What Fees Are Associated with a Loan Modification?

by tammy on May 18, 2010

Basic loan modification agreements between a lender and a borrower may or may not involve any additional fees. It all depends on the type of agreement that is negotiated and what the standing policy of the lender is in respect to loan modification agreements. Officially, all aspects of loan modification negotiations are open, including whether or not any kind of fee will be charged for the service.

Loan modification agreements conducted through the federal government’s Making Home Affordable (http://makinghomeaffordable.gov/) program do not involve fees for the process. In fact, the federal government – as well as some state governments – has taken aggressive measures against various “foreclosure rescue” scams, many of which offer loan modification as the service they provide. The U.S. Department of Housing and Urban Development (HUD), which administrates the making Home Affordable program on the borrower side, provide a wealth of resources to help borrowers avoid the fee scams including a series of videos and a hotline operated by the Federal Trade Commission (FTC) to report fraudulent loan modification scams that charge illegitimate fees.

For the record, HUD operates a network of approved housing counselors that can provide information and recommendations for borrowers in trouble for free, online at: www.makinghomeaffordable.gov/counselor.html

There is, of course, also the legitimate loan modification industry. These are not scams and most legitimate companies do not ask for cash until after the service has been performed and frequently offer guarantees. Most of the more legitimate operations are either operated by attorneys or retain legitimate attorneys, though this is not always the case. However, a firm owned and operated by – or closely linked to – a legitimate law office is much less likely to run a fraudulent operation. On the downside, attorneys – or firms that retain attorneys – are likely to cost more. But as is frequently the case, you get what you pay for.

Basically any firm that asks for an upfront payment before any service has been rendered should be avoided at all costs. This practice is now illegal in many states, though not all; and if the firm receives payment for doing nothing, then they have no incentive whatsoever to do anything for you. Firms that only get paid once they render their services, and especially those that charge a percentage of the amount saved, have the best incentive to get your loan modification negotiated and to provide the services you are paying for.

As for the actual amount of the fees, this differs widely. Though it is changing due to the abuses of a number of scams, the loan modification industry remains largely unregulated in many jurisdictions. This means they have the right to charge what they want on whatever basis they choose to use. As a consequence, the fees for loan modification assistance may differ wildly. Further, many of the more reputable companies base their fees on a percentage of the amount they manage to save the borrower, which means the amount owed depends in large part on how the loan modification agreement works out in the end and how much money is saved. According to some sources online, the “average” fees for loan modification assistance amount to about $2,000; but since the industry is unregulated and there is no central statistical compilation, this number appears to lack any basis in reality.

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