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How to Get a Loan Modification, Never Pay Up Front

There have been countless changes in the loan modification industry since in began en force circa 2007. Most importantly was the systematic weeding out of fraudulent service providers who set up shop to take advantage of distressed homeowners by charging a fee up front an never doing any work. I’ll say this now and repeat it again as it’s the single most important bit of information you should know when seeking a loan modification: NEVER PAY UP FRONT FOR A LOAN MODIFICATION!

Who can negotiate a loan modification?

  • You – that’s right. Although it can be to your benefit to have a professional help you through the process, there is nothing preventing you from attempting a loan modification on your own.
  • Foreclosure Consultant - These individuals are typically non licensed professionals and can either be for profit or non-profit companies. After July 1, 2009 in the state of California, all foreclosure consultants must be registered with the Attorney General’s office and post a bond in the amount of $100,000 (California Civil Code section 2945.45).
  • Attorney – Any attorney licensed in the state where your pending foreclosure is located. You can find all registered attorney’s by searching martindale.com
  • Real Estate Broker or Agent - The most common source for advice and help negotiating a loan modification or short sale. Although not all real estate agents have the experience to qualify as experts in the field, they are allowed to help if they hold a current real estate license. You may find out if your agent or broker is licensed at the California Department of Real Estate website dre.ca.gov

Protect yourself from loan modification scams. How to spot foreclosure fraud.

In case you didn’t catch this in the first paragraph, NEVER PAY UP FRONT FOR A LOAN MODIFICATION! In California this practice is illegal. It’s also important to remember that if it sounds too good to be true, it probably is. Just like a stated income loan with a “starting” interest rate that is unexpectedly low, a loan mod with terms that don’t pass the sniff test are also unlikely to prove true.

I’ve listed below some of the more common loan modification scams for you to review and catalog:

  • I’ll again start with the loan modification counselor who asks you to pay a fee BEFORE you’ve successfully obtained a PERMANENT loan modification. I’ll say it again, NEVER PAY UP FRONT FOR A LOAN MODIFICATION!
  • The foreclosure consultant who tells you to make your monthly payments to him/her rather than your bank during the loan modification process. This should never happen.
  • The consultant who poses as a government affiliated entity. Often using names that sound like they are government related and asking you to pay them up front to qualify for one of the special government related programs like HAMP or HAFA. These groups will suggest that their company is directly linked to the program and they charge you to confirm you are eligible. Your lender will tell you if you are eligible for HAMP free of charge. You may also see the HAMP waterfall below.
  • Bait and switch “rescue loans.” It is imperative that everyone read and fully understand what they are signing. Bait and switch rescue loans will ask the homeowner to sign over title to their house to a third party in exchange for a new modified loan with a lower loan balance. Again, if it sounds too good to be true…
  • Rent to Own and leaseback schemes. Be aware of who you are dealing with and take care not sign over title to persons or companies who ask you to sign over title promising to sell the property back to you once the process is complete. These schemes may also include asking the homeowner to move out during the process, allowing the “consultant” to collect rent until the house ultimately goes to foreclosure sale. In this case the consultant never completes the modification, rather, they just postpone the foreclosure allowing them to collect rent for a longer period.
  • A late add to this list, from the CA Attorney General press release, beware of forensic loan audits. In this scenario the consulting company uses the forensic loan audit as a means of getting the homeowner to pay up front for the tools needed to complete their modification; in this case a forensic loan audit. Once the fee is paid, no work is done and the loan modification never happens.

What to be aware of going in. What are your chances of success?

The foreclosure process is stressful and often times overwhelming. In many cases home-owner’s are willing to suspend reality, try anything and trust anyone who promises to allow them to stay in their home. Fueling additional confusion in the loan modification process is the fact that many defaulting homeowners used stated income loans to refinance or make their purchase. Every homeowner should know before going into the loan modification process that you must have income to qualify for a loan modification.

This is worth repeating: If you cannot document income sufficient to pay your mortgage (that is a new lower mortgage payment), you will not get a loan modification! Further, although the bank may have taken your word for it when you qualified to take out the loan, they will require you document and will definitely confirm your income before agreeing to modify your loan. Generally speaking the goal of a loan modification is to lower your monthly payments to an amount equal to 31% of your current gross income.

