Latest Loan Modification News and Updates

by tammy on March 11, 2010

Unless you are seeking loan modification through the government sponsored Making Home Affordable program, which is governed by strict guidelines, most mortgage loan modification negotiations are based on the willing participation and agreement of both the borrower and the lender. In the current economic climate it is usually in the lender’s best interest to work with borrowers facing economic hardship and, more often than not, most lenders will work with the borrowers to make loan modifications that serve the best interests of both parties. However, there is a growing trend out there, especially online, of people offering comprehensive mortgage audits to find legal violations in the original mortgage agreement with the implication that if a problem is found, borrowers then the have leverage to force lenders into negotiation and accepting terms they would otherwise not accept.

Contrary to the claims made by many of the people selling these services, the reality is quite different and attempting to force the lender into loan modification arrangements is almost guaranteed to backfire and result in a disaster for the borrowers. A mortgage audit is a comprehensive, line by line review of the loan documentation searching for clauses that violate the law. In many cases, auditors do find violations of either the Real Estate Settlement Procedures Act (RESPA) or Truth in Lending Act (TILA). However, these violations do not provide the leverage that the companies selling audits imply that they do. Even though many loan agreements contain violations, in order to act on these violations, the borrower has to sue the lender in court. Since the lenders have a vested interest in discouraging this practice, in virtually all cases the lenders bring in the big attorneys and drag the case out indefinitely, while the borrower has to pay ever mounting legal expenses to keep the case moving forward.

As a general rule of thumb, if a borrower is facing sincere economic hardship and can document this, the lender will be willing to negotiate for a loan modification that both parties can live with. However, efforts to coerce or force a lender into negotiation and to dictate terms will almost always result in the lender dropping any willingness to work with the borrower and to actively go after that borrower for any violation of the terms of the loan. Trying to threaten a lender with a lawsuit based on a mortgage audit essentially amounts to an active effort to default on the loan as far as the lender is concerned and at that point any pretense to good will evaporates. Further, most people that have the money to finance years of litigation plainly are not facing a serious economic hardship that would justify loan modification anyway. Therefore, such threats are seen as either empty – if the borrower is facing real financial hardship – or malicious, if the borrower is not.

A basic audit mortgage usually sells for around $500, but as discussed above this is only the first – and one of the smaller – expenses related to trying to act on any problems discovered through the audit. The only time that a detailed mortgage audit really makes sense is if the lender has already refused to accept any negotiation and has already brought the borrower to court through a foreclosure suit or by other means. In this case, an audit may help to strengthen the borrower’s hand; but it only makes sense to invest in this service once there is nothing else to lose.

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