Loan Mods and other things that sound too good to be true…

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Loan Modification.

Two words that have haunted my career since 2008.

When they first arrived on the scene they were flashy, like Pink in her Mercedes Benz. Everyone was abuzz and aflutter about getting to lower their payments without refinancing and despite being upside down on their mortgages. It seemed like a great way to help clients. The office I was in at the time signed up with a modification firm that allowed us to get a small fee for referring loan mod clients. The company was started and promoted by a very prominent name in the industry. A top salesperson who did training seminars and hosted weekly training calls. I’d been to this guy’s house for an industry mixer. He was smart, sharp and successful.

I did one. A cousin of one of my best clients (RIP, Charles) paid her fee to the company and I was happy to see the look of hope enter her eyes.

A month later, she was being ignored and she wasn’t getting help. I tried calling the company myself and no one would answer. I emailed the industry guy directly, he promised me he’d look into it. I didn’t hear back. I never got paid. I’d field calls from the client a few times a week that went from sad to hostile. When the hostility started they involved threats of level action at first and then it escalated to her “friends from the ‘hood” coming by my office. She didn’t believe I was never paid and that the company was ignoring my calls.

A few months later I started at the California Department of Real Estate as a Deputy Commissioner. First week there I over heard them talking about the company that I had referred this poor client to… I volunteered that I was familiar with the company and had a previous client who was victimized by what appeared to be loan mod fraud. I was interviewed and had to prepare my first statement for the state. I ended up going along to serve legal documents to the smart, sharp and successful guy. Turns out he wasn’t too smart, he called the state offices and left a very threatening voicemail for the deputy heading the case. Mr. Tops Salesman then got a visit from State Law Enforcement – they don’t take kindly to threats on public servants. It also turns out he was in business with the wrong guy. His business partner absconded with all the money and left a shell of a company that didn’t accomplish much for anyone but him.

Two years of loan mod cases were my penance for sending my client to the wolves.

I then moved to Freddie Mac. Shiny offices and a travel budget. I thought I had served out my sentence and been returned to civilization. I was wrong. Loan mod cases awaited me there. Cases with the same names I had seen while working for the state.  It was Sisyphean labor. No matter how many cases I closed, more appeared. There seemed no end to the ranks of people had, taken, gotten, defrauded, hoodwinked, swindled, victimized, bamboozled, beguiled, shafted and taken to the cleaners by a motley crew of realtors, lenders, attorneys, paralegals and other, less-credentialed, crooks.

You might ask why people would pay anyone when a borrower can simply apply for a modification directly from their bank. A valid question. An astute question, even. The answer, as is often the case, is a complex one that I’ll attempt to condense:

  • Banks don’t want to do loan mods. They require staff that needs training and pay. This staff wouldn’t be making the bank money… instead they’d be making it so that the banks would get less money from the assets they already had. The only reason a lot of banks did any mods at all is because the federal government had them by the proverbial short and curlies and browbeat them into offering mods.
  • Finance paperwork is complex. Many individuals are intimidated by having to complete applications and submit documentation. These folks saw loan mod firms as a convenience and a professional guiding hand.
  • Foreclosure was faster and cleaner for the banks’ balance sheets.
  • Government involvement. Once it came to light how dirty the loan mod system was new rules came in place. Rules came with enforcers, fees and compliance concerns. That meant more money for banks to spend on mods.
  • Low success rate. I don’t remember the exact statistics ( Here’s an article) but a lot of modified loans go belly up anyway. This is a topic that I could spend another hour on… but suffice to say that the institutional side of the industry did not have a lot of faith in loan mods.

Three years of this I endured. Finally, in my final year there, the flood seemed to finally flag. Could it be that I would be free of those two haunting words?

It is now 2014… I almost lost a deal a couple of months ago because a client had previously modified his loan. Turns out that a lot of banks won’t let you refinance a loan that you modified. That seems less than fair. You can buy another house two years after having a modified loan on your credit but it’s very difficult to refinanced the same house.

Today I received a call from a family member of a previous employee who was referred to me because she just got a loan modification that she feels she can’t afford. She is going to have to sell her home of 31 years.

When will it end?

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