Q&A: Finding a Loan Mod Specialist

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Question: I’m in what you guys in the media call “loan modification hell.” My paperwork seems to be in limbo and I’m considering hiring a specialist to jump in and handle my loan mod for me. But how do I separate the legitimate companies from the scam artists?

— G. Orfe, Marco Island, Fla.

Answer: If it’s any consolation, you’re not alone. According to government figures, more than 700,000 homes are already in the loan modification process, and another 1.3 million are likely headed there this year.

Unfortunately, while some banks are shoring up their loan modification processes, a consensus seems to be building among mortgage loan advocates that banks are dragging out loan mods as long as possible. In the end, it’s probably cheaper for banks to foreclose than to grant a reduction in monthly payments.

That could be why your loan modification is on the slow track. The good news is that a loan modification specialist can speed things up — if you choose the right outfit.

Here’s where you need to be careful. A cottage industry has grown around loan modifications and you’re right to wonder if such companies are on the up-and-up. How can you tell if that’s the case? Try these tips before selecting a loan mod specialist:

Find out who's in charge. A good loan modification firm should be staffed with insiders, i.e. former mortgage brokers and/or loan officers. Companies that have real estate attorneys on staff are a good bet, too.  Make sure to ask if the loan modification firm you choose is staffed with insiders — and get references.

Don’t pay an upfront fee. Some states — Florida is at the top of the list — have banned loan modification companies from accepting upfront payments. Since you’ve already started the loan modification process, and likely have your paperwork in order, there’s really no reason to pay someone in advance. So don’t. Instead, do some upfront work of your own and let them know you’ll only pay for performance. Most reputable loan mod companies will bill you at the end of the process — not the beginning.

Insist on licensed companies. Many states are beginning to insist that loan modification firms be licensed, meaning they must adhere to a code of conduct, much like plumbers and construction contractors. If your loan modification candidate can’t produce a license, keep on looking.

Location, location, location. Don’t do business with a loan modification company that doesn’t have a physical address. Any company that operates from a P.O. box is a big red flag. Also, avoid companies that outsource the dirty work (like negotiations and loan paperwork processing). Adding a third party to an already paperwork-heavy process can be a recipe for delays.

By and large, the loan modification industry is in its infancy. So many of the companies you’ll be talking to may be one or two years old. To separate the wheat from the chaff, follow the tips above. It’s all about accountability — and a good loan mod company won’t mind you kicking some tires to get that accountability.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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