Are you using a legit loan modification company?

Here’s a big news flash for consumers.  Did you know that as of January 1, 2011 all companies performing Loan Modifications must have a Mortgage Loan Originator (MLO) endorsement in order to legally operate?  Prior to this, only a Real Estate Broker’s license was required to operate a loan modification business.  This MLO license endorsement is part of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”). This federal law gave states one year to pass legislation requiring the licensure of mortgage loan originators according to national standards and the participation of state agencies in the Nationwide Mortgage Licensing System and Registry (NMLS&R).

The SAFE Act is designed to enhance consumer protection and reduce fraud through the setting of minimum standards for the licensing and registration of state-licensed mortgage loan originators. Senate Bill 36 (SB 36), which was signed into law in October 2009, was enacted in order to bring California into compliance with the SAFE Act. SB 36 requires all Department of Real Estate (DRE) real estate licensees who conduct residential loan origination and loan modifications, as outlined in the SAFE Act, to meet specific requirements to qualify for a MLO real estate license endorsement.

The SAFE Act requires loan modification companies to pass a written qualified test which covers federal and state law, to complete pre-licensure education courses, and to take annual continuing education courses. The SAFE Act also requires these entities to submit fingerprints to the NMLS&R for submission to the FBI for a criminal background check, and authorization for the NMLS&R to obtain an independent credit report.

At Loan Mitigation Advocates, we are proud to let you know that our entire company has met all the requirements and has received the MLO endorsement.  It has been our pleasure helping numerous homeowners receive loan modifications and we look forward to helping many others preserve their home ownership.

For borrowers, the road to obtaining a loan modification can be an exhausting one.  On average, loan modifications take an excruciatingly long time from start to finish with some modifications taking over a year to complete. 

The kicker is that once a trial period modification is secured it does not guarantee that you will be given a permanent modification.  We are not talking about those cases where the borrower does not follow through with the “rules” instituted by the lender.  This can include the borrower missing or being late on payments during the three month period.  Also, if the borrower’s situation changes drastically (ie significant increase/decrease in income or debt) can be cause for denial of a permanent modification.

Unfortunately, the situation that we are talking about doesn’t even involve negligence on the part of the borrower.  Even if the borrower does everything correctly and follows through on their three month trial plan, we have seen many cases where the lender is so “backlogged” that they are unable to produce a final modification at the end of the trial period.  If this happens, many lenders suggest continuing to make the trial period payments.  Unfortunately, for these clients there is no timetable that is given for completion by the lenders. This is just unacceptable.

From our experience, this number is just too low, and the time it takes to complete a loan modification is still shocking.  Clearly, there is not enough being done by the lenders to expedite the process of loan modifications. However, at Loan Modification Advocates, we are doing everything in our power to put you, the homeowner, in the best particular situation to obtain a loan modification.

When you become a client of Loan Modification Advocates, we perform a detailed analysis on your particular situation.  Our goal is to determine your likelihood of obtaining a loan modification based on our experience with past clients and our knowledge of the guidelines established by the lenders for determining whether a homeowner “qualifies” for a loan modification. Before turning in your file, we work with you to execute a strategy that maximizes the completeness of your file.  Once we believe your file is in the best shape possible, the file is turned in. One would assume that submitting a well-analyzed and guideline-specific file would result in a fast and efficient turnaround by the lender.  Unfortunately, in some situations that is not the case.

Here are some of the scenarios that we battle everyday:

• The lender receives the package and incorrectly enters the information into their system. This most typically occurs with the income portion of the file.  For example, some analysts do not understand how to read the income from self-employed homeowners.  The incorrect input results in a rejection by the system.
• The file is sent in and goes immediately into a stack of files.  Time passes and all the information becomes stale.  Once the file is picked up to process, all new updating is needed.
• The lender changes their criteria/policies mid-stream in the process and does not let the homeowner or third parties know of the changes.  This results in a further delay in the process.

In the lender’s defense, the problems do not only exist with the banks.  Homeowners also have contributed to the number of homeowners dropping out of the Obama administration’s main mortgage assistance plan.  In order to complete the program, borrowers must make at least three trial payments on time. In many cases, homeowners are delinquent with their payment or do not pay the full modified amount – both result in being let go from the program. The Treasury Department also reports that about 277,000 homeowners, or 23 percent of those enrolled, have dropped out during this trial phase. 

Another problem is that, initially, borrowers were able to state their income verbally and then provide proof of their income later. This delay in providing a complete set of documents at the beginning of the process resulted in a bottle neck in the system.  This gives credence to why we at Loan Modification Advocates take steps to fully prepare the file before submittal.