Banks also require you have a hardship before seeking a modification. Examples of generally accepted hardships are divorce, death of an income provider, loss of job or income, forced relocation for a job, or pending interest rate increase. They are not going to modify your loan because you’d like to refinance, if your current income supports the monthly payment.

Next, the banks expect you to spend your savings before they consider modifying your loan. Two things to note here; first some of your retirement accounts are off limits thanks to the ERISA laws, meaning the banks cannot go after or require you to liquidate them in order to make mortgage payments. Second, it is generally accepted that the banks will expect a home owner to have less than two and one half times their current monthly payment before they modify a loan. For example, if your monthly mortgage payment was $100 and you had $250 in your savings account (2 1/2 times your payment), the bank would expect you to use that money before they modify your loan.

One final note on this subject, think twice about applying for a loan modification simply to postpone a foreclosure or short sale. Almost anyone can get a temporary modification through their bank. The suggested reasoning here is that the bank is attempting to collect a bad debt, in order to evaluate their ability to collect banks will attempt to gather any and all financial information you provide to later collect on that bad debt. If you are falsely or hopelessly building a case for a modification by showing income and assets, that information may ultimately prove detrimental to your short sale negotiations.

The unsolicited loan modification from JP Morgan Chase

A few things in history have reached mythical status; the Fountain of Youth, the contents of Al Capone’s vault. Our current depressed housing market has the unsolicited loan modification from Chase / WAMU. Ladies and gentlemen, I’m here to tell you it does exist. Accompanied by a letter from Steve Stein, head of the Chase Homeowner Assistance Department (I couldn’t find a link to the department on the Chase website, however the phone number listed is: (888) 368-5524) the offer was received and accepted by one of my clients in Southern California.

According to the Chase documents, her “loan is eligible for (the) special program developed as part of Chase’s announced effort to preserve home-ownership in America.” According to my client, she never contacted Chase requesting a loan mod, nor had she ever missed or been late on any of her mortgage payments.

In reviewing the offer with her, I noted she was more than 100% underwater on her loan (previous balance approximately $600,000, estimated fair market value less than $300,000) and her interest rate was going to reset the following month. This is also an owner occupied property on a stated income, option arm, variable rate loan. The Chase modification set her interest rate to a fixed 5% for the life of the loan, reset the amortization period at 30 years from the modification date, and wait for it…. reduced her principal balance by approximately $250,000.

My point in bringing this to everyone’s attention is three fold: First, pay attention to the letters and phone call offers sent to you by your current lender, although most are just collection calls, some lenders are proactively attempting to help homeowners modify their loans. Second, I’ve received several phone calls from clients regarding similar offers yet found very little information on such offers over the Internet or from any other sources. I wanted to share a story of success to inform you all that these possibilities do exist.

Finally, I wanted to stress the importance of principal reductions as a solution to the current housing crisis (just in case any influential bankers or politicians are reading). In the example above, my client is in her early sixties, educated, has perfect credit, and was fully aware of the current market value of her home. Like many homeowners in similar situations she is responsible and proud of her attention to financial obligations. As such, she was reluctant to ask for help while she could still pay, and felt morally opposed to a strategic default.

After the process was complete she shared the fear and and anxiety that accompanied two years of waiting for her payment to increase, realizing she had no hope of refinancing into a fixed rate loan, and knowing she couldn’t sell or find another property to purchase. Her loan modification took one hour to review with an attorney, fifteen minutes to complete the paperwork that was enclosed in the packet sent by Chase, and was processed and completed before her next payment was due 15 days after she received it.

Finding the Greater Good

It seems to me there are two ways to address an obstacle. One is to brace yourself and move to minimize the negative impact you may individually encounter; the other is to proactively seek solutions for removing the obstacle and move to the collective good. In fact anyone who’s seen the movie A Beautiful Mind, realizes that John Nash won a Nobel Prize for his game theory suggesting that such strategies lead to the best possible outcome.

