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Troubled homeowners are so worried about losing  their home they will do anything to save it. This generally ends up including a loan modification. Loan modifications are a way of reducing monthly payments by a) reducing interest rates, b) extending the tenure of the loan, and c) in some rare cases even by reducing  the principal balance of a mortgage.

However, many home owners are starting to realize that interest rates and mortgage payments are not the only things that are being lowered. The credit score of homeowners is being reduced by up to 100 points just for entering a loan modification program. 100 points in a scale that generally goes from 300 to 850 points is a significant blow to a homeowner that has taken good care to protect his credit rating.

The big question is: is it fair? Should it be done?

The main argument housing counselors are putting forward against this practice is the lack of transparency. Most of the times troubled homeowners that ask for a loan modification feel like they are doing the right thing by trying their best to pay for their mortgage despite financial problems. When they realize that there credit score has been hit despite their efforts the sometimes feel cheated.

Are they justified? It seems reasonable to me that lenders and mortgage servicers provide