Short sales and foreclosures are happening due to the combination of falling home prices and a borrower’s unforeseen circumstances (ie unemployment, reduction of hours, medical condition, etc,). Borrowers who can’t obtain a loan modification and are having difficulty maintaining their payments have to sell their homes for what they owe. As a result, they are being forced to short sell or foreclose.  Unfortunately, these homeowners who head down the path of short sale or foreclosure are unfamiliar with the pitfalls that may follow.  Besides credit implications, possible deficiency judgments could occur long after the homeowner has concluded their transaction.

In a recent article, Les Christie describes two scenarios where homeowners were forced into involuntary homeowner monetary contributions after the completion of their transaction – one related to short sales and the other related to foreclosure. We recommend that you read this entire article by clicking on the link above to further understand these potential consequences. 

Also, to get further educated on your particular situation you can contact Greg Jewell at 925.463.6164.  Greg specializes in short sale coordination and has direct experience with numerous short sale transactions.  Contacting a real estate attorney, bankruptcy attorney or a tax consultant is also important to clearly understand the types of loans you have – recourse vs. non-recourse and the possible implications involved.

In a recent Associated Press article on this matter, Treasury Department officials said they will step up pressure on all the companies participating in the government’s $75 billion effort to stem the foreclosure crisis. At Loan Mitigation Advocates, we feel that it is about time. Despite having completed numerous successful loan modifications, we have been frustrated at the inability of lenders to turn around loan modifications in an effective and efficient manner.  Unfortunately, we don’t see this changing unless the lenders are more heavily scrutinized for their lack of effort and thus held accountable with direct consequences.

To turn the lenders around, it appears the government will start by sending a three person team to monitor the eight largest companies’ work and then that team will send twice-daily reports on their progress. Also, the Treasury Department will publish a list of the mortgage companies that are lagging.

“In our judgment, servicers to date have not done a good enough job” of making the modifications permanent, said Michael Barr, an assistant Treasury secretary. Companies, he said, “that don’t meet their obligations under the program are going to suffer consequences.”

In a recent article by Strategic Equity, Dave Muti, author of “Mortgages:  What You Need to Know,” was asked how a credit score is calculated and tips for increasing it. The Fair Isaac Corporation created the most common credit score used today – the FICO score.  It ranges between 350 and 850.  The higher the score, the better the interest rate you can secure.  720 is the credit score threshold that you don’t want to drop below in order to secure the best rates.  If you drop below 500, you may not even be able to secure a mortgage.

The following are five critical credit criteria reported in the article:

1. Payment History – This pertains to your track record for paying your bills. It makes up 35% of your score. Essentially, this means paying your bills on time. A mortgage “late” is much more serious than a credit card “late”
2. Credit Ratio – How much you owe is 30% of your score. Just because you owe less does not translate to having a better score.  This score is determined between the various types of credit you have opened (see #3 below). There needs to be a balance between how much you owe and how much you have available to you.  Having too many credit cards can be a negative and having only one could be as well. The goal is to have a lot of credit available to you, and to then use that credit, while at the same time not maintaining a high balance.
3. Credit Type – The type of accounts you have makes up 10%. These are mortgage, car loans and credit cards.
4. Credit Maturity – The length of time you have maintained your individual credit accounts is 15% of your score.  This does not mean how long you have been involved with credit.  It is specific to each individual account and the length of time that you have maintained each particular account is the key.
5. New Credit – recent history makes up 10% of your score. 

The bottom line is to be proactive in maintaining your credit.  Plan ahead and check your scores at least two times a year.  It is important to think carefully about all of your financial moves in order to maintain and build your credit score.  That score can be a gateway to many things we all would like to obtain in life.

The top Five Reasons for why the loan modification process is slow are a byproduct of the lenders’ inability to get ahead of the shear volume of loan modification requests.  Essentially, they are always playing catch up and here are 5 reasons adding to this deficiency (see the more defined list at CNNMoney):

#1 – The Fax Machine
Everything from lost pages to warped pages to no acknowledgement that the fax has been received to incorrect fax numbers.

#2 – Multiple Forms
Seemingly endless amounts of documentation are required for a loan modification.  To compound the issue, each lender has its own set of requirements and each borrower’s situation is different which demands a different set of requirements.

#3 – Outdated Information
The time it takes to process a loan modification could be weeks to months.  Information gets outdated and lenders want to make sure that your situation does not change during the time they are considering granting you a loan modification.  In many instances, they will ask for updated information two or three times (i.e., pay stubs, bank statements, etc.)

