Loan Modification Tricks are No Treat

Most of us in this business have been approached by friends, family and even clients about loan modifications. We all know folks who are having a rough go of it and are seeking help from their lender to modify the terms of their loans so they can stay in their homes.


We have all heard them say the same thing; “The people at the bank told me they wouldn’t even talk to me unless I was late on several payments.” In many cases, bank personnel have actually advised people to let their loans go delinquent, so they can “possibly” help them! And, many people take that advice and let their payments lapse, destroying their credit with no real commitment of assistance.

Here is the real horror story – Just this morning I heard from a dear friend asking about getting a loan to buy a smaller place since her expensive house just went into escrow. After talking to her I learned that she had been seeking a modification and had taken the banks advice and let her payments go delinquent for a few months. Then suddenly an offer came through on her home and now she is in escrow. But since she has several late payments, she no longer qualifies for a loan.

It is staggering to me that banks actually allow their people to make such ridiculous recommendations to those looking for a modification. Their rational is if you’re current on payments, you don’t need help and that is plain stupid! There are a large number of people doing their best to hold up their end of the contract and make their payments but are in immediate need of financial relief. These are people trying to do the right thing.

Just imagine the legal exposure banks are opening themselves up to by recommending people voluntarily go delinquent, and destroy their credit just so that their stories will be heard. with no commitment or promise of success. It is amazing that with all of banking under such an intense microscope, this practise is allowed to continue.

One of the main reasons banks take this position is that for every family that has a genuine need for their loan to be modified, there are five more people asking for help that can actually make their payments. This clogs up the process and creates a "moral hazard" argument. Who should really get the help?

In my opinion banks should have hired more people to handle this problem and put specific procedures in place to evaluate people's financial situations and determine who really needs the help and who doesn't instead of simply telling people to let their payments lapse before they will even look at them. It would have been better for the banks as well as their clients.

Since no one in the banking world is lining up to take my advice, what should you tell people who approach you with this problem. Here is what I tell people:

● I always advise not to go late on your payments unless you absolutely have to. You will need that credit rating later in life. Typically sooner than you think.

● Continue to pressure the bank to hear your story. This is an arena where persistence pays off. Anyone who has ever gotten a loan modification will tell you it took months of constant effort, calls and stubborn persistence on their part. Treat the process like a job. Work on it everyday. Be absolutely relentless.

● Crawl up the ladder. Don’t be fended off by the customer service drone that answers your first call. Their job is to try to stop you if they can. Get to a supervisory person or above. Preferably management of the Loss Mitigation Dept.

● Be prepared to show documentation to support your declining financial situation. Show that you have let go of consumer goods or extraneous spending. It will be like applying for a loan but in this case, you need to demonstrate that you really do need the help.

● Propose terms to the bank that you can pay going forward. Don’t wait for the bank’s proposal. Look at your own finances and figure out how much you can really pay each month. Be honest to yourself in this process. There is no sense in pushing the issue if you really can’t make future payments. Any modification you propose has to be reasonable.

● Stay persistent! Keep pushing. This is where the “squeaky wheel gets the grease” is actually true.


This is your home you are fighting for so don't give in.