Like millions of Americans currently underwater on their home, my client was reluctant to address the problem until it was immediate and one she had little chance of resolving. Banks must minimize losses and increase revenue. While Chase and other institutions grow their loss mitigation and REO departments by the thousands to manage short sales, foreclosures and a deluge loan modifications that may not work, it took one form letter by certified mail to complete a loan modification that required no documentation of income, no explanation of hardship and required no back and forth negotiations. President Obama and our current political administration are determined to help homeowners stay put, while preventing fraud, putting predatory foreclosure scams out of business, and finding an expeditious end to the housing slump. This was accomplished overnight for one customer by Chase’s proactive response to the obstacle before them and a mutually beneficial strategy benefiting the greater good.

This modification would not have been possible without reducing principal. By doing so the bank minimized their loss and positioned a loan for greater chances of repayment, further they avoided one more foreclosure mitigating the negative impact on the neighborhood and their loan portfolio – a positive move for the overall housing crisis.

Like any financial matter, a loan modification should not be taken lightly and the prospects of success should be considered before you start. Banks are debt collectors and they will use the information you provide in order to collect that debt. If you provide false information to present an ability to pay which you don’t really possess it will work against you if you later decide to pursue a short sale. And finally, one last time, NEVER PAY UP FRONT FOR A LOAN MODIFICATION!

College students are often cautioned to avoid private loans unless absolutely necessary, urged instead to take advantage of all other financial aid options first.

The advice is sound. Generally speaking, private student loans, which are offered by banks, credit unions, and other private lenders, don’t offer the same level of borrower protections and benefits that government college loans do.

As a student, you should seek out grants and scholarships first — money for college that you won’t have to repay — before taking on college loan debt. Then, if you’re still going to need college loans, you should, in general, make sure you’ve maximized all your available government loans before you consider taking out a private student loan.

Interest Rates & Repayment Options

Federal education loans have fixed interest rates and more flexible repayment terms than private loans. The Department of Education offers income-based repayment options that keep your monthly payments at a figure you can afford, repayment extensions to give you more time to repay, and loan deferments and forbearances that can temporarily postpone your college loan payments if you’re facing financial hardship.

If you go to work in the public sector, you may also be eligible for the discharge of some or all of your government loan debts.

With private student loans, on the other hand, your interest rate is almost always variable, and private lenders aren’t required to provide the kind of repayment flexibility that comes standard on federal college loans.

The current foreclosure crisis that began mushrooming, in part, because of adjustable-rate mortgages should be enough to make anyone leery of adjustable-rate loans on anything.

But it’s worth keeping in mind that when interest rates are low, as they are now, adjustable-rate private student loans can have a lower interest rate than their fixed-rate federal counterparts.

If you have excellent credit, or if you have a parent or co-signer with excellent credit, you may qualify for the lowest-rate private college loans, which currently carry interest rates that are as much as 3-percent to 6-percent lower than the rates on federal student and parent loans.

Interest rates are destined to rise as the economy continues to recover from the recession, so private loan rates won’t always be this low, but if you or your parents are in a position to pay that private student loan off relatively quickly, you may be able to save money over a government-issued college loan.
 
Covering Your College Costs

So why take out a private student loan at all?

Private student loans are meant to “fill the gap” in college funding that may be left after you reach your federal student borrowing limits. In many cases, families find that scholarships and federal financial aid simply aren’t enough to cover the rising cost of college.

Without private student loans, you may not be able to pay for college or continue your studies.

Statistically, college graduates have a better chance of being gainfully employed than non-graduates do, and college graduates, on average, earn more money in their jobs than workers who don’t have a college degree. For you as a college student, better job and salary prospects may make the burden of a reasonable amount of private student loans easier to bear.

Working With Private Student Loan Lenders

College loan companies aren’t deaf to the economic realities that college graduates are facing. Recently, some of the largest private student loan lenders have instituted new guidelines for the repayment and forgiveness of college loan debt.

Wells Fargo and Sallie Mae, for example, both announced this year that they would begin discharging private student loans upon the death of the borrower. Beforehand, that debt was being left to the co-signer to repay.

