By Joel Persinger
YourRealEstateDude
Earlier this month U.S. Comptroller of the Currency, John C. Dugan, while speaking at a panel discussion with other government big wigs, shared some data from a new government report. Referring to loan modifications, he said, “After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent." Knowing a good sound bite when they hear one, the media did what the media does best. It beat the drums until people all over began looking at loan modifications as if they were just the latest creative way for crooked real estate agents and lender to rip people off.
National TV news programs have aired investigative stories, newspapers have published damning articles and radio talk show hosts, including a very popular fellow here in San Diego, have launched into tirades bemoaning the evils of loan modifications and why they don’t work. Are all these media “know it alls” right? I hate to burst their inflated egos, but the answer is, “NO.”
Loan modifications are exactly what their name implies. They modify the terms of a borrower’s loan. That is the limit of what they do. They do not modify that borrower’s spending habits or alter that borrower’s understanding of how money works. Those changes in behavior are left to the borrower to undertake on his or her own. Borrowers who make changes to their lifestyle and adjust their spending do just fine once their loan terms have been modified. Others, and apparently the number is upwards of 58%, continue to live as they did when they got themselves in trouble in the first place. So, within a few months they find themselves in trouble again. What amazes me is that anyone is actually surprised by this fact.
Have you every met anyone who got themselves into deep credit card debt and decided to refinance their home to pay off the credit cards? Did you know that most of those folks charge the credit cards back up within months of being bailed out? Refinancing to pay off the cards only addresses the symptoms and leaves the disease of poor financial habits to rage on. Loan modifications are no different. Therefore, if you have your loan terms modified, you must understand that some lifestyle changes may be required in order for you to make the payments. If you simply continue spending as you always have, you will likely be in trouble again in just a few months. It’s that simple.
If you think I’m wrong, just go to a financial seminar sometime. You will quickly learn that the overwhelming majority of Americans wouldn’t know a family budget if it hit them in the face. We may teach reading, writing and arithmetic in school, but we don’t teach how money works or how to be successful using it. Those lessons are taught by parents, most of whom have no idea what they’re doing either. So, here’s the bottom line on loan modifications: If you want to keep your house rather than sell it or lose it to foreclosure, a loan modification may be just the ticket for you. However, you MUST address the spending habits that got you into trouble in the first place by putting in place a family budget and sticking to it.
Thursday, December 18, 2008
Monday, December 08, 2008
Can You Get Your Loan Modified Yourself?
By Joel Persinger
YourRealEstateDude.com
Loan Modification is a hot topic among folks who are struggling financially and hoping to find some way to afford rising house payments. Not surprisingly, a cottage industry has come to life for the purpose of negotiating loan modifications for those who need them. But, what exactly is a loan modification and why would you need someone else to get it done for you?
When lenders are faced with situations in which borrowers are either unable to make their payments or soon will be, only three choices present themselves: foreclose on the property, allow the homeowner to sell the property for less that what is owed (a short sale) or modify the terms of the loan so that the homeowner can make the payments. In both a foreclosure and a short sale it is a certainty that the lender will take a significant loss. However, by modifying the terms of the loan, the lender can preserve the amount of principle owed by altering terms such as the interest rate charged or the length of the loan. The lender wins by minimizing losses and the homeowner wins by avoiding the loss of the home and the financial devastation resulting from a foreclosure.
Over the past week I have been asked about loan modifications by a number of people. Each one told me that such things were not possible. When asked how they came to such conclusions, each one said, “I’ve already tried to get my lender to do that and they won’t help me.” The point they were missing is that some things simply do not lend themselves to the idea of doing them yourself and negotiating a loan modification is among them.
Approaching a lender to modify the terms of a loan is like standing in line at the airport to board a flight. Homeowners fly coach and must wait in long lines and deal with grumpy airline employees when they finally reach the service counter. Real estate and mortgage brokers fly business class. The lines are shorter and the airline employees are nicer, but the service is still marginal, at best. Attorneys, on the other hand, fly first class. They await their flight in the first class lounge, board the plain first and sit in the cushy seats being served by their own personal flight attendants.
As the analogy above illustrates, attorneys enter the negotiation with your lender through a completely different door and deal with completely different people than you do. This is because lenders are afraid of attorneys and you don’t frighten the lender at all. When you call asking lenders to modify your terms, they feel like you’re asking for a favor that they don’t owe you. An attorney approaches the problem differently. The attorney reviews your entire file looking for any mistakes the lender made in the process of selling you the loan. Then the mistakes are bundled into a legal club, which the attorney begins beating the lender over the head with until the lender finally says, “Uncle” and agrees to the modification. This is why my office employs attorneys to negotiate loan modifications for our clients.
So, can you get your loan modified successfully by yourself? Probably not, and if you do manage it, you will likely have gotten less of a modification than you might have gotten if you had used a qualified attorney. Remember, the lender’s employees are looking after the lender, not you. You will need someone who is trained and knowledgeable in your corner if you are going to have any chance of winning.
YourRealEstateDude.com
Loan Modification is a hot topic among folks who are struggling financially and hoping to find some way to afford rising house payments. Not surprisingly, a cottage industry has come to life for the purpose of negotiating loan modifications for those who need them. But, what exactly is a loan modification and why would you need someone else to get it done for you?
When lenders are faced with situations in which borrowers are either unable to make their payments or soon will be, only three choices present themselves: foreclose on the property, allow the homeowner to sell the property for less that what is owed (a short sale) or modify the terms of the loan so that the homeowner can make the payments. In both a foreclosure and a short sale it is a certainty that the lender will take a significant loss. However, by modifying the terms of the loan, the lender can preserve the amount of principle owed by altering terms such as the interest rate charged or the length of the loan. The lender wins by minimizing losses and the homeowner wins by avoiding the loss of the home and the financial devastation resulting from a foreclosure.
Over the past week I have been asked about loan modifications by a number of people. Each one told me that such things were not possible. When asked how they came to such conclusions, each one said, “I’ve already tried to get my lender to do that and they won’t help me.” The point they were missing is that some things simply do not lend themselves to the idea of doing them yourself and negotiating a loan modification is among them.
Approaching a lender to modify the terms of a loan is like standing in line at the airport to board a flight. Homeowners fly coach and must wait in long lines and deal with grumpy airline employees when they finally reach the service counter. Real estate and mortgage brokers fly business class. The lines are shorter and the airline employees are nicer, but the service is still marginal, at best. Attorneys, on the other hand, fly first class. They await their flight in the first class lounge, board the plain first and sit in the cushy seats being served by their own personal flight attendants.
As the analogy above illustrates, attorneys enter the negotiation with your lender through a completely different door and deal with completely different people than you do. This is because lenders are afraid of attorneys and you don’t frighten the lender at all. When you call asking lenders to modify your terms, they feel like you’re asking for a favor that they don’t owe you. An attorney approaches the problem differently. The attorney reviews your entire file looking for any mistakes the lender made in the process of selling you the loan. Then the mistakes are bundled into a legal club, which the attorney begins beating the lender over the head with until the lender finally says, “Uncle” and agrees to the modification. This is why my office employs attorneys to negotiate loan modifications for our clients.
So, can you get your loan modified successfully by yourself? Probably not, and if you do manage it, you will likely have gotten less of a modification than you might have gotten if you had used a qualified attorney. Remember, the lender’s employees are looking after the lender, not you. You will need someone who is trained and knowledgeable in your corner if you are going to have any chance of winning.
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