By: Malcolm H. Scott
With the current economic crisis forever worsening, no one seems to be immune to the onslaught of financial hardship. Whether wealthy or living on the fringe, people have been affected. Some are seeing what they have worked for over the last decade or more disappear right before their eyes. Some seniors have watched their annuities fade away, others have watched their retirement accounts dwindle to nearly zero. Every day hard-working folks, just like you and I, are losing jobs. Some families have seen one of their income earners laid off. Others are hardly able to make house payments, while some are slipping into foreclosure. There is no denying America and the rest of the world are deeply embedded in a catastrophic economic crisis, even those veiled in denial have changed their opinion by now.
But, now what, where do we turn?
Businesses, banks and individuals alike are all in this financial crisis together. So, we are all trying to mitigate the onslaught of financial hardship as best we can. Lenders are, for the most part, willingly modifying their customers loans; providing you can show a hardship. People ask, “What constitutes a hardship? What’s the criteria? Things are really hard for me, do I qualify?” Based on the way many of us feel right now, we could all wave the white flag from behind the bunkers of debt, economic uncertainty and hardship. The fact is, if you can prove an economic hardship, and, your circumstances truly have affected your bottom line, that’s probably all you really need to do to qualify. Lost job, huge cut in pay, increased debt, your value has dropped, your adjustable has adjusted…the list goes on. If foreclosure has already begun, it is probably too late. Keep this in mind, if you have no way to pay the lender back, realistically, it would be hard for them to be motivated to modify your loan. But, if your present conditions are not insurmountable, but workable through reduced payments and or reduced debt, they are likely to work with you rather then see more foreclosures on their books.
Doing your own modification…
Working through the mêlée; the multiple phone calls, layers of poor communication and dead-ends is a bloody nightmare. When you call the lender yourself, you’ll eventually speak with people that will take some of your information and promise to get back to you. After numerous attempts, you’ll finally get to someone who will actually process that information from you and seemingly start the ball rolling. Sometimes, just this part takes sixty days! Finally, if your lucky, someone will be assigned to you and eventually a deal will be worked out. The savings can be substantial or not. It’s hard to give an exact example as there are so many differing loan situations and varying hardships. But it isn’t out of the question to see your payment reduced enough to have a positive impact on your hardship. But, is that the best you could have received? Probably not!
Where the loan modification company comes in handy…
Most of us doing loan modifications are working through an attorney, consequently, your modification doesn’t remain stacked in the “lost Mitigation” department, but rather gets sent off to the legal department as it is accompanied with a cover letter from the Law office. The negotiation is usually expedited this way, improprieties and errors in the original loan docs are discovered and discussed, (quite often used as leverage) and, as a result, a better deal is negotiated.The lender really does want to help out the client. (Anything but another foreclosure). But, they are really not well equipped to deal with the enormity of what is presently happening. If they are, they sure aren’t doing very good job of moving it along. Although, now, with the help of the attorney, the lender takes your modification a bit more seriously. Some of the deals are really quite extraordinary. Occasionally, some debt will be forgiven, but more commonly the modification negotiated is based on interest rate and payment. It usually falls well within the range that makes it palatable for the client to remain in their home and continue making payments, allowing them to get back on their feet again. It really is a win/win for all parties.
It’s like anything, it can only be as effective as the weakest link in the process. It takes time, have you the time? Determne what the opportunity cost is. While you might be taken seriously by a lender doing it yourself, you know your transaction will be taken seriously when an attorney is negotiating on your behalf. The good news is you can get a modification if you qualify. The bad news, or the reality I should say, like any benefit-it will cost you. Once again, pinpointing an exact figure is a moving target as there are so many different scenarios. Although, on the smaller conforming loans, you can expect to pay around three thousand dollars. On the bigger jumbo loans you might pay a point. And, on the super jumbo multi-million dollar loans you might pay a half point or more.
How much could it help you?
At the end of the day, let’s hope, what you pay is directly proportional to the benefits you are receiving.It is not unlike a refinance. (Sans the majority of the costs.) But, in this present interest rate environment modifications reflect the current market conditions and are the new terms for the life of loan! So, if you started out at 8% on a 1.5 million dollar loan and qualified for a modification and they consequently reduced it to 5.00%. That would reflect a payment reduction of nearly $3,000! Dropping your payment $3,000 a month is a pretty substantial example of payment relief. I’ve seen much more dramatic examples. But this gives you an idea of the willingness and benefits available for us in this present market. After all, presently, there are modifications being awarded to people, in my opinion, that are on the outer limits of financeability. If your are a hard working individual or family and they can see you’re going through a tough spot, more than likely this relief will jettison you to the other side of that dark tunnel, and, you might be able to finally grasp a bit of light at the end of that long corridor. This event alone might be the impetuous that motivates people to work a little bit harder so they don’t have to see their world toally implode. We’ve been disrupted enough already, totally loosing it all is really disruptive.
I have heard of some folks negotiating fairly decent deals directly with their lenders. (Unfortunately, the best examples are attorneys doing their own mods.) Now working with someone, a loan modification company, might shorten the process, it will certainly cost more, but, most importantly, it will increase the probability of better results. In the end, I suppose you get what you pay for.
After all, you might be in your home for a long time. Getting the best deal you can makes a lot of economic sense.
Contact Malcolm Scott for questions on Loan Modifications