Loan Modification Overview: Loan modification companies mediate between borrowers and lenders, especially regarding mortgage loans, in cases where the borrower is unable to repay the loan on the prescribed timetable. The result can be either a lower interest rate, an extension of the term of the loan, a different type of loan, or a mixture of these solutions.
Many loan modification companies are small, entrepreneurial firms that provide a vital service needed by banks, yet which they have failed to develop adequately in-house.
Loan Modification Synonyms: Loan modification companies are frequently also called debt settlement or debt consolidation companies.
Loan Modification Specifics: Loan modification companies assess borrowers’ ability to pay through analysis of wage statements, investment accounts, bank accounts and tax returns, among other data. They then make proposals to the lending institutions for restructuring of mortgage terms in a fashion that will enhance the likelihood of repayment.
Loan modification companies can be engaged by borrowers to negotiate on their behalf. They also can be hired by lenders to help salvage troubled loans. A given loan modification company may rely primarily on one or the other sources of clients, or both.
Lenders have an interest in offering concessions to troubled borrowers because the costs of foreclosure are high. Among other things, borrowers do not want to take possession of illiquid real estate, especially in falling markets.
Billing: Loan modification companies’ fees may be billed either to the borrower or to the lender. If the company is engaged by the borrower, the borrower may be assessed the fee, sometimes up front and without guarantees of results. In other cases, even if the borrower engages the company’s services, the lender may be charged the fee, in the case of a successful renegotiation.
Types of Loan Modifications: A loan modification agreement represents a major restructuring of a loan’s terms and conditions, in a case where the borrower faces long-term problems in being able to repay the original loan. A loan forbearance agreement, by contrast, grants a temporary suspension or modification of payments on a loan, to help the borrower weather temporary financial difficulties.
Outlook: As long as the mortgage market remains distressed, with significant numbers of borrowers unable to meet their obligations, loan modification companies will have a steady stream of business. On the other hand, lenders who currently outsource this work to independent loan modification companies will have incentives to bring these activities in-house if the crisis proves long-lived. In either case, employment opportunities in the field will be directly proportional to the prevalence of distressed loans.
Legal Complaints: Loan modification companies have been targeted for investigation by New York State Attorney General Andrew Cuomo in 2009. He has brought suit against 2 firms and subpoenaed 15 others, on accusations of excessive fees, misleading advertising and unkept promises to clients. Cuomo notes that many of the services offered by for-profit loan modification companies are available free of charge from government or non-profit agencies.
Career Opportunities: The employees of loan modification companies who engage in restructuring and renegotiating loans have a similar skill set to that of loan officers at banks and other lending institutions. Accordingly, work at loan modification companies is a viable alternative for present or former loan officers, including those who recently have been laid off.
