One of the great things about a blog is that from time to time, someone stops by and leaves a comment that can hopefully help others by sharing relevant information.

Here is a recent comment from Greg who is with http://loansettlementcenter.com.

Here is the exact comment he made on our post titled “Are Loan Modifications Real?”:

Check our site for actual modified loans. The trick is how much leverage the borrower has. If you have equity and can’t make your payments, you will absolutely NOT get a loan mod. Why should the bank modify your loan? Sell your house is what they’ll say, and the fact you can’t make a payment disqualifies you as well.

If you’re current with your payments, you do not qualify for a loan mod. Why? Because the Loss Mitigation Dept. is who modifies loans, and they will never seen your loan on their radar until after you are late on your payments — get it, they mitigate loss. If you’re current and on time, you’re an ideal customer and will never cross paths with the loss mitigation dept.

So you must be late on payments, which is something a lot of people just won’t do even if they’re stuck in a payment that will destroy them in the near future. Also, you must have leverage and understand that you are not be willing to employ it.  If you are upside down in your home, try and find out by how much. If, say, you owe $100K more than your house is worth, you actually have real leverage and have a good shot at a loan mod. Eventually it will become a simple risk calculation for the lender(investor). If they take the house back in foreclosure, how much do they lose vs. lowering your rate and/or reducing principal. So the more they will tend to lose in foreclosure, the better your loan mod will potentially be. Simple. The borrower must demonstrate that he can make payments, though, or the investor wouldn’t bother offering a modification. The borrower should also explain why he was not able to make those earlier payments — hardship.  So if the borrower is upside down, has high interest loans, but also can make a payment but just can’t afford his current payment, I absolutely love his chances of getting his loan modified.

For the rest of us stiffs out there, ask yourself what leverage you have and then try to apply it. But you have to be willing to stop making payments and make your move, which is risky and scary. And you better be pretty sure you have real leverage. I will only accept clients that are heavily upside down, either late or about to be late, know for certain that they must either modify their loan or soon lose their home, can show hardship that has caused loss of income, especially if they are late, but can prove that they can make a payment if the original was reduced.  These clients will get a good loan modification.  And if they’re in a high interest ARM, they’ll be glad to know that they’ll be modified into a fixed, often at wayl below market rates. We’ve had a loan modified to 2% fixed rate before.

So what leverage do you have, and why should the bank modify your rate? Come up with a compelling reason, and by compelling reason I mean it will be cheaper to modify your loan than to _____ (foreclose seems like the best answer).  If you don’t have equity, I guess that’s something. It’s worth a shot if you’ve got about 10 or 20 man hours on your hands to call your servicer and try to get through the process.  But the modification will always be a financial calculation that the lender makes. He will accept a loss of this much by offering you a mod over the larger loss that taking your house would be. I’m too tired to really make my point, I think.

Maybe some people that modify loans have another viewpoint? This is how I’ve always viewed it and used to modify loans for people, and I’ve never been wrong yet.

Greg, thanks for sharing!