PERSON OF THE WEEK: When one thinks of do-it-yourself activities, loan modifications may not be an obvious choice. Yet Roy B. Satz believes the process is not as convoluted as many people imagine.
Satz, a retired managing partner at Sterling Investment Solutions with more than three decades of financial services experience, has joined forces with Pamela Stewart to co-author ‘Mortgage Modification Secrets.’ Billed as a ‘do-it-yourself help guide,’ the new book focuses on one of the thornier aspects of today's mortgage banking industry. MortgageOrb spoke with Satz about the issues that impact loan modification.
Q: Your new book offers a do-it-yourself approach to loan modification. If the modification process is DIY-friendly, why is there a perception that it is very complicated?
Satz: Calling the process ‘DIY-friendly’ might be a mistake. The process was purposely and consciously moved from one that provided multiple efficient, professional and knowledgeable sources of third party advocates to one that was primarily a do-it-yourself driven alternative.
The process is not as complicated as the measures needed to complete the task. Mortgage modification certainly isn't a complicated process and can be achieved on a DIY basis. However, there are elements that increase the difficulty of successfully completing a modification in a reasonable time frame. Some of the elements that compound the difficulty, add unnecessary frustration and create a feeling of hopelessness include the following:
- Lack of accountability of the people assigned by the servicer/lender/investor to process the modification;
- Constant change of requirements by the servicer/lender/investor;
- Unnecessary delays caused by the servicer, lender or investor re-requesting the same and/or unnecessary documentation over and over again;
- The process in the end is purely subjective and appears to be dependent on the whim of the assigned ‘negotiator’;
- The lack of understanding, knowledge and ability to apply logic by the borrower; and
- The inability of the borrower to effectively respond to delays and decisions.
Although there are set formulas in the government programs, the servicer/lender/investor has made the process less efficient and much harder than it should be, as it is still subjective to the opinions of the servicer/lender/investor who is handling the file.
Q: There have been many horror stories in the media about people who have been fighting (and sometimes losing) with their lenders to get a loan modification. In your opinion, are the lenders genuinely interested in helping people get modifications?
Satz: Deep down, I believe that the mortgage servicers and investors are interested in reaching resolution with as many modifications as possible and are feeling the pressure from the government to ‘help’ homeowners. They want to modify; however, their processes are so inefficient and the opinions of the staff assigned to handle and process these transactions hinder and complicate or convolute the process, creating the appearance that they don't want to modify. As the saying goes, ‘The road to hell is paved with good intentions.’
And with the redefault rate at the unrealistically high level that it is, I'm sure, the servicers and investors are feeling that ‘no good deed goes unpunished.’ So the question is, how is this going to be overcome?
The system is unduly convoluted, backward and far too subjective – and above all, lacks the ability or desire to hold the modification personnel accountable for delays or bad decisions that at times appear to have been made in a vacuum without their understanding the borrowers true financial position.
Ultimately, it's the appearance of a lack of desire and urgency by the servicer to find a permanent solution and resolution in a quick, efficient and effective manner. Unfortunately, the only common thread that links all lenders, servicers and invertors is the unreasonably high level of frustration they are able to create for borrowers during the modification process. This is where the horror stories originate.
Q: Where does most of the confusion in the modification process come from?
Satz: The process of granting a ‘three-month trial-payment period’ before the sign-off servicer has done their due diligence and completed the underwriting review and signoff causes most of the confusion and uncertainty and erodes the borrower's trust in the system. The net-present-value test, for instance, should be done up front before anything else, as its one of the main deciding factors.
Then, without an understanding of the structure and complexity of the formula, it is impossible for the borrower or his or her third-party modification advocate to check the data input in the formula for correctness and accuracy or question the results, leaving the homeowner in a quandary about how best to move forward.Â
Q: What is your opinion of the federal programs that were designed to encourage loan modifications? And if your opinion is not positive, how would you recommend improving them?
Satz: The programs were mainly designed to provide relief to homeowners on a short-term basis; however, the economy, employment and property market have not shown the ‘predicted’ recovery initially anticipated. This fundamental failure of the federal programs is illustrated by the tremendous ‘re-default’ rate being experienced and will cause the same or worse problem down the road in the years to come.
One could argue that the problem wasn't handled correctly, or even remotely efficiently, due to the inadequate number of mortgages modified to date, it has been further compounded if one looks at how pathetically few mortgages have been modified successfully – as measured by the number of modifications that have not been subject to redefault.
Unfortunately, there is insufficient oversight of the modification industry, further exasperated by legislation that prohibited the taking of ‘up-front fees’ forcing the third-party modification advocates to abandon assisting the property owner, leaving them no alternative but to deal with the lender directly or work through nonprofit organizations. These organizations are now so overwhelmed and don't have the time or staff for these efforts, nor do they fully understand the process. The irony here is that both of these entities are financed by the government to help the homeowner, and are doing so unsuccessfully.