#4 – Poorly Trained Personnel
I can tell you first hand that there are some people working for the lenders that are rude and unable to assist.  Most of the time, these individuals do not acknowledge receipt of the initial loan modification packet and if you are calling to obtain a status, they have no history of where the loan modification is in the process. You would assume that all individuals working in the loan modification department would be able to obtain a current status on a borrower’s file.  Not the case.  We could speak to multiple people in the same department and get multiple answers. Training seems to be the downfall here.  However, this is easily understood for the lender since they have had no time to train and have their employees comes up to speed on what to do for loan modifications.

#5 – Unclear Modification Offers
Two things come to mind for this one.  Some lenders are sending modifications to borrowers with no follow up call or communication that a modification has been granted.  A packet arrives in the mail but looks fairly innocuous. In some cases, this envelope looks no different than the several delinquent notices that the homeowner has received over the last few months.  Unfortunately, this envelope ends up in the same location as the delinquency notices – the garbage.  We recently had a similar occurrence where a client of ours called up in a panic and wanted to know what to do with this packet they received.  They thought it was related to their house being delinquent.  However, it was actually their modification packet.  It contained $1,300 a month in savings!  That was a close one. Secondly, even when you think a modification has been granted, it may not be over.  Many lenders are requiring trial periods and you have to step up to the plate without any glitches. If you miss a payment or don’t pay the whole amount, your trial period ends and you don’t end up with a modification.

Homeowner’s complaints are mounting and the government is placing added pressure on lenders to more efficiently perform modifications.  We expect to see vast improvement in the process and a greater willingness to work on mortgage modifications in the future.

The bottom line answer to the question of whether another loan modification is possible is that it depends.  All loan modification agreements are not created equal.  They are different and the need to thoroughly understand your contract is critical. Primarily, you are looking for any verbage that restricts your ability to obtain another loan modification.  If there appears to be nothing in writing within the contract, the next step is to contact the lender directly to see if they have any internal policy that prohibits a second loan modification within a certain period of time.  If a restriction exists, the period of time that needs to elapse before another modification can be granted is typically around 1 year.

At Loan Mitigation Advocates, we do not accept advanced fees and we would be happy to look into this situation for you. We are focused on working with the lender to obtain a long-term solution that benefits you, the borrower.  The mediocre quick fix or a temporary band-aid for your financial situation is not what we are after.  As an operating goal at Loan Mitigation Advocates, we seek to secure a loan modification for our clients that is impactful enough to alleviate the need for a second modification down the road.

For the most part, this trial period is specific only to the federal government’s Home Affordable Modification program.  However, expect modification programs that fall outside of the federal government’s program to implement the trial period as well.

In a recent article by Marcie Geffner of Bankrate.com, she describes 10 things that a borrower needs to know about the trial period. To read more about those ten items, please click on this link, Modifying Mortgage Trial Period

At Loan Mitigation Advocates, we have direct interaction with numerous lenders and we can concur that the U.S. plan for modifying mortgages has started very slowly.  One reason we see as the cause of the slow start is that many lenders are still in the process of revamping their computer systems and altering their process in order to accommodate the new rules and regulations.  Prior to the new regulations, lenders already had a significant backlog of files needing to be processed.  The new rules have just compounded the issue.

Another cause to the processing delays is that some lenders do not have their different departments effectively broken out. We have interacted with lenders who in some cases have their foreclosure, short sale and loan modification departments flowing to the same location.

However, the NY Times article discusses that experts feel a larger issue is the continuing deterioration of the economy. The longer it takes to get the program in gear, they say, the fewer people may qualify for modifications. The expected rise in unemployment and the ending moratorium on foreclosures may directly keep a number of homeowners out of the program.

On a positive note, the article does mention that the administration remains confident that the program will end up offering help to as many as three million to four million homeowners.  And the rate of modifications is expected to increase in the coming months. The mortgage modifications have come in various forms so far, but some have not reduced monthly payments and most have not reduced the balance owed – essential for people who owe more than their homes are worth. Still, according to the article, the number of loan modifications with lower payments has increased in recent months, an encouraging sign.

We concur with the times article and it has also been our experience that many homeowners don’t even know they are eligible for a modification and many others begin the process but unsuccessfully navigate through the various rules established by each lender. At Loan Mitigation Advocates, we do not accept advanced fees and our process enables us to analyze the borrower’s probability of obtaining a loan modification prior to submitting their file to a lender.  Please contact us directly if you feel we might be of service to you.