The Problem with Do-It-Yourself Loan Modification

Loan modification is a blanket term that applies to any changes you make to a loan. It may include refinancing, settlement, consolidation or other changes in loan terms. Many people use loan modification agencies to accomplish this task. Others determine the agencies offer little benefit, and attempt to re-negotiate loans in the "do-it-yourself" fashion. While you may find a certain degree of success here, you will not likely see benefits as large as when you use an agency, and you may make many crucial mistakes. 

Contracts Are Complicated

The first problem with do-it-yourself loan modification is that it involves re-negotiating very complicated contracts. Most of these contracts have been written by accountants and attorneys so they favor the lender not the borrower. Any time you negotiate a contract, there are certain terms and clauses you should either request or avoid. For example, there may be a "non-cancelability" clause. Lawyers and loan agencies, who often utilize lawyers, will know which loan terms and clauses are favorable and which are not. 

When you analyze contracts yourself, you will not likely be aware of the exact language required in court. You will also not likely be able to determine what the language in your existing contract allows or prohibits. Often, loan modification agencies and other advisers can look at your existing contract and give concrete advice on your rights to negotiate. Your existing lenders will look for every reason to shut the door on your negotiation, and without proper information you cannot prevent them from doing so.

Agencies Have Connections

Loan modification agencies may deal regularly with banks and standard lenders. This means your representative may have connections at the bank or lender that currently holds your loan. These agencies can often swiftly settle debt due to the history of positive resolutions they have with the lender. If the agency has successfully handled dozens of re-negotiations with the lender, the lender will welcome the relationship in most cases.

Loan modification agencies may also have intimate knowledge of your loan structure. For example, if you are seeking to avoid foreclosure on your mortgage, it is helpful to work with someone who has seen your type of mortgage in the past and given foreclosure advice to others who have the same structure. You may want to ask your agency if they have dealt with your lender and your type of loan in the past to get a feel for their expertise in your area.

Formal Processes Are Required

Because you are closing and opening contracts in loan modification discussions, you will need to enter into a formal process. At times, this may even require going to court or participating in legal processes. If you are inexperienced in this area, the lender you are working with will recognize this inexperience and take advantage of it in court. Not knowing simple, routine administrative requirements may significantly hinder your ability to succeed. While agencies will charge a small fee, in most cases you will more than make up for this fee in better terms of settlement on your existing loans and better terms on your new loans if you work with the right agency.