It seems like there was a lot of talk of the government helping consumers out of their debt problems. The premise was that this would jump start the teetering economy. Did it happen?

I’m kinda asking the question out loud and hoping for your input. I am not really seeing it.

Loan Modifications

It seems that President Obama is having to twist the loan servicers’ arms into executing on the loan modification plan that doled out $75 billion in tax payer money. Meanwhile, foreclosures are starting to accelerate again and the home values are still deeply depressed.

It seems like the government actions have had plenty of time deliver an impact. Yet, I am not seeing it. What about you? Are your clients getting relief?

Government Regulation on Debt Relief

To the contrary, it seems like in an effort to clean up the debt and mortgage industry they are choking off potential help to consumers. I am certainly a loud advocate for ethical standards in lending and debt relief, but could stiffer regulatory action be hurting?

Again, I am not on the street working out consumers’ debt problems or modifying mortgages so it is hard to register an opinion.

Government Help to Consumer Debt Relief

Are the government’s efforts to help consumers get out of debt and save their homes helping or hurting? Let me know with your comments from the field.

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A recent report “Why Servicers Foreclose, When They Should Modify, and Other Puzzles of Servicer Behavior,” from the National Consumer Law Center (NCLC) seems to indicate that another record month of foreclosures is the result of servicers taking the more profitable road.

This report makes the case that foreclosing on mortgages in a market with severely depressed property values, high unemployment, and continued economic weakness simply makes more financial sense to servicers. Whereas a short sale or foreclosure can leave the bank recovering only 30-75%. Often this deep loss can be avoided with a loan modification.

However, from the servicers’ perspective loan modifications consume a lot more over time in administrative and processing expense, cutting into their profits.

Loan modifications are often an intense legal negotiation and filled will verification processes, than a majority of these borrowers will default again. This reality, driven by an unstable economic climate makes loan modifications a risky proposition for servicers. And although a loan modification is likely to advantage the mortgage investor or bank and the borrower, the incentive are still not adequate to convince the servicer.

The report, in analyzing foreclosures from 1995 to 2009 also seemed to find that forbearance (giving the borrower several months of payment grace in order to recover financially and then resume payments) was actually the most successful work-out strategy.

The bottom line of this report was that the loan modification programs put in place by the federal government are still insufficient incentives to avoid foreclosure.

Here are some of the suggestions the National Consumer Law Center makes:

• regulate loan originations
• mandate loan modifications before foreclosure
• fund quality loan mediation programs
• provide for principal reductions on existing loans through the Home Affordable Modification Program (HAMP) program and through bankruptcy reform
• increase automated and standardized loan modifications for borrowers in default and provide a safety net for borrowers who do not qualify for a standardized modification
• ease accounting rules for loan modifications to facilitate standardization and encourage long-term loan modifications
• require loan servicers to be more transparent and uniform in how loan modifications are reported
• limit fees charged to borrowers

What do you think? Why are we still working on this crisis years after the collapse of the mortgage market?

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Loan modifications are all the rage in government and the media, but where the rubber meets the road they may not be getting it done. It seems that very few of these troubled loans are actually getting modified and when they do they simple seem to be delaying an inevitable foreclosure.

Loan Modification Doesn’t Mean Debt Forgiveness

Although there are many statistics showing the powerful effect of debt forgiveness in recovering troubled borrowers few loan modification programs are using this tool. Holden Lewis’ article on FrontDoor.com confirms this fact:

“Less than one in 50 mortgage modifications includes debt forgiveness, which is considered the surest way to prevent foreclosure.”

“For every troubled homeowner whose mortgage principal is reduced in a modification, 39 others end up with more housing debt as lenders tack on missed payments, late charges and even attorney fees to the loan balance.”

But would that strategy help?

“A number of researchers found that the most successful mortgage modifications involve debt forgiveness. Yet, according to the Comptroller of the Currency and the Office of Thrift Supervision, just 1.8 percent of modifications in the first quarter of 2009 forgave debt. That’s about one in 50 modifications.”