And as the recession and large swaths of unemployment among recent college graduates has led to higher rates of delinquency and default on college loans, some private lenders have shown a slight uptick in their willingness to work out modified repayment plans with troubled borrowers who are unable to repay their private student loans.

Being a Smart Student Borrower

For students who must turn to private education loans, it pays to shop around. Interest rates are always important, but they aren’t the only factor worth considering. Repayment policies, payment deferral options, default and late-payments penalties, interest-rate caps, and other terms may give some private student loan programs a clear advantage over others.

Always be mindful of the total amount of your debt from all sources, school loans and otherwise, and aim to limit your reliance on college loans, both federal and private.

The Department of Education’s National Student Loan Data System can help you track all your federal loan debt. Additionally, if you’re carrying debt from multiple federal college loans, the Education Department’s student loan debt consolidation program can help simplify the repayment process and may lower your monthly loan payments.

As you begin to repay your school loans, make it a priority to pay off the higher-interest loans first.

By taking advantage of college scholarships, using all your federal financial aid options, and minimizing the amount of debt you take on to pay for school, you can benefit from the careful and limited borrowing of private student loans to help pay for your college education.

Personal Loans Offer Many Financial Solutions

Don J has decided to move his growing family from the two-bedroom apartment they’ve occupied for the last couple of years into a three-bedroom home. However, he’s not yet prepared to purchase a home outright so he begins looking into the “rent-to-buy” situation. Don then decides that in order for this plan to work, he could use extra cash to supplement the family income while in the initial period.

Over the years, Susan M has acquired a significant amount of debt for various purchases (home renovations, new car, furthering her education) and now she makes numerous separate payments each month. It occurs to her that if she could consolidate these payments into one, it would be considerably easier for her to manage her finances.

Fred G’s wife recently underwent emergency surgery for a serious medical condition. Fortunately the surgery went well but Fred now has to figure out how they’re going to pay the enormous medical bill that’s now part of their current expenses.

Above are three scenarios in which consideration of a personal loan could be the appropriate thing to do. Currently, loans of all types exist which could be the answer to many dilemmas, as long as the borrower keeps in mind that provisions must be made to repay these loans. Once this fact is fully understood, Loan Calculator Australia can show how a personal loan could be the answer to acquiring the financial freedom and flexibility to accomplish one’s goals or resolve one’s problems.

For all personal loans, there are standard terms that are decided upon by the lender and agreed to by the borrower regarding the loan chosen:

Secured or Unsecured Loan

A secured personal loan attaches a particular asset of the borrower’s as collateral that will be claimed by the lender in the event of loan default. A secured loan is cheaper than an unsecured loan because the lender has more of a guarantee of receiving something for the loan in the event it’s not repaid. With an unsecured loan, the lender is left with nothing if the customer does not repay; therefore, the lender charges higher fees and interest rates for this type of loan.

Fixed or Variable Rate Loans

Variable, or adjustable, rate loans are loans with interest rates that fluctuate periodically according to overall financial marketing factors, resulting in varying payments during the loan period for the customer. When marketing factors dictate lower interest rates, lower payments for the borrower will be the result. Conversely, a negative impact could result when the interest rates begin to climb, increasing the payments due. Another advantage of a variable rate loan is early repayment is allowed without prepayment penalties.

A fixed rate loan locks in a designated payment amount and this amount paid by the customer remains the same for the life of the loan no matter what changes occur with the overall interest rate. This allows for easier budget planning, but it restricts the customer from paying off the loan early without being subject to prepayment penalties.

Pre-Approved Loans

The lender does its credit checks and income verifications prior to offering the loan which helps them to decide whether to pre-approve a loan for certain customers. While receiving a pre-approved loan offer is an indication that the lender is considering the borrower’s eligibility for a loan, it doesn’t guarantee that the loan will be approved. The lender will do a thorough check on the borrower’s credit history before authorizing a loan.

Debt Consolidation Loans
Debt consolidation loans can simplify life by granting one loan to pay off multiple loans, leaving a person with a single loan to repay.