving a lawyer, only they will be on the wrong side. I don’t think my broker carries that level of malpractice coverage. It seems as tho “fiduciary” is too complicated a word for most LO’s. I think I will stick with the “retail side” untill this situation calms down. Thanks Jillayne for an informative article.
There are some activities that I just don’t want to get close to. Loan modification for a fee is way out of my comfort level. The people needing it are in such a desperate situation, they can be talked into large fees very easily. To colored with the scam brush can happened quickly.
In my opinion placing loan modifications in the hands of attorneys could be creating a whole different beast of it’s own. I feel that the best person for the job would be quality Loan Originator or possibly a previous underwriter working for a Mortgage Broker.
I have not had much experience personally with Loan Mods. The majority of the people who ask me about loan mods are A-Paper or Alt-A homeowners who have a mid to high 6% loan and have been hearing that the rates are at high 4%s and low 5%s. They want to check into a Loan Mod before looking at a re-finance because they think it will help them not have to pay closing costs. Most of the other people I have talked about loan mods with are unfortunately in such bad a position with their income and assets that no loan mod will not save their home from default.
I know that there are the homeowners coming off of high interest rate 2/28s that are the perfect fit for a Loan Mod and I’m happy that their houses can be saved from default. From what I can see, those people aren’t the majority of the ones pursuing them.
I am still learning myself(loan mods). So far, I am not sure if I agree to disagree with it all yet.
I think this is the next series of stealing from our clients, eslpecially from the ones in trouble. We should only get paid when they do the loan and make a reasonable income there like any other loan. Allowning this kind of work by the DFI will only make the market worse than it is, the Indymac example explains that.
I this is great. As for me, let the people qualified to provide the modifications do their job. There should be plenty of business in loan origination without staying into such a gray area.
This article was very interisting and here we go again in a roller coaster. Now people have to be careful with the loan modification agencies because they could take advantage of them. I wonder if this will ever end?
We should put an stop to this nonsense and educate people, we need to guide them to the right path, we need to tell them where to verify if an agency or a person offering loan modifications services is license to conduct business, also we should find out where is the free help to do loan modifications, with the current economy we know lots of homeowners are strugling and some don’t even attemp to save their homes because they can’t afford the fees to do a loan modification.
Yes Carmen, the statistics show that 50% of people who lose their homes in foreclosure NEVER speak to their lender.
Many of the free agencies are unfortunately overworked and can’t offer the real help that homeowners need.
HUD showes that more than 3 million people have been helped by local non profits, unfortunately a large percentage of those folks have re-defaulted.
I believe the reason is the well meant, yet sub-standard free help recieved.
A loan modification has to be done in the best interest of the borrower and designed to render a long term solution.
Most of the loan mods to date have been done with the best interest of the lender in mind, negotiated through direct lender to borrower contact or through a free counseling agency.
See My Previous Post on This Site
I for one think that the government should place a moratorium on all foreclosure for a minimum of 18 months and then tell the lender (who took the TAARP money) to fix the loans or go out of business.
Once they issue that directive the lenders will be alot more willing to modify these loans properly.
They will no longer have a choice!
What say you?
For further information on Loan Modification Re-defaults and their root causes, see my other post here on this site:
Click Here
We have set fees on Reverse Mortages to protect the senors. Why can’t we do the same for loan modifications? Wouldn’t that eliminate alot of these problems?
I have heard good and bad feedback on loan modifications. I myself have told people to start directly with their currect lender. I have heard there are no fees involved. In my opinion this is the best step for the consumer. I’ve been asked to get into loan mod’s. I dont see asking the borrower to spend thousands of dollars in up fron fees to do this if possible. If they are behind in mortgage payments what makes me think they have the money to go this route?
Im 50/50 here on this issue at this time. I have been involved in a few modifications but I have mostly steered clients to their current lender. I have a few associates who are attorneys and they are 50/50 on the issue also.
Several home owners I know who have tried to go directly to the lender and have been turned down for a loan mod. They do not have the financial resources to pay someone to negotiate for them. I will refer these people to these resources in the future. It was refreshing to know that these resources are available to the consumer.
I thought DFI’s opinion was unusual.
How does a loan originator=a loan modification specialist? Distinctly different job functions, other than the need to attract clients.
Also, as of yet, not ALL loan originators in WA state are required to be fiduciaries. In fact, I would expect before long, those that are required to be fiduciaries (under current law) will be in the minority, while the majority will be working at banks, or regulated under the Consumer Loan Act.
Still, it is best to always operate as if you had fiduciary responsibility.