“The other 49 modifications consisted of rate reductions or rate freezes, term extensions and “capitalization,” which means that the missed payments and fees were added to the homeowner’s debt burden. Some 70.2 percent of modifications included capitalization: That means that for every troubled borrower who got debt forgiveness, 39 ended up owing more.”

Looks like a big disconnect to me and why there are so many consumers willing to take a chance on using the services of a loan modification firm. These consumers have usually tried repeatedly on their own to see what relief their bank or government programs could offer them and have been left out in the cold.  As usual since America’s founding, if you want results look to the private sector.

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If you are in the mortgage or loan modification business, maybe even the debt settlement business you certainly have an eye on the real estate market. I am still amazed at how much the bottom fell out of this market.

When will it turn around? There was some small victory-dancing going on last Friday as the National Association of Realtors told us July existing home sales were up 7.2%. So, we are out of the woods?

Probably not…

The Zillow blog had a good article by Stan Humphries, Zillow’s Chief Economist that might give us a better reality check.

Existing home sales may not be the best indicator to watch:

“As I noted last month though, a key number that we should be keeping our eye on is the inventory level of existing homes for sale.”

Housing inventory increase is matching sales increase:

“In June, the troubling issue was that the increase in the pace of existing home sales was almost matched by an increase in the rate at which homes were being added to the existing inventory (i.e., people putting their homes on the market). That month, 521,000 homes were sold and 481,000 homes were added to the for-sale market.”

“In July, this pattern got even more lopsided with more homes being added than were actually sold during the period.”

Some believe and I agree this new inventory is flush with foreclosures adding more price pressure. It seems that loan modifications have just been an interim stop-gap.

Are banks finding it more efficient and economical to go the foreclosure route-despite the government incentives? I would love to hear from a loan modification expert.

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I love to find people who can provide good, accurate coverage and blend in a little humor-Martin Andelman is that guy.

Quickly becoming the obvious loan modification expert in my RSS reader this guy is on top of every little movement in loan modifications and he’s funny…even by his own admission!

So, I wanted to quickly point you to one of his monthly roll-ups. He calls it his Museletter.

Focusing the microscope in the government’s own loan modification programs “harboring” scammers:

“Charging advance fees for loan modifications… Telling homeowners to stop making payments because they must be in default to be eligible for a loan modification…. Starting foreclosure proceedings even while a homeowner is under consideration for a loan modification.”

“What’s this?  They must be talking about some scammer loan modification company, right?”

“WRONG!  But thank you for playing…”

“Those are the charges leveled in Congress last week against MORTGAGE SERVICERS that have signed on to participate in President Obama’s HAMP program, administered by Treasury, whose lofty goal is to modify millions of mortgages for struggling American homeowners.  I, on the other hand, want to be 6’8″.”

Here is another one of my favorites…Andelman takes a shot at everyones favorite mortgage meltdown whipping boy-Rep. Barney Frank:

“A senior House Democrat threatened banks Wednesday saying that if they don’t volunteer to save more homeowners from foreclosure, Congress is going to make them.  In a sternly worded statement, Rep. Barney Frank (D-MA) said that Congress isn’t afraid to revive legislation that would permit bankruptcy judges to write down a person’s mortgage.”

“In response, banks in Massachusetts on Thursday foreclosed on an extra 3,000 homes in Frank’s congressional district, causing a crowd of newly homeless families to burn Frank in effigy in the town square.  (Kidding, kidding… I’m a kidder… I kid.)”

Check him out-he’s funny-he’ll even tell you that.

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Even though mortgage and housing market news seems to be all negative, there are several opportunities to grow your business, particularly if you are helping homeowners with loan modifications. Homeowners are desperate for assistance. Meanwhile, bank and government programs are struggling to get the attention and reach all of those that are in need.

This offers enormous potential for those willing to work load modification leads and have the ability to offer consumers the help they so desperately need. If you are considering purchasing loan modification leads, there is no better time.

Let’s go over the basics of a loan modification sales process:

Loan Modification Sales Process

Step 1 – Contact the homeowner in need. First, create a marketing process that identifies likely loan modification leads, preferably in your local area area. However, there are large portions of the country in dire need to modify their existing mortgage loan , so don’t hesitate to broaden your market if you are appropriately licensed. Once you have your leads acquired, begin by contacting the homeowners directly.

