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"LOAN MODIFICATION"

As I said on another page, although bankruptcy is one form of debt relief, not all debt relief requires bankruptcy - for example, loan modification..

Just as with debt relief companies, a lot of companies are advertising loan modification services.  Many can charge $4,000 - $5,000.  What do you get for your money?  Sometimes, not much.

First of all, no one can absolutely guarantee you that you wlll receive a loan modification.   Usually, it is up to the lender, or substitute lender.  Often, a loan default servicer is calling the shots, which can create major delays and the feeling you are a hamster on a wheel.  Documents get lost or expire, the servicer you are dealing with changes every few months, they make you start over and over and over again.  It's very frustrating..

There are two basic scenarios for getting a loan modification.  One requires you to be current on your payments, the other requires you to be behind on your payments.  So when you call the servicer, they may say they can't help you until you fall behind.  So you fall behind on purpose, because they told you to,  Next thing you know, they are suing you for foreclosure.  You cut off the first option entirely, and now they don't want to deal with you on the second option 

Why does this happen?   It took years to figure out what they were up to, but I'll try to make it simple - they make more money by screwing you than by helping you.

Sometimes, the people suing you don't own your loan and have no power to give you a modification.

When you first took out your mortgage, the lender sold it along with hundreds of other mortgages to a third party, who then put the entire group of loans into a trust. The right to receive income from the trust was sold to third-party investors, with a promise that the investment would receive a special favorable tax treatment by the IRS.  Are you following me so far?  It's a tax scheme.

The trust is controlled by an agreement called a pooling and service agreement (a "PSA"), which controls all the mortgages deposited in the trust and tells the company servicing the trust what they can and can't do.  One of the things the PSA tells the servicer it can't do is to do a modification on any mortgages in the trust. Why?  Because that would "break" the trust and turn a tax-free investment into one the investors would get taxed on.  If the servicer modifies your loan, they can get sued by the investors and lose the right to get paid to service the loans.  The servicer does not want that.

It is taking a long time to unwind this "Catch 22" problem.  The government has some programs to try to help The main one is called "HAMP."  There are also some private investor modifications where you refinance into a longer loan with a new lender. Don't ask me how they get away with this without breaking the trust. Maybe it's because it's a refinance and not a modification, but.I have no idea, and maybe they don't either.  

I can work with homeowners to assist them with the modification application and process.  Now, there is an electronic document depository system so they can no longer validly claim that they never got your paperwork.  Most refinances give the homeowner a new 40 year mortgage with the arrears thrown onto the back of the loan, so you may actually owe more money.  Sometimes the monthly payments go down a bit, sometimes they go up by quite a bit.

I can now do loan modification mediation within the context of a Chapter 13 bankruptcy.  Sometimes we don't modify the mortgage at all and use the Chapter 13 to do catch up payments without modifying the loan.  Sometimes, we try to modify the loan.  It depends on the circumstances, but we have several tools to use to try to get you the best result, or at least the result that hurts you the least.


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