It will be interesting to see what becomes of your inquiry with the WA bar assn.
There are predators on every side of this issue when it comes to the consumer. Obviously this is a in-my-own-opinion comment. The real problem to me is knowing the resources to pass along to consumers. Why hasn’t DFI, if they’re so concerned about all of these consumers here in the great state of Washington, passed along, to mortgage professionals/brokers, these resources to assist consumers? That way, ethical professionals, such as myself, can actually provide a service and not have to receive any monetary benefit at all, but a public service, and perhaps referrals.
One of the problems that consumers have is getting anybody that is knowledgable to talk with them from their existing lender. Consumers are often not only uninformed, but frustrated over the whole process. There needs to be a vehicle for them to get help, but I do not believe it should be a loan originator. That seems to potentially be a conflict of interest, especially when most originators are not overly organized and capable of professionally representing the client – even if it is not construed as practicing law. If we are truly looking after the interest of our clients, we would disclose to them that they can accomplish the same thing at no charge. If they still choose to use a facilitator, let it be someone who specializes in this area.
Brian and Dennis, DFI HAS provided direction to the industry. They have issued several press releases to direct consumers to the FREE HUD-Approved housing counseling agencies. Let me go find one of the press releases and a link for you.
http://www.dfi.wa.gov/consumers/news/2008/loan-modification.htm
http://www.dfi.wa.gov/consumers/homeownership/
It would seem to me that the lenders would be ramping up departments to work with these clients. The default rate as it rises poses an extreme burden on the lenders as well. LO’s are not the answer to these borrowers problem. Without loan modification by the lender at risk there seems to be no real answer.
If the borrowers in potential default had a safe reliable source to turn to with several options available to them that would be the best remedy. Where is some of that 700 billion we all signed up for?
Is that all going to the big corporate guys?
I have been amazed at how many emails I have received since this crisis began where someone is trying to recruit me to refer to them my clients in distress! At first I thought there was a new opportunity that I was missing the boat until I decided to make some phone calls and investigate. These are all just scams from con artists that act so quickly it makes your head spin. They must have had ESP or something to come up with this new business model so quickly. The public needs to be notified a little bit better by the media to stay away from outside organizations negotiating on their behalf. It’s very similar to the rise of the bi-weekly scheme where an outside company convinces you to send your payment to them and they will save you thousands and your house will be paid off in no time! Again, buyers/consumers do have to take responsibility for their own stupidity as it doesn’t make any bit of sense to not just pick up the phone and speak directly to the person you owe the money!!!! I wouldn’t even pay an attorney to do this as ……I don’t think they will be earning their keep either. There is only so much the lender will do and you won’t know unless you ask! This message needs to get out to the public in very short, concise sentences so it is easily understood. No long disclosure necessary. Just call your lender and see what your options are…
Hi Everybody!
It’s painful for me to talk to homeowners who have been mislead by these loan modification con artists posing as attorneys. It’s really disgusting to hear how these homeowners were told to not make their next two-three mortgage payments and then send them $2,500-$4,500 upfront. The legalities that are involved in loan modifications is too risky for any LO to try to do. For the homeowner that is worried about their ARM adjusting, it’s put them uneasy to be told by their lender that they need to be at least three months behind in order to qualify for a loan modification. Now the lenders have the upper hand and if the homeowner can’t make their payment, they can either choose to modify their loan or foreclose their home if they have some equity. I agree with using the free HUD-approved organizations but because of their massive call volume, it would also make sense to hire a real estate lawyer.
I am just a processor and am not familiar with loan modifications. None of the brokers I processor for have wanted to take on this type of loan. I believe that the professional who takes on these types of transaction should be very well educated on them and if not refer the consumer to the appropriate person. It’s sad to think that people take advantage of those people in distress. What is our world coming to.
Just flat to much controversy over the issue of loan mod’s, especially in WA.state.I’m going to direct loan mod inquiry’s to the appropriate counseling authorities and just add them to my data base when I can. A courtesy follow up may be appropriate to see if they got the results they were looking for.
I actually called one of these companies pretending to be in trouble with my mortgage. I told them that I had a $150,000.00 mortgage that was behind and asked how hey could help me. Long story short they were going to take $40,000.00 of my equity as a fee to “fix” my mortgage. I know you said these people are legal, but I don’t understand how those kind of fees could be. I warn all my clients against those companies.
The latest piece of the “Loan Modification” to consider:
The Forensic Loan Audit. These are performed by various entities to discover if the lender violated the Truth in Lending Act or made any errors while preparing their closing documents and neglected to adequately disclose the terms of their loan.