Step 2 – Focus on stopping a foreclosure. If the homeowner moves into foreclosure-options become severally limited. So, your first order of business is to stop the foreclosure. No consumer wants the blemish of a bankruptcy or foreclosure on their credit history if they can avoid it, which means that you are likely to have a very attentive audience. Focus on the benefits of a loan modification and shape your pitch around their needs, not what is in it for you.

Step 3 – How a loan modification works. A loan modification is a renegotiation and restructuring of the terms of an existing mortgage. This solution benefits both the bank and the borrower saving the expensive nature of foreclosures and the homeowner’s home.

Step 4 – Guide the borrower through a loan modification. Your primary value to the homeowner is quickly and efficiently getting them to the right people and into the right program. Spend your time understanding and creating good processes to expedite all of the various loan modification programs available.

Things to Look Out For

Unfortunately, there are many loan modification scams–companies taking advantage of stressed consumers and it will be important to differentiate your business. Take the time to build a relationship with the homeowner so that they feel comfortable working with you. They’ve likely been through the ringer and may be a little hesitant until you can gain their trust.

Loan modifications are a great way to improve your business, but they must be handled carefully. By following these guidelines, you’ll be well on your way not only to a successful loan modification business, but also to helping someone who is in dire need of your assistance.

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New loan modification programs seem to be springing up daily. The latest is Obama’s mortgage modification plan–”Making Home Affordable.”

New Programs

What does this have to do with making aged leads more valuable? Simple, every new program is broader and more inclusive. This makes every aged lead that was having trouble getting qualified in the past a brand new, fresh loan modification lead.

Troubled Borrowers

Homeowners that are having trouble making their mortgage payments have been in limbo for six months to a year. Major banks and servicers have been suspending foreclosures, but not offering viable workout programs.

This is frustrating for homeowners, but an opportunity for you to finally bring some help to these folks.

This large population of homeowners that have already been on the Internet to seek help and have been told “no” are unlikely to return. But, they are sitting in the queues of lead brokers–waiting for hope to call.

Pipeline of Clients

This also becomes a lesson for sustaining a strong sales pipeline. Government and mortgage lender programs are likely to continue to evolve, becoming more inclusive as we work our way out of this economic recession.

That means that your pipeline of withdrawals and declines will continue to have value, if you nurture those leads. Aged leads are becoming more valuable with each new “revolutionary” plan for recovery hatched by the White House, Congress, Federal Reserve, Treasury, or big bank.

Trust Building

Keeping this pipeline of aged leads informed and positioned to get help as soon as it is available is a powerful trust builder. If you help a borrower or homeowner in this economic mess you are likely to have a client for life.

Look for those powerful client relationships in your aged leads.

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Rising Consumer Debt and Sinking Economy

These rising numbers are sure to keep your debt business hoping. Unlike the rising number of bank bailouts and loan modification programs, ordinary consumer debt is getting little government assistance.

However, these borrowers being foreclosed on are certainly being strangled by other debts. They need debt counseling and debt relief beyond their mortgages. This is where debt settlement solution providers are going to be crucial to the US economic recovery.

Debt Consumers are Often Misplaced

There is over $900 billion in credit card debt outstanding alone, not to mention billions in mounting medical debt, student loans, and auto payments. These are festering obligations that are putting people in desperate and unrecoverable personal finance scenarios.

Many of these people are wandering about looking for answers that you can give them. Often they inquire online and in their confusion get into the “wrong bucket.” This is where aged debt and even aged mortgage leads can be a gold mine.

Why Aged Leads are a Winning Debt Settlement Strategy?

Here are a couple of reasons to consider adding aged debt leads to your marketing:
•    People facing unmanageable debt go to the Internet for help
•    Often they look in the wrong place like mortgage refinance
•    After being harassed by collectors, they are often initially resistant to help
•    Debt clients typically don’t respond to settlement services until they are in crisis

These are all great reasons to establish a program to diligently manage and build a relationship with your debt leads. The results will help the client, your business, and the economy.

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