The mortgage loan modification business is consistent, large, and profitable to be in if done right. In order to start your own loan modification business, you will need to set yourself up with the full infrastructure before you begin. If you don’t take the time to do this right, you may risk losing clients and destroying your lead flow. So, you might be asking yourself how do I start a loan modification business then? The answer lies in the 6 steps outlined below.
But first, let’s learn a little bit about what mortgage loan modification is.
What is a Mortgage Loan Modification?
One of the biggest financial aspects in owning a home is paying off its mortgage. More often than not, homeowners take out loans to pay off their mortgages monthly, rather than paying them off fully upfront. As expected, financial situations change and mortgage loan modification businesses are necessary.
A mortgage loan modification is when the original terms of a mortgage loan are modified by new terms. This can mean a variety of things, ranging from lowering the interest rates to changing the time frame in which the past-due amount is paid. As a mortgage loan is a legal agreement, modification of it requires conscientious changes that can be tricky. Because of this, many mortgage loan modification businesses in the industry look to fulfill this need. Qualifications are only one aspect of getting started, the other parts require more finesse. Your website, marketing, and payment gateway for doc prep should be top of mind when getting started. Find out how to set yourself up for success and start your mortgage loan modification company.
The Industry of Loan Modifications is Large
While it may seem niche, the mortgage loan modification industry is high-demand. In fact, after the 2008 housing crisis, so many homeowners were in need of modifications that the government enacted the Home Affordable Modification Program (HAMP), a federally funded loan modification program.
12 years have passed since the 2008 crisis and home ownership continues to increase. Since 2008, home vacancy has been decreasing at a steady rate. As more people buy and own homes, there are more people who will need to modify their loans. In just the beginning of 2019, there were over 17,000 mortgage modification actions across the United States. All of this is to say that there is no better time than now to start an online business in loan modification.
Steps to Start a Loan Modification Business
Mortgage loan modification companies fall under the legal document preparation umbrella. This means that they can be tricky to own and manage. Here are four key steps you shouldn’t forget when starting your online business in loan modification.
- Plan your process
- Research the rules and legal requirements
- Register your business locally and statewide
- Create your loan modification letter templates
- Have a plan for lead generation: marketing and advertising
- Streamline the customer journey
Step 1: Plan Out Your Go-to-Market Strategy
Mortgage loan modification companies can take form in a variety of ways. Before starting your business, you should spend ample time thinking of how exactly you want your business to be structured. As mortgage loan modifications are a process by nature, the steps that you take to conduct your business are correlated to how successful you will be.
For example, you’ll need to think through how exactly you will carry out the loan modifications. One option is using a system that allows the customer to input the changes online and you have a team review the changes before delivering the final product to the customer. Or, you could operate on a strictly manual basis, where each customer has a dedicated mortgage loan modification officer that works on their modifications.
Whatever you choose, know that you’ll need to be transparent to your customers on what to expect during the process. Take some time to think it through before moving forward in your business.
Step 2: Research all loan modification business rules and regulations
The demand for legal document preparations exists because of the challenges associated with preparations. Loan modifications are tricky, and many people do not have the time or information to
properly make the modifications themselves. Moreover, legal documents must be compliant with all of the rules and regulations associated with them – both federal and non-federal.
Common mortgage loan modification violations include:
- Failing to process the modification application in a timely manner
- Misinforming homeowners about the status of their loan
- Requiring homeowners to submit information more than once
- Calculation errors concerning NPV numbers or other numbers
- Inability to convert trail modifications to permanent ones
If you’re going to be preparing legal documents for others, you will be expected to abide by all rules and regulations. Do this research up front and put in processes that allow for your business to stay updated on any changes. This is a requirement for the health of your business to get started as well as to grow.
Step 3: register your mortgage loan modification business
You will need to register your mortgage loan modification business with both your state and county.
Because each state has their own set of registration forms, it would be best to research the secretary of state office documents or reach out over the phone for guidance.
For the state registration, you will need to contact the county clerk or business licensing office for information on how to begin. Then simply fill out the documents and send in the registration fee associated with your business.
Neither of these processes should be difficult as long as you have all of your business and personal information on hand as you are completing the process.
Step 4: Create Loan Modification Letter Templates to Use
As you begin to reach out to lenders and banks, you will need to provide them with a Financial Hardship Letter. Basically, this page should include a few key things:
- The length of the letter should be a page or less. There is no reason for a lender or bank to reach multiple pages of documents. They will most likely overlook the main issues you are posing and jump to a conclusion that may not be in your best interest. Stay concise and get to the point.
- Do NOT exaggerate, lie, mislead, or get emotional when writing the letter. It is better to write plainly and leave emotion out of the equation. This will help your modification request in the long run.
- Tell the lender or bank what specifically you are asking for. Have a number in mind that you want to agree upon with your bank. Then write that number into your financial hardship letter. This will help the lender and the loan holder come to an agreement quicker, without as much back and forth.
- Be sure to attach asset documentation (such as bank financial statements and pay stubs). This will give them numerical proof to support your request for modification.
By creating a template that you use or that you can send to your clients, it will streamline the writing process. Start a loan modification business template for financial hardship by selecting an outline online and modifying it to fit your business.
Step 5: Market and Advertise Directly to Your Target Audience
Online businesses in loan modification have one of the biggest competitors: the United States government. Because of HAMP, many individuals seeking loan modifications will defer to HAMP before considering a private mortgage loan modification company. However, HAMP is not available to every homeowner. The basic tenant of HAMP is that the homeowner must be in default or in danger of default on the mortgage. If not, they are not eligible for HAMP. That’s where your marketing comes in. By marketing and advertising your business early on and well, non-HAMP eligible customers can look to you as the first option in loan modification services.
Additionally, you’ll be competing with the consumer themselves. Mortgage loan modifications do not require a third-party to conduct the service. But, the process can be tedious and long, which is where your loan modification service comes in. Sell your perks and address customer pain points early on to have the best chance at getting their business.
Step 6: Streamline the Journey: First Contact to Payment Processing
The mortgage loan modification industry is tricky. Because you have tough competition, you need to be sure that your loan modification business is worth it through the whole process. Take a trip through your journey as if you were a customer. See how effective your advertising is, how long the process takes from start to finish, and what services you offer that set your loan modification business apart from the rest.
If you start your loan modification business but realize that one of your customer journey steps is clunky- fix it. It will make a huge difference in how your customers interact with you during and after the process.
Also, consider your pricing. Is it comparable and fair to your competitors? It is worth your time and effort to be charging what you are? Do you need to lower or raise your prices to compete? Don’t be afraid to make adjustments as you grow. And on the back end, be sure that your customer payment offerings are adequate and secure. If you notice that your customers are requesting ACH payments rather than a credit card, accommodate that. Lastly, make sure that some of the common payment processing risks associated with mortgage loan modification services are being secured.
Chargebacks and disputes, data breaches, and less-than-secure payment methods are the most common pitfalls for payment processing in the document prep and loan modification industry. Find a CRM and payment gateway for your loan modification business that can support your volume and risk factors. That way, you can focus less on the risk factors and more on growing your business.