Loan Modification: Homeowner Help or Hype?

Posted on July 1, 2010 by AAR

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There Is Growing Chasm Between REALTORS® and Consumer-Friendly Nonprofits

loanmod
Foreclosure news for distressed homeowners ranges from bleak to dismal.“Fewer than 10% of U.S. homeowners eligible for a government-backed loan modification have received one.”
The Arizona Republic (May 16, 2010)“The number of borrowers dropped from the [government’s loan modification] program… eclipses those who have been helped.”The Washington Post (June 22, 2010)

The news is better in Arizona, where homeowners often have a 30-50% chance of a sustainable loan modification…with nonprofits. Unfortunately, nonprofit resources are stretched and severely limited.

What Is a REALTOR®’s Role in Loan Modification?

There is no evidence of success at large with REALTOR®-assisted loan modifications in Arizona or elsewhere in the country.

Real estate has always been a tale of “a seller’s loss is a buyer’s gain.” That’s real estate. That’s life. In an age of increasing foreclosures, there is new listing bounty and opportunities for buyers to capitalize in a price-compressed marketplace.

“Most NAR members are in the sales business. They don’t make money unless a home sells, so it’s hard to fault them for trying to keep their business moving,” said Stacey Moncreiff, editor-in-chief of Realtor® Magazine.

If Moncreiff is right, REALTORS®’ attention is focused on two sets of consumers: buyers and sellers.

There is another bucket of consumers: homeowners who want to KEEP their homes.

Loan modification is a route for homeowners to redesign financial relationships with their lenders for long-term, sustainable solutions and a chance to keep their homes.  REALTORS® undertake loan modification discussions from a variety of perspectives.

  • Some REALTORS® engage in loan modification services as an income-producing activity. BEWARE: Arizona Attorney General Terry Goddard championed the passage of SB 1130, which prohibits foreclosure consultants from receiving fees before they provide loan modification or other services. The new law prohibiting consultants from collecting upfront fees takes effect July 29, 2010. Prosecution targeting loan modification companies is vigorously underway.
  • Some REALTORS® engage in discussions about loan modifications with insufficient training and counsel sellers to list their properties and pursue short sale relief when the amount of the mortgage exceeds the value of the home.
  • REALTORS® receive information about loan modifications as part of short sale training programs. The primary purpose of these programs is to build a skill set for short sale negotiation; the emphasis is not on loan modification success. Self-limiting beliefs tied to loan modification efforts echo the statistics cited above.

Foreclosure Resources for Homeowners

Arizona Foreclosure Prevention Task Force

Attorney General’s Website

Don’t Borrow Trouble (AZ)

ProPublica: Eye on Loan Modifications

Video: Facing the Foreclosure Crisis

In this video, Arizona Attorney General Terry Goddard cautions homeowners about foreclosure prevention scams and encourages those facing foreclosure to consult with free housing counseling services.

Arizona REALTORS® have the good fortune to enjoy the leadership of Holly Eslinger as Arizona Association of REALTORS® (AAR) president and Michelle Lind as AAR general counsel. Both women are staunch advocates of caution in the foreclosure arena.

“If you help homeowners navigate a loan modification, be aware that your E&O policy might not cover your actions if you’re sued,” says Lind. “Providing such help is considered the business of housing counseling agencies, not brokerages…”

Lind’s other concerns include: Is this activity outside the scope of a real estate agent’s expertise? Does the agent’s broker permit it? Is a license required (depending on the scope of service to be provided)?

There is a chasm between organized real estate and consumer-centric nonprofits. Each eyes the other warily.

Sadly, REALTORS® are not perceived as trusted advisors by many nonprofit professionals. In fact, the word REALTOR® does not appear as a recommended consumer resource at Arizona foreclosure events. I attended an event in Tucson where the word REALTOR® appeared only once in a day-long event with hundreds of consumers. A leading state bankruptcy/foreclosure attorney pointed to REALTORS® in a cautionary presentation about “Predators and Scam Artists.”

A Tale of Two Homeowners

Imagine you are a homeowner. You are facing foreclosure. You want to keep your home. What are your options? Let’s examine two possibilities.

  1. Call a REALTOR® who specializes in foreclosures and short sales. The REALTOR®analyzes the situation and shares loan modification forms for the homeowner to submit to the lender. The package is not approved, and the property is listed for sale. The REALTOR® expectations of a 1-2% chance of loan-modification success are met.
  2. Attend a Foreclosure Fair. The Arizona Foreclosure Prevention Task Force has partners throughout the state – county government agencies,  Don’t Borrow Trouble (Freddie Mac funded), Fannie Mae, HUD,  Legal Aid, the Federal Reserve,  the United Way, the Urban League and more. HUD-certified counselors meet with the homeowner, supply forms and a plan, and schedule a follow-up appointment. HUD-certified counselors may submit the paperwork to the lenders. Often, high-ranking executives at leading banks personally shepherd these applications through channels. The homeowner may have a 50% chance of a successful outcome.

What’s the verdict? If you are a homeowner who wants to keep your home, would you select a short sale expert or a loan modification specialist working for a nonprofit with a proven track record?

REALTORS® have little success processing loan modifications. Loan-mod-for-money companies tout high success rates, but their success is tied often to short-term solutions, not long-term, sustainable results.  The high failure rate of loan modifications across the board is sad evidence of the fruits of their chicanery.

Success in business is up to us.  We can be victims of a down market or we can be drivers—and thrive.

Success in home retention is no different.

Success starts in our minds, as a thought.

“Whether you think you can, or you think you can’t, you’re right!” – Henry Ford


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