Mortgage and Loan Modifications - What Are They and How Do They Work ?


Posted about 6 years ago. 12 helpful votes



What is a Loan Modification ?

Technically, anything that makes ANY change to the terms of a loan can be called a "loan modification". This creates a serious problem for borrowers, since consumers have no way of evaluating what they will be able to get when they apply for a "loan modification". However, in most cases, the results range from disappointing to no modification at all. We all hear a lot these days in the media about "loan modifications". Of course everyone is interested in the possibility of better terms. However, in most cases, if you can get one at all, the terms are at best slightly improved, and in actuality can be worse than the loan is today ! Unfortunately, this problem includes the Home Affordable Modification Program which the Obama Administration devised. It is a huge failure, and can be a trap for the unwary, because borrowers are induced to make "trial payments" people without any commitment from the mortgage company as to what that will do for them, and it often does nothing or worse


Where Would I Go To Get a Loan Modification ?

There are a two directions that people generally go in to see if they can get a loan modification. These are: A. Your current lender or loan servicer B. Third party service providers.


Alternative #1 - Your Current Lender or Loan Servicer

If you are struggling to pay your mortgage, your lender or loan servicer may suggest that you apply for a "modification" or allow you to apply for one if you ask. They will never commit ahead of time to what such a modification might actually contain, however, in desperation, many people do start the process. If you decide to try this, proceed with caution, and be prepared for the fact that you will be asked to submit a great deal of current financial information, including pay stubs, tax returns, bank statements, and the latest trick is that they have you start making "trial payments" without any commitment from them that that will lead anywhere at all . While some lenders and servicers will give you a time frame within which you can expect an answer, these are very rarely accurate, and it generally takes MUCH longer to get any answer at all. Our clients who have tried this report that it is extremely frustrating and slow, and that they got little if anything in return.


Alternative #2 - Third Party "Loan Modification" Services

A number of third-party "loan modification" outfits have cropped up, in response to the skyrocketing mortgage default problem. BEWARE ! Many of these are unscrupulous opportunists, who cannot and do not deliver anything useful. They often charge an upfront fee (although this is now illegal in many states) and make extravagant promises, which are grabbed onto by desperate homeowners. In truth, they cannot do anything for you that you cannot do by applying directly to your lender or servicer. Many of these services are made up of unqualified people, who either do nothing you can't do yourself, or else submit fraudulent information to your lender, which ultimately makes matters worse. In most cases, if they get any modification at all, it is temporary, and so not a solution to the problem. If you are even considering working with one of these, check with the Better Business Bureau and with your State Department of Consumer Affairs to see if they are allowed to charge you a fee.


Will Applying to My Lender for A Loan Modification Delay Foreclosure ?

The answer is an unqualified NO. Unfortunately, sometimes the people on the other end of the phone will tell you that you do not have to defend against a foreclosure that has already been filed, or will tell you that they will not file while your application is pending. BEWARE ! This is WRONG. The people you are speaking to are not attorneys, and have no idea about the legal side of the foreclosure process. It is also quite common for people to report that foreclosure has been commenced against them even while they are working with their lender or servicer to try to get a modification. This is because there are two separate departments on the inside - the Loss Mitigation Department and the Foreclosure Department. The Loss Mitigation people are those who will let you apply for a modification. The Foreclosure Department has only one objective - to get the foreclosure done as quickly as possible. The two departments are completely unconnected, and work independently of each other.


So, What Can I Do ?

Unfortunately, you really are not likely to obtain any meaningful help unless you contact a qualified foreclosure defense attorney. There is a small group of attorneys around the US who are highly experienced in dealing with lenders, servicers and foreclosure attorneys. These mortgage specialist attorneys are not connected to "loan modification" outfits and do not practice in states where they are not admitted - their goal is to evaluate for you the different strategic possibilities that may lead to help for your situation. These possibilities differ widely, depending on the exact details of each client's case. Most seriously qualified foreclosure defense attorneys are members of the National Association of Consumer Advocates. On its website, there is a geographical listing of attorneys who do this work. Beware. There are many offering "loan modification: and making unrealistic promises. Without a solid defense, these are not of value and charge upfront fees.



Before you do ANYTHING with a third-party "loan modification" outfit, please read the articles at: Attorneys General and state bars are working overtime trying to eliminate these scams. Unfortunately there are far more than they can tackle. If ANYONE tells you they can definitely reduce your mortgage payment or promise you a "modification", RUN !


Government Programs

There are some programs the Federal Government dreamed up in an attempt to help solve this problem. Unfortunately, NONE of them reduce the total amount of the mortgage, and in fact, the US Senate rejected a bill which would have allowed bankruptcy judges to do just that - to reduce the debt to the current value of the property. Most of the government programs fall under the umbrella of the Home Affordable Modification Program (HAMP), which now also includes the Home Affordable Foreclosure Alternatives Program (HAFA). None of this is working very well. One of the worst parts of what the government did was to put the very same mortgage companies who have caused this mess and who are benefitting from it in control over whether YOU can get it or not ! A classic example of putting the fox in charge of the henhouse ! I wrote a separate legal guide, the Home Affordable Mortgage Progrm Explained

Additional Resources

Golant & Golant, P.A.

National Association of Consumer Advocates

San Francisco Chronicle Article Concerning "Loan Modificaton"

Florida Loan Scam Busted by Florida Attorney General

The Same Culprits Who Cheated You Once are Now Trying Again !

The Home Affordable Modification Program (HAMP) Explained

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