Sunday, November 2, 2008

Workouts Work Out

(From the July 21, 2008 Forbes) Michael Moore and his wife, Rebecca, began careening toward foreclosure in 2005. That year the couple refinanced their $300,000 home in Livonia, Mich., going from a $149,000 30-year fixed-rate mortgage at a 7% interest rate to a $300,000 adjustable-rate loan with a teaser interest rate of 8%. They used a chunk of the cash to cover Rebecca's mother's medical bills. Some of the rest evaporated last year when the rate on their loan jumped to 11.35% and the monthly payment rose to $3,100. The couple started falling behind on payments, prompting foreclosure warnings from their lender. "You pray it will all work out," says Rebecca, 54.

Enter Moose M. Scheib. His 27-person loan modification processing firm in Dearborn, Mich., called Mizna, works as a mediator between lenders and overextended homeowners. Scheib collected the Moores' W-2 forms, tax returns, bank statements--and ordered an appraisal and best-price offer from a Realtor on the Moores' three-bedroom house. After 45 days of negotiations with Litton Loan Servicing, Mizna helped the Moores keep their home by lowering their monthly mortgage payment to $2,500 with an 8% fixed-rate mortgage last October. "Most homeowners are too scared to speak with their mortgage company; that's where we come in," says Scheib, 28.

Mizna, which means "desert cloud" in Arabic, claims to have saved 3,900 harried loan customers of Litton (a Goldman Sachs subsidiary), HSBC, Washington Mutual and Countrywide since January 2007. That work helped Mizna net $875,000 pretax on revenue of $3.9 million over the past four quarters on 4,015 loan modifications. Scheib and equal partner Sonny Mandouh hope their company will modify 20,000 more loans by the end of 2009. Mizna's fee, which has risen fivefold since early last year, is now typically $1,500. It is paid by lenders, who are under pressure by state and federal policymakers to modify loans and repayment plans for troubled borrowers. Mizna clears $500 per loan after salaries for 20 loan processors.

A tenth of Mizna's clients have come in via loanmod.com, the Web site Scheib bought for $50,000 in 2007. Most come through mortgage companies that would rather pay Mizna than spend $50,000 in a typical foreclosure process. Mizna has completed modifications for an impressive 42% of the Litton customers it contacted last year. Only 1% of customers Litton contacted directly the year before did loan workouts.

Scheib, a former associate at Proskauer Rose law firm in Manhattan, is not alone in this game. Well-connected nonprofit groups are getting grants and free software to help them negotiate cheap workouts for big lenders. Scheib says there is plenty of business to go around, especially as more well-to-do folks have trouble: "Borrowers with high-end homes are reaching out to us for help."

2 comments:

Anonymous said...

I have been reading a lot about FDIC's plans. Mailing out loan mod offers in mass quantities does not work. People just don't fill out legal forms they don't understand and send them back to an adverse party (their lender). The mass mod success rate within the industry for getting a hold of troubled homeowners and modifying their mortgages is an embarrassing 2%. Over 50% of homeowners go into foreclosure without ever speaking to their lender.

The key is to have a company such as LoanMod.com (Mizna) handle the homeowner with care and finalize the loan mod documents. LoanMod.com has the trust of homeowners so there is no problem making contact; their counselors (40+ according to a recent America.gov article*) can guide the homeowners through the loan mod process so people understand what they are signing; and their notaries (19,000 spanning 50 states) finalize mod offers at the homeowners kitchen table so there are no problems with the paperwork.

The best move would be for FDIC or Indymac to get a hold of the folks at LoanMod.com and get them involved in cleaning up this mess.

*Source: http://www.america.gov/st/diversity-english/2008/September/20080918121938maduobbA8.761233e-02.html?CP.rss=true

Nicole Cady said...

I read a lot online on how you need to be VERY careful and choose a company that offers a guarantee. The one that I chose did.

I used a company called www.loanmodassistant.com. They do have a guarantee. They walk you through the whole process and even printed off the needed documentation I needed for countrywide. Id recommend them to everyone. I used coupon code guaranteedmod I don't know if it still works but it brought my total down to $150 well worth it i'm now saving $570 a month. hope this helps someone