Given the current lending market which has become much more stringent, I know that many are facing challenges when trying to refinance.  If you are unable to refinance for any number of reasons, a loan modification might work for you.

A loan modification is when the lender modifies your current mortgage in order to work with you and make your mortgage payments more affordable.  This is usually accomplished by lowering the interest rate and locking it at that new rate for a certain number of years. In the past this was only used when a borrower was delinquent but now it is being used before someone is delinquent to give them relief from a future interest rate adjustment on an ARM.  If there is a delinquency, payment on the delinquent amount is often deferred or stretched out over a longer period of time.

My suggestion has always been to talk to your lender as soon as you feel that you’re headed for trouble.  Over 50% of foreclosures could be avoided if borrowers contacted their lenders and tried to work something out before it becomes too late. Unfortunately, lenders today are overwhelmed and unresponsive and as many borrowers discover, just getting through to the appropriate person or department is next to impossible.

The current need for so many to modify their loans in order to save their homes has unfortunately bred a whole new pack of scam artists.  Many of these companies charge huge upfront fees, as much as $7500 to negotiate a loan modification on your behalf with your lender, promising to return half of your fee if they are unsuccessful.  They make one phone call, report to you that the lender won’t budge, return $3750 to you and pocket the balance for doing absolutely nothing!  You’re short $3750 and still have no loan relief!  The scam takes several forms, but you get the idea.

There is however, legitimate help available.  If you are personally unable to make any progress with your lender, I would suggest working with a real estate attorney.  Once they legally represent you, the lender is required to respond and work with them within a 60-day dispute time-frame.  The key is to finding an attorney who is experienced in loan modification and has a thorough understanding of how to use the Truth in Lending Act and the Real Estate Settlement Procedures Act to get the lenders to cooperate.

After much investigation, I have found a law firm that I would be happy to refer.  They charge a flat fee and will not accept a fee unless they feel that your loan can be modified to lower your payments.  If you are facing foreclosure, they might also be able to help protect your assets and your credit.  They work in all 50 states and would be happy to discuss your situation at no charge.  If you are interested in speaking with them, please give me a call or drop me an email at marti@kilby.com.

It is always very frustrating to me when I can’t do a loan for someone, so I hope this information is useful.