By now, most know that you should not pay someone up front for help with a loan modification. In California, we even passed a law that prohibits this (SB-94).
However, I’m not so sure we’re doing what is in the best interest of the homeowner.

One of the greatest challenges homeowners who are asking for a modification face, is the qualifications of the unknown individual who determines their fate.  This person does so, by reviewing your income and expenses, against the prospect of the borrower re-defaulting and of course, the effect of the borrowers current negative equity position.
Loan officers, both in the broker world and banking world, as well as some Realtors, are pretty good at determining income and expenses. After all, its what they do when helping a buyer determine how much they can afford.
Today, those that are left in the profession, are getting pretty good at understanding the guidelines of income qualififcation. I assure you, its not that easy. Mistakes in determining income happen all of the time. If it happens with people who do this for a living, do you suppose it is also possible that borrowers attempting modifications on their own could be subject to a mistake? Is it possible that a well meaning HUD counselor could make a mistake?  Trust me when I tell you  that the training they receive, is woefully inadequate.  There are some good ones, thats for sure.  They usually have some extensive mortgage background, but I struggled for years training loan officers on how to determine income the way that an underwriter would.  They made mistakes often as did the underwriters.  Today, throw in the fact that you have people with little experience making these decisions and you can begin to understand why the system is so broken.
Are deductions determined properly?
Did they factor the 2106 expenses correctly?
Are there any non-reportable deductions on the paystubs?
Does line 31 of a schedule C show a gain or a loss?
Have I made my point? If not, I could continue!
I am worried for the borrowers who continue to get denied a modification after going through a long “trial period” and then being foreclosed on in record time since the bank may pick up where they left off when they approved them for a “trial” modification in the first place. For many of you, this was the day of sale, or within a week of the sale. In addition, your credit is ruined, as the lender reported you late each and every month you paid your “trial” payment on time, since it was not the payment you had originally agreed to when you took out the loan. What this means is that once your permanent modification is denied, you may have a Realtor knocking on your door offering you cash for keys to get out, before you get the denial letter in the mail.  And, your going to have an even harder time renting the best placeses, due to your credit being destroyed. 

I am not a doom and gloom kind of guy, but I am suprised at how badly this is going to date and just how tolarant the non-profit arena is to the vast failures occuring. How many more people can we tell to try for a modification through our seminars, without also telling people of their “other” options?  As the Executive Director of HELP, I’m frustrated for you and I find myself wanting to modify how I counsel, due to the emotional and financial damage this process is causing many of you.
I don’t receive any money from HUD. I don’t have any agenda, other than to become known as a guy who will tell the truth, which is this, each and every one of us must determine just how much in love with our homes we are and if we can afford to keep them.
If you cannot, please take action sooner than later and please do not allow someone to offer you false hope, or try to make you feel guilty. In my humble opinion, this is far worse than telling you , bluntly, that if you can’t afford your home, you should consider other options, for your credit will repair far faster than your equity and renting is not the end of the world. The banks cannot afford to simply give money away on an individual basis. They will only do this in what the industry calls; “Bulk sales”.  Please, do not count on a principle reduction.

To illustrate why this process can take so long and better explain the numbers, I have cut and pasted a section of my friend Martin Andlmans post, which pokes fun at the sheer volume of hours it would take to take care of all those who are currently in need of help as well as those who are predicted to come:

“Goldman Sachs forecasts 14 million foreclosures in the next three years… others peg that number even higher… a lot higher actually, but no matter… everyone agrees there are going to be many millions of foreclosures to come. To put that kind of a number into perspective, if there were 14 million foreclosures, and each of those people needed say 10 hours of hope and change type counseling, that would be 140 million hours of said counseling, which, assuming a 24-hour work day, 365 days a year, translates into just a scosh over 383,561 years… for one person, of course, so that’s a silly comparison.

To be more realistic, let’s say you had say… 10,000 people providing said counseling, 24 hours a day, 365 days a year… why then it would only take a smidgeon over 38 years… which should provide everyone with a lot more confidence that the president’s plan may still prove itself effective.”

Martin has a way of putting things that definitely make a point. HELP will continue to be here for you and we will continue to direct you to those we believe can best serve your needs. If I could stress one thing in this post today, it would be this; Please go into this process with the proper expectation and with full knowledge of all the pros and cons of the path you have chosen.

Chris Miscellaneous