Our general opinion is that loan modification does not work for most homeowners.
There are many complex reasons why. In theory if a homeowner owes $400,000. on a mortgage, but the property's current value is $260,000. The relief the homeowner needs is to address and modify the $140,000. "upside down". In most cases this is not what a loan modification does. Not even within the power of most banks and loan servicing companies. A small reduction in monthly payment can be accomplished by a loan modification but is usually added on to the loan somewhere else. In simple banking principle: "IF YOU OWE SOMEONE $400,000. YOU NEED TO PAY BACK $400,000." There is not really a common banking mechanism to modify what you owe.

The Loan Modification Scam.
Is taking place on many fronts. Primarily with unlicensed failed industry professionals (real estate, mortgage, title agents and investors) and others creating business models based in Loan Modification for hire. These companies generally charge up front fees ranging from $1,000. to $6,000. to do your loan modification. Accepting money for loan modification violates most state and federal fair business and deceptive practice laws. Many states have already specifically addressed the practice and made it illegal. Most lenders are staffing call centers to begin the loan modification process right over the phone. Homeowners interested in loan modification should call their lender(s) directly and start the process. No third party assistance or payment is required.

Lenders, Media and Government mislead the general public about loan modification.
In an effort to appease Government and Media outcry most lenders are even making outbound calls to homeowners offering "Loan Modification". The agents calling homeowners are data entry commission based employees. They lack authority and experience to modify anything. Their pay is based in worthless applications for modification, not in successful completion of modifications. The entire effort is to boost consumer confidence and give people false hope.

The simple reason modification does not work.
Behind every mortgage there is an investor, the person or entity who actually lent the money. The investor has an asset, which is a $400,000. mortgage note secured by real property. The investor can not and would not just decide to change the $400,000. to let's say $260,000. What happened to the $140,000.? Did it just disappear? Where is the basic banking principal to account for the lost money? The investor needs to account for the money, otherwise anyone with money would just report to the government "i just lost half of my asset". In the sale or a property, not a modification there is a recordable event. A HUD-1 is recorded and a transfer of the security asset takes place. An investor can now account for the $140,000. and record a loss, because there is a defined paper trail to account for the money.

The Short Sale emerges as a Banking principal.
Although the "Short Sale" is not new, it has become an important and prominent banking tool. It is an acceptable alternative to foreclosure, and ensures that the Bank or investor can record a loss. In most cases they actually receive 20-40% more money back on their investment. When compared to the long expense and decreased value of property taken through foreclosure.

Tampa Tribune April 4 2009