Loan modification: The next wave?
Repayment plans and loan modifications may become popular in the next twelve months. We’re well into absorbing the unsustainable subprime loans. Let’s hope the lenders have the foresight right now to be working on, that is, modifying, the Option-ARM (borrower has option of making lower monthly payments to their adjustable rate mortgage rather than the full principle and interest amount for a set period of time) loans that were popular in California a few years ago.
A loan modification is when one or more terms in the existing mortgage/deed of trust is negotiated, accepted and documented. According to bankrate.com’s article, “Fending off Foreclosure”, the servicer actually adjusts the terms of the loan to make it affordable. It may lengthen the amortization schedule or lower the interest rate to cut the monthly payments, or roll the past due amount into the loan and re-amortize the new balance so the borrower can pay the additional debt back over time.
Coastside homeowners are not immune, and I also want to make local landlords, buyers, and would-be sellers aware of these trends. Some long time homeowners may have refinanced between 2004-2006 and now find themselves in a financial bind. I write this to give you, or someone you may know, direction and resources.
I began educating myself when I started getting about 3-5 “loan modification” bulk sent emails a day from xyz-business I had never heard of. So I attended a seminar sponsored by another mortgage broker that I didn’t know. It was packed with mostly mortgage consultants and a few real estate agents.
The program, which a mortgage, real estate, or even title professional could subscribe to, cost an annual fee to join. (I didn’t join.) It uses a network of specialists who take on a homeowner’s file and work to improve the current loan’s terms. The charge (held in escrow until settlement) for the homeowner needing the loan modification is about $3500. There are restrictions on how and when fees should be paid according to the Department of Real Estate (excerpt below), so educate yourself, and work with someone you trust…
“If a Notice of Default has not been recorded against your property, it may be permissible for a real estate broker to assist you in working out a loan modification or otherwise negotiate a possible resolution to your problem with your lender or loan servicer and ask you for payment in advance for their services. However, the broker must have you sign an agreement that tells you what services will be performed, when they will be performed and how much you must pay. The broker cannot have you sign an agreement until it has been submitted to the Department of Real Estate for review and the broker has received permission to use it and collect the advance fee.”
Homeowners can do it on their own. In my continued education on this topic, I headed to my Reader and found Seattle Realtor Ardell DellaLoggia’s post on loan modifications. Thank you Ardell for spelling it out in a real life scenario! Read this post and numerous interesting comments!