Jack M. Guttentag The Mortgage Professor

In my previous column I went over the steps involved in getting a loan modified. This article examines which steps, if any, may require a borrower to seek help.

The bottom line is that many, perhaps most, borrowers can handle it all themselves, but some may need an assist here or there. And some may want to delegate the entire responsibility.

Negotiating the Deal: Firms hustling for modification business sometimes pretend that they have the knowledge and skills needed to negotiate a favorable deal with the loan servicer. In fact, a modification is not negotiated -- it is granted (or denied) by the servicer, applying rules or principles set out by the investors who own the loans. In the case of modifications under the Making Home Affordable (MHA) program, the rules are set by the government, but these do not override investor rules. If the documents governing the servicing of a particular loan -- known as the Pooling and Servicing Agreement -- prohibit a particular modification, the MHA program will not help.

Delivering Information to the Servicer: Legitimate firms in the modification business know the information that each servicer wants and where to deliver it. This is their principle stock in trade. But borrowers can now obtain this information from my Web site.

Assuring the Accuracy of Information Provided: Filling out the servicer's questionnaire form correctly is a challenge to some borrowers, but free help is readily available. One of the purposes of HOPE NOW, the alliance of servicers, investors, and counseling agencies established last year to help borrowers in trouble, was to provide free counseling. Borrowers can call 1-888-995-HOPE, or they can find a HUD counselor in their state by going here.

Follow-Up: Mistakes happen in modifying loans because the process is complex, and servicer employees may be overworked and/or under-trained. Either the borrower or the borrower's designee should follow up the request for modification to make sure the papers haven't been lost and the case is in an active queue. If the request has been rejected on the grounds that the borrower is not eligible, the borrower or the borrower's representative should find out why and attempt to confirm the reason is legitimate.

Many, if not most, borrowers can do it all themselves, perhaps with some assistance from free counselors. But some need to be represented, not just counseled. They want someone to "take over" the process for them and follow it to a conclusion.

The function of counselors is to counsel, not to act as the borrower's agent in dealing with the servicer. Some of the good ones may do that, or do it in part, but it is not a counseling function.

Because there is a demand for representation (as distinguished from counseling) services, an industry has arisen to meet it. For a fee payable in advance, these modification specialists will (or claim to) represent borrowers in dealing with servicers. Fees vary, but $3,500 is not unusual. Some of them may perform a decent (if overpriced) service, but many are scamsters who collect fees and do little else. There is no way for borrowers to tell the difference.

The response of the government to the modification scams is to preach that borrowers should not pay anyone to help them because counseling is available free of charge, and to crack down on deceptive practices by the modification assistance firms. In the week this was written, the Federal Trade Commission filed enforcement actions against five firms it claims use deceptive marketing tactics, and sent warning letters to 71 others.

This is fine as far as it goes, but it overlooks that the vulnerability of borrowers to modification scams reflects their need for a representation service. The government has done nothing to encourage firms that would provide this service in a responsible and transparent fashion.

The response of state governments, in a growing number of states, has been to pass legislation making it illegal to charge in advance for modification services. From all appearances, these laws are widely disregarded.

My problem has been that I don't know where to send the borrowers who write me who clearly need a representation service. To meet this need, I have been talking to a firm in an allied field which has tentatively agreed to provide modification services that meet the following specs: 1) The firm would provide a free initial evaluation to determine whether there is a reasonable likelihood of obtaining a modification; 2) If the initial judgment is positive, the borrower would pay a fee of less than $1,000; 3) The fee would be paid into an escrow administered by a reputable third party, and would not be released until the escrow agent had received notice that the modification had been granted; and 4) If the request for modification is rejected, all or most of the fee would be returned to the borrower.

Stay tuned.