The Problem with the Loan Modification Industry

There is no question that the American home owner is in a tough position. Every day the foreclosure statistics are on the front pages of newspapers across the country. The outlook is certainly not encouraging. The number of families losing their homes seems to tic upward every month. Recent statistics have indicated that, by late 2010, the percentage of homes in the United States, that will be worth less than what is owed on them, will hit 50%.

The government has enacted programs aimed at helping the troubled home owner. Billions of taxpayer dollars have been allocated specifically to this issue. The first stimulus program alone, enacted early in 2009, set aside $75 billion (that's $75,000,000,000 or $244 dollars for every man, woman, child in the U.S.) to address this issue. That money was to be used specifically to facilitate loan modifications for troubled homeowners. That's a lot of money. It seems like a pro-active approach to a substantial problem. So why do the numbers and statistics for foreclosures keep increasing instead of decreasing? Where does the problem lie?

The problem can be found in the implementation. The government has not figured out how to address the issue other than to throw bundles of money at it and hope it all figures itself out. Unfortunately, this is a common approach to problem solving for the federal government.

The federal government has actively advised homeowners to modify their troubled loans. The federal government has instructed the lenders to modify their client's troubled loans. The federal government has given stacks of money to the lenders as "incentives" for them to modify loans. The federal government did not provide any outlines, guidelines, rules or oversight to the process. The end result was predictable.

Con artists and grifters have come out of the woodwork. It's like letting packs of wolves loose into the sheep pastures. Thousands of desperate homeowners have put their faith and trust into faithless and untrustworthy "loan modification companies." There are hundreds of examples of unscrupulous companies, large and small, conning homeowners out of their last dollars. It has been the most basic of all cons "promise a lot, deliver little, take the money and run."

The unfortunate fact is that there is still no real solution. The state's Attorney General's offices have been (and continue to be) inundated with calls regarding loan modification scams. The states have been left to their own devices as to how to protect their residents from loan modification predators.

Some states have passed stringent laws that make it virtually impossible for a third party to facilitate a loan modification. This "kill 'em all" approach may eliminates some of the predators but it also eliminates many legitimate companies that could provide a valuable service. There are also the states that have yet to enact any laws aimed at governing the industry. How will these states protect their citizens? What legislation will they pass? Will their legislation result in limited or no options for their citizens?

A component of virtually every state's loan modification rules and laws is the "no up front fees" clause. The feds have put a lot of money and lip service to get the "no up front fees" message out to troubled homeowners. The general idea is that any entity that would ask for an upfront fee to do a loan modification clearly has criminal intent. This is a gross oversimplification that fairly reeks of hypocrisy. As we saw earlier, the federal government just authorized and charged an "upfront" loan modification fee of $244 to every man, woman and child in the nation!

The government does not understand the industry or its problems. The largest problem for the legitimate, third party loan modification company is not successful completion of the modification, it is actually getting paid by the client after the modification is done. The homeowner who is eight months late on the mortgage payment may fee he no longer has a sterling credit rating to protect. An astonishing percentage of homeowners who have received successful modifications through third parties simply ignore requests to fulfill their agreed upon obligation to pay for the services that have been rendered. Of course this creates a double edged sword situation. The modification companies want to protect themselves against nonpayment but the only way readily available is... up front fees!

A government report that came out in early August of this year illustrated the government's progress on loan modification. To date, the government has doled out over 20.6 BILLION dollars in stimulus money to lenders as incentives to modify loans. To date, those lenders have modified 235,247 loans. The mathematics are mind boggling. Nearly 30% of the allocated money has been distributed. Only 9% of the targeted recipients have received benefit. The current, average cost to the U.S taxpayer per modification is....... $87,734. That's right over eighty seven thousand dollars EACH.

Obama Mortgage Rescue: Only 9% Getting Help

Greasing the Skids for Mortgage Help

The federal government has also established "non-profit" organizations to "help" homeowners but even a cursory search on the internet provides ample documentation that these outfits are almost entirely ineffective. The majority of homeowners who use these services are reported to be back in default within 6 months. The wait times at the "not for profit" organizations are lengthy and the "trial" modifications they provide are lacking the necessary components for long term relief. In many cases the end result of the modification is a higher monthly payment to the homeowner.

So how does the home owner actually get a functional loan modification without getting ripped off? This is the $87,000 dollar question.

The rules and regulations that have been put in place have been minimally effective in eliminating the predators. Suggestions to troubled homeowners from the government (i.e. "do it yourself!") are essentially worthless-much like telling a drowning man to swim-obviously, if he could swim he probably wouldn't be drowning. The news media pounces on every opportunity to excoriate loan modification companies or even the very idea of third party loan modification. Hundreds of article writers (self proclaimed experts?) advise against using third parties but offer no viable alternative (SWIM!). Meanwhile the American homeowner watches the dream turn to a nightmare.

The most basic problem in the industry, and for the homeowner, is the lack of oversight. There is no one out there protecting the homeowner's interests without grossly limiting their options. The "throw the baby out with the bathwater" approach to protective legislation adopted by many states (i.e. Mass, Con) affords the homeowner no recourse. It gives them no options. What the homeowner and the industry needs is a real solution. The homeowner facing foreclosure needs to be able to turn to a fair and ethical service entity for help. The industry needs someone keeping the modifiers honest but not limiting their ability to perform or their ability to protect their own financial interests. The solution lies in oversight. Someone has to step up and protect the homeowner's interests while also allowing private enterprise the ability to address the problem and develop a mutually beneficial solution.

PMC attempts to solve these issues in several ways.

Our company works only with licensed professionals or individuals recognized by the state in which they are conducting business, as legally endorsed to perform loan modifications. The legal components of endorsement can include, but are not limited to; professional broker's license, attorney's license, proof of bonding and insurance, and registration with the Department of Justice.
Our company provides the loan modification customer with a personalized and interactive, online dashboard. This dashboard is used for communication between the homeowner and the negotiator.
The negotiator is supplied with proprietary software, created by PMC, to interface with the homeowners and update the progress of the modification.
PMC's customer management system is integrated into the negotiator and the client's systems to provide third party oversight to the process. The homeowner can communicate with his assigned negotiator as well as with PMC.
The legal recognized individual or business entity that performs the loan modification has agreed, through contract, to a set and reasonable fee for the performance of the modification.
PMC provides real recourse to the homeowner. In the unlikely event of the negotiator disappearing or not performing the tasks associated with loan modification, PMC has policies in place that protect the homeowner. These policies allows the homeowners file, at the homeowner's request and at no additional cost, to be transferred to and completed by another licensed professional.

The problems facing American homeowners are substantial. The problems the government faces in solving these issues are daunting as well. There is no question the American mortgage holder needs help. The federal government has agreed, enacted legislation, and allocated funds directly to the implementation of a loan modification program. The system is well intentioned but poorly thought out and even more poorly executed. In the end, it will not be uninformed and heavy handed government regulation that solves the problem. It will be the ingenuity and ethics of the American business owner and private enterprise that ultimately provides the answer.

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The Problem with the Loan Modification Industry

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