Hiring an attorney to negotiate a loan modification can be an expensive proposition, possibly costing thousands of dollars. It isn't something that many homeowners feel they can afford right now. When you take a closer look at the numbers, however, the cost of a loan modification compared to the cost of foreclosure is a pittance:

$151,000 estimated cost of a single foreclosure (Joint Economic Committee of Congress):

Homeowner: $7,000

Lender: $50,000

Local government: $19,000

Impact on neighboring home values: $75,000

Estimated total cost of one foreclosure: $151,000

$3.3 trillion total decline in property values in the U.S. in 2008 (Zillow)

1 in ever 6 homeowners owe more on their homes than their homes are worth (Zillow)

11.6 percent reduction in the median home price to $192,119 (Zillow)

1 out of every 200 homes will be foreclosed upon (Mortgage Bankers Association)

Every 3 months, 250,000 families enter into foreclosure (Mortgage Bankers Association)

1 child in every classroom in America is at risk of losing his or her home (NeighborWorks America estimate based on numbers from Mortgage Bankers Association)

43 percent of American households spend more than they earn each year (Homeownership Preservation Foundation poll of 60,000 homeowners)

52 percent of employees live paycheck to paycheck (The MetLife Study of Employee Benefit Trends)

Nearly 42 percent of all American households do not have enough in liquid financial assets to support themselves for at least three months, and 46 percent of American households have less than $5,000 in liquid assets, including IRAs (Asena Caner and Edward N. Wolff, “Asset Poverty in the United States: Its Persistence in an Expansionary Economy,” Levy Economics Institute of Bard College) Compare these numbers to the costs and benefits of obtaining a loan modification:

$4,000 or less is the cost of having an attorney who specializes in loan modification negotiate an affordable solution for catching up on missed payments and lowering the monthly payment

68 percent: the percentage of low- and moderate-income borrowers who are less likely to lose their homes when they enter a repayment plan (Dona Dezube, “Heroic Homeownership,” Mortgage Banking, (June 2006) page 82) Some may argue that we overlook the cost of a loan modification to the lender or investor who sees a loss in revenue as a result of lowering the homeowner's monthly mortgage payment. This is true – no doubt about it, a single loan modification can cost a lender tens of thousands of dollars in lost revenue. A loan modification is not a profitable proposition for lenders – it’s a loss mitigation tool for paring down the lender’s potential losses.

If the lender does not agree to a loan modification and proceeds with foreclosure, there is no revenue to speak of, and the lender has to cover the cost of foreclosure (by some estimates $50,000 to $80,000 per foreclosure). This is the very reason that lenders are often willing to consider a loan modification – for cases in which the alternative would be worse (more costly). A loan modification allows the lender to transform a non-performing asset into a performing one and avoid the cost of foreclosure.

Homeowners also stand to benefit – by keeping their homes and paying less per month and over the life of the loan. Even if the homeowners were to pay $4,000 for a loan modification that lowered their house payment a modest $150 a month, the loan modification would pay for itself in a little over two years. Over the course of ten years, it would save them $14,000 over and above the cost of hiring a professional! Anyone with a calculator can plainly see that the potential savings from a loan modification are well worth the cost – for both lenders and homeowners.

Published: March 23, 2009

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Ralph R. Roberts, CRS, GRI is an award-winning and internationally recognized real estate agent, author, coach, and speaker. Throughout his career, Ralph has proven his commitment to helping other real estate and sales professionals build upon their past and present success, grow and expand their businesses, and provide a rich and rewarding future for themselves, their customers, their employees, and their families. As president and CEO of Ralph Roberts Realty, Ralph has personally helped thousands of consumers realize their dream of homeownership. While selling over 10,000 homes (and buying and selling over 3,000 investment properties) throughout his 30-year career, Ralph has made the time to mentor and coach hundreds of professionals in real estate, sales, and a host of other fields. Ralph is a recognized authority on Real Estate and Mortgage Fraud; Residential Real Estate; Personal Salesmanship; Sales Force and Office Management, Motivation, Design, and Team Building; and Foreclosure Self-Defense and Loan Modification, fields in which he has demonstrated his commitment to preserving the American Dream of Homeownership. Ralph's numerous websites, blogs, seminars, and speaking engagements engage, entertain, and educate both consumers and professionals. Ralph is also an accomplished author with several successful titles to his credit, including: Power Teams: The Complete Guide to Building and Managing a Winning Real Estate Agent Team Financing Real Estate Investments For Dummies (John Wiley & Sons) Mortgage Myths: 77 Secrets That Will Save You Thousands on Home Financing (John Wiley & Sons) Foreclosure Self-Defense For Dummies (John Wiley & Sons) Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership (Kaplan) Foreclosure Investing For Dummies (John Wiley & Sons) Foreclosure Myths: 77 Secrets to Saving Thousands on Distressed Properties (John Wiley & Sons) Advanced Selling For Dummies (John Wiley & Sons) Flipping Houses For Dummies 52 Weeks of Sales Success (John Wiley & Sons) Walk Like a Giant, Sell Like a Madman (John Wiley & Sons) Cross-Cultural Selling For Dummies (John Wiley & Sons) To learn more about Ralph, visit AboutRalph.com, check out his daily insights on real estate and mortgage fraud prevention at FlippingFrenzy.com, or visit his latest blog dedicated to helping distressed homeowners fight foreclosure, KeepMyHouse.com. You can reach Ralph at or by calling (586) 751-0000.