According to one article, the theory is that “the threat of a lawsuit is often sufficient to persuade an otherwise uncooperative lender to negotiate an attractive work out with the borrower.”
Foreclosure attorneys are also using this tactic when dealing with lenders on behalf of delinquent homeowners.
Fees run the gamut from a couple hundred to several thousand dollars.
No answer yet from DFI as to whether people performing this function are required to be licensed.
I’ve been watching these “loan modification specialists” come out of the wood work almost as quickly as the folks offering the over priced “debt reduction” software that has a nice commission to the person who sold it but not much value to the consumer. It amazes me.
I’m glad to see there are non proffit and govermental agencies that are working on behalf of the consumer in need of help and not their own personal gain.
I think that consumers are paying these lo such a crazy fees, and yes i think that they are crazy is becouse they dont really know how it all works with loan modification. They hear that there is such a thing, as loan modification, but they just dont know how it works. Calling the lender does not provide much help either, they just say fill out a workout package and send it in. Then, they approve it or deny it. I think there should be some guidlines outhere for loan modifications, and some education on what it is!!!
I think the root of the problem stems from lack of education. In terms of Washington State, you have an occupation of LO’s that requires passing of an exam and 2-3 certified classes. That’s not asking a lot when the occupation demands ethics, extensive knowledge of the law in terms of mortgage and financing, etc. Same goes with real estate, 60 class hours and pass the exam. Most occupations such as lawyers, doctors, etc. require degrees and passing of exams. Maybe instilling a bachelor degree program as a requirement for LO’s would reduce the problems we are in right now. I admit, I do not know much about loan modification programs because in this industry, if you want to know something you must seek it and rarely do your employers educate you. For now, I agree that lawyers would be a better option in terms of loan modification.
Wow, I just can’t believe people!The one’s that do the loan Modificatons are praying on helpless homeowner’s and there pocketbooks and I can’t believe how much they charge.And all the homeowner thinks is this person/LO is REALLY helping and thats truly how much it costs and that this is there only option. I believe it is hard to find out all of your options and really know.I agree with someone elses comment that Washington needs to be reinvented and have very available resources to know your choices
Since you have a fiduciary responsibility to your borrower and their loan is in trouble I surly don’t think it is in your or the borrowers best interest that your try to modify their loan again and collect another fee.In my view it seems to me the easiest way to help your clients would be sending them to HUD for proper guidance. I didn’t know anything about loan modification, refinance yes modification no. After six months the re-default is at a staggering 58% it doesn’t seem to be working to well yet.
Loan modifications should be done by the non profit government agencies who will only look out for the consumer’s best interest. Many LOs are looking to this product to replace some of their other income. This is wrong and not in the consumer’s best interest.
Loan modification… wow here is a fun topic. This is something that you should do for free for the clients that you have worked with. Life is a journey and my theory is I am going to continue to earn my clients business for the rest of my life. This will not be the last home that they buy or refinance and as a mortgage professional is up to me to represent them to the best of my abilities.
Once again the problem of an industry not governing itself in a ethical way, slowly but surely brings in excessive govermental regulations and additional costs to the very industry they work in. Any persons working in the LO business have a responsibility to keep an eye out for unscrupulous capitalists gouging the public for loan modification services and reporting them to the enforcing governmental agency. Unfortunately government suffers budget shortfalls simialar to those of the public sector. Until we govern our own industry this type of “carpet bagging” will continue! Leave loan modification to HUD! I’m also shocked that there is anybody working as an LO that doesn’t understand fiduciary resposibility.
I agree with Jason Brock, why would I take advantage of my client at one of thier lowest moments. Currently I advise my clients to contact thier lender directly and try to work out a loan modification. Why should they pay additional fees to a Broker when they are trying to save thier home. Linda
I can understand DFI’s concerned about homeowners going to various modification agencies and possibly paying substantial fees. But if LO’s were to modify loans that would compound the issue even more. If a loan can only be modified and not refinanced into a better situation, then a borrower shouldn’t be sitting in front of an LO for help. That situation can only be dealt with between the client and the lender. It doesn’t make sense to add fees to an already distressed situation.
Chris
I can understand a troubled borrower contacting the person who helped them get the loan in the first place. The mortgage broker/LO should be prepared to offer guidence. I would create a “how to memo” on the most economical and best way to find out if the lender is receptive to a modification. That failing, info on how to find an attorney or other professional. Also refer them to the DFI’s website on this subject. I would not charge a fee for this service.