What Costs Are Involved With a Loan Modification?

by tammy on March 11, 2010

Working out the terms of a modification of a mortgage loan is more or less an improvised process of negotiation between the borrower and the lender and the end result can take many different forms depending on the specifics of the case. As such, the process does not necessarily have to cost the borrower anything, though some forms of modification do result in additional expenses like loan forbearance.  However, if the modification takes the form of stretching out the amortization schedule, lowering the amount of the principal or interest, or waiving fees and penalties it is entirely possible to successfully modify a loan without any additional expense being charged.

The problem is that most loan modification negotiations can be complicated and time consuming and many borrowers have neither the knowledge nor the time to devote an appropriate amount of attention to the process. This is where third party negotiators come into play. These are companies that specialize in loan modification and understand all of the tricky nuances and loopholes in such negotiation processes. These experts sell their expertise to people seeking to modify their mortgage loans. In that the loan modification business is unregulated, the range of services provided and the related costs vary widely; however as is usually the case, you get what you pay for.

Most companies offer loan modification services come in three general categories: low-end, mid-range, and high-end companies. The low-end companies are usually the cheapest and offer the most limited services. Basically, they will give an initial consultation as well as recommendations on what sort of loan modification are more likely given the situation. They will show the client how to track down the right people to talk to and provide basic pointers on how to about the negotiation. However, once their consultation and advice is provided, that is the end of the service and it remains up to the borrower to actually do all of the work. These services usually do not provide any follow-up consultation or assistance and usually do not include any sort of money back guarantee based on the result of the negotiation.

The mid-range companies provide the same basic services as the low-end firms, but also provide continuous back-up and support. The borrower still has to do all of the work, but the company remains on hand to help guide the process and help resolve any issues that might come up as the negotiations proceed. These companies usually charge somewhere in the range of $1200 to $2500, but also offer limited money back guarantees and can usually be counted on to provide good service for the money. These companies can be especially helpful at reviewing the documentation and helping borrowers avoid hidden pitfalls in the new loan agreement.

The high-end companies usually retain full time professional negotiators and/or attorneys and will usually do all of the work, including the face to face negotiation with the lender. Most of these companies offer full satisfaction guarantees and will usually get the best possible modification under the specific circumstances. However, the borrower can expect to pay handsomely for these high-end companies, with prices often ranging from $2,500 to as much as $8,000.

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