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Welcome back to the Velocity of Money this is Michael J Barnes and you are listening to KFNX
1100AM Arizona's news talk leader. In studio with us today on this fine New year's eve is Dan Havey,
the co founder of the modification hotline as well as the author of "The Foreclosure Sharks" a great
white paper he put together. He is also the author of "Real Estate's Future" and this segment we are
talking about loan modifications and some specific information. You also have a great story to tell
about this to.
Well unfortunately I have too many stories about people who have had to go through foreclosures,
bankruptcies, loan modifications. The one story I want to talk about real quick is a friend of mine who
unbeknownst to me went out and did a loan modification on her own and not to get into a whole
bunch of technical details on it but she ended up getting a pretty decent interest rate because they
actually cut her mortgage payment in half and she was pretty happy about that she owned a little bit
more than the house was worth she wasn't terribly upside down but by the time they got done with her
she certainly was going to be because the modification, and actually I should not call it a
modification I should call it a forbearance agreement, what they did to her was to say, "OK we
will cut your interest rate in half, we will cut your monthly payment in half but we will take all of that
deferred interest and tack it on to the back end of the loan." So that by the time her interest rate went
back to where it had been which was, it was actually going to adjust up over the next five years
so within the five year time period she was actually going to owe $60,000 in back interest on top of the
principal balance that she had before she went to go talk to her bank.
What kind of a deal is that?
I did not think it was a very good one and she ended up eventually not taking it and just recently let the
house go back to the bank, because she just looked at it and said, "Wait a second here, I am already
$20,000 upside down by the time I am done with you guys I will be $80,000 upside down and so
great I get a cheaper payment." But she moved into a rental property that was even cheaper then what she
would have had to pay to stay in the house and from what she tells me the house is nicer
Some of the unfortunate scenarios that come up that we get to see unfortunately we talk to lots of people
that have similar situations, try to do these things on their own and it is possible to do a loan
modification on your own. We know that, the program is designed for you to do that. The problem
is it generally does not work out. The re-default rate on loan modifications done on your own is
significantly higher than loan modifications facilitated by an attorney that is representing you for
you for a number of reasons. Number one you have to pay a attorney to represent you. The other is that I
think you are going to get a better modification based on real factors not just on a negotiation
between you and an expert negotiator and the loss mitigation department for the bank. We are talking
about using a professional attorney who is a trained negotiator to negotiate on your behalf with another
attorney by the way, they're not talking to the same loss mitigation people in India that you may be
Here are some numbers that just came out from John Dugan who is the Office of the Comptroller of
the Currency and they did a study of the loan modifications that have been done to date. In many
cases these were forbearance agreements, not loan modifications, if an individual talks to his bank,
generally speaking he will not get the same as what an attorney would do, so most of these are really
forbearance agreements. And in that case, 36% had defaulted or were 30 days past due after
6 months and 58% were in default after 8 months again that is 58% after eight months and I saw some
numbers the other day and
unfortunately I did not bring them in with me today, that according to some study of the very few
unfortunately few of the modifications that have been done using an attorney, I say very few but it is
still thousands and tens of thousands compared to what is getting done directly with the bank, the
number is only like 5% of the ones done with an attorney have re-defaulted and again I do not have
the numbers with me so I can not site the source