Ten Truths About Loan Modification (Part 1)

1.  No lender has to modify a homeowners loan.  A mortgage is a contract and the U.S. and Florida constitutions prohibit laws that impair contracts.  The lender can insist on enforcing the contract as written.  Lenders agree to modify loans only when it is in their financial interest to do so.

2.  A loan modification company cannot stop foreclosure.  A loan modification company can’t go to Court for you unless it is local and has an attorney who is a member of Florida Bar (or the bar of whatever state you live in).  While the loan modification company is talking to the banks loss mitigation department the banks lawyer can and most likely will file a foreclosure action if you miss four (4) payments in a row.  While you or your loan modification company negotiate with the lender their lawyers are moving a foreclosure case through the Court in a process that ends with the judicial sale of your home.  If you do not have a lawyer and are not watching the foreclosure case your flank is exposed.

3.  Most homeowners never receive a loan modification.  C.N.N reported on July 16, 2009 that there were 1.53 million foreclosure pending in the U.S.  There are probably an additional 3 million loans that are in default but are not yet in foreclosure.  In the month of April 2009, between Fannie Mae and Freddie Mac, there were 18,000 loan modifications.  Based on current trends it appears that less then 1 in 20 loans in default will receive a loan modification.

4.  The loan modification industry is virtually unregulated.  While Florida and a handful of other states have passed laws prohibiting upfront charges for loan modifications there is no licensing of loan modification companies in Florida and most states.  Anyone can start a loan modification company, you do not need a high school degree or special training.  There are people holding themselves out the public as loan modifiers who have never modified a single loan.  Some out of work “mortgage brokers” who put trusting homeowners into inappropriate loans so that they could reap hidden legalized kickbacks called “yield spread premiums” are now trying to get homeowners out of the bad loans by starting loan modification companies.  Hopefully these unscrupulous characters will not victimize the same homeowners twice.

5.   Qualifying for loan modification is often a catch-22. If the homeowner makes too much money, they are just upside down and do not need a modification.  If they make to little money they will not be able afford the modified mortgage.

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