The Silence of the Lenders

In California, an epicenter of the mortgage crisis, only 1.3 percent of loan modifications struck between January and May this year involved a reduction of principal, according to the state’s Department of Corporations. A total of 356 of 21,359 loan modifications in the month that ended May 17 involved a cut in the principal balance, it said.

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“Unless these are zero-cost, zero-added-principal loans, we really have to look closely at these workouts,” says Michael Kratzer, president of FeeDisclosure.com, a Web site intended to help consumers reduce fees on home loans. “If they are adding anything to your principal, whether it is late fees or processing fees, you may not be far ahead and you could end up behind.”

But few borrowers, desperate to keep their homes under any circumstances, are likely to question the terms of a loan modification, said Moe Bedard, president of Loan Safe Solutions, a firm that performs forensic loan audits on mortgages for borrowers’ lawyers. “Fees are one of my biggest issues with loan modifications,” Mr. Bedard says. “Say you owe $32,000 in arrears that the lender is going to put on the back of the loan with a 6 percent rate. Nobody questions what the $32,000 is and lenders do not substantiate these fees.”