The Z Team on Ventura County Real Estate

Loan modification gets a modification in California.  Governor Arnold Schwarzenegger signed Senate Bill 94 on October 11, 2009 that prohibits anyone from charging an advance fee for any loan modification or loan forebearance services in California.  This includes licensed real estate agents and lawyers.  What does this mean for the consumer?  If anyone, and that means ANYONE, is trying to get money up front from you when you try to modify your loan, they are doing so illegally.  If you entered into an agreement with a California-based loan modification company who demanded an advanced fee before October 11, 2009, this law does not apply to you.  However, if you entered into an agreement with a loan modification company in California after October 11, 2009 and had to pay an advance fee, the company is required by law to fully refund the fee.

If you have any questions regarding your Ventura County real estate, please contact the Z Team.  We're always happy to help.

Dave and Pat Zumbrun, The Z Team for Ventura Real Estate

Distressed homeowners in the Ventura County area should definitely contact their lender or a HUD-approved counselor regarding a loan modification.  A loan modification can be just the help a homeowner needs to avoid foreclosure.  However, there are some things you should know before you accept the a loan modification agreement.

1.  Can you afford a loan modification?

    * Unfortunately, 55% - 60% of homeowners find themselves re-defaulting within the first year.
    * You must be very candid with yourself about your financial future and your ability to pay the new loan terms.
    * Do not let desperation cloud your judgment and you will be financially better off later down the road.

2.  A loan balance reduction unlikely.

    * Currently, loans which are modified very rarely receive a reduction to the balance owned on the loan.

3.  Loan balance is likely to be higher than before the loan modification.

    *  Unpaid interest, legal fees and related foreclosure costs (for the work already done) can be and are usually added to the principal balance of the loan.

4.  Your monthly mortgage payment may be higher than before the loan modification.

    * The monthly payment may be increased rather than decreased due to the unpaid interest, legal fees and foreclosure costs of fees added to the loan balance.
    * The monthly payment may be increased when the lender negotiates terms which allow you to "catch up" on back payments.  The back payments are added to the loan balance with the new payment based on the increased loan balance.
    * ACORN reports in one study that approximately 45% of loan modifications result in the homeowner paying a higher mortgage payment.

5.  Most mortgage payment reductions are temporary.

    *  Most loan modifications allow for a gradual increase in the monthly payment back to the original monthly mortgage payment.
    *  Most loan modifications allow the interest rate to reset within 5 years to whatever the going interest rate is at that time.

6. Most loan modifications will not be lowered to a 2% interest rate.

    * The interest rate on most loan modifications are not negotiated below 4.75%.
    * A reduction in interest rate is based on your ability to pay, your long term financial outlook, as well as your credit score.
    * A credit score of 740 or higher is needed to receive a substantial interest rate reduction.

7.  Loan modifications can affect your financial future.

    * The life of the loan could be extended up to 40 years, costing you tens of thousands of dollars in interest.
    * Your credit report may be affected if the lender chooses to report your mortgage payments as late until all back payments are paid up.
    * The homeowner may be requested to sign a bankruptcy protection wavier.
    * The homeowner may be denied a loan modification in the future should another financial crisis emerge.

Please let me state again: if you find yourself in financial difficulties, a loan modification just may be the perfect answer for you.  However, before you sign the newly negotiated terms:

    * Read them carefully
    * Consider all your options
    * Consider your financial future

Dave and Patricia Zumbrun, The Z Team for Ventura County real estate