The Average Commission on Loan Modification Sales

Modifications

When you take out a mortgage you enter into a binding legal agreement under which you agree to make principal and interest payments. Your lender may allow you to modify your loan agreement if you can no longer afford your monthly payments and if your mortgage debt exceeds your property's value. Your lender may reduce the principal balance or lower your interest rate, but either way the lender loses money when you modify your loan. If you cannot afford to repay the loan then you probably cannot afford to pay commission on the modification. Far from paying commissions to loan officers who modify loans, some lenders recoup commissions that were paid to loan officers whose loans ended up being modified.

Modification Firms

You cannot modify your loan unless you reach agreement with your lender on the terms of a modification agreement. However, you may know very little about lending and contract laws and prefer to hire a third party, such as an attorney or a financial company, to act as an intermediary and negotiate your loan modification agreement. In 2009, the Federal Trade Commission found that many of these intermediaries charged commissions between $1,000 and $3,000 for brokering agreements with lenders.

Laws

While some firms legitimately attempt to broker modification deals, other firms take advantage of distressed homeowners and charge non-refundable commissions prior to even discussing the topic of modification with the lender. Lenders have no obligation to modify loans and many homeowners have lost money after paying commissions to these unscrupulous firms. Consequently, several states including California have passed legislation to prevent lenders, brokers and third-party intermediaries from charging upfront commissions on loan modifications. In 2010, the federal government also passed legislation that prevents these parties from charging upfront fees. Furthermore, intermediaries must contact your lender and reach a modification agreement before charging any fees.

Considerations

The federal government currently sponsors several loan modification programs, including the Home Affordable Modification Program, or HAMP. Under these federally backed plans your lender cannot charge you any fees or commissions when you modify your loan. Therefore, you can in many instances avoid paying commissions by dealing directly with your lender. However, even these programs have complex rules and you should not enter into a contractual agreement that you do not understand. You should consider hiring a contract attorney to review the contract before you sign it. You may have to pay an attorney fee, but you avoid paying modification commissions while having a legal expert ensure that the deal serves your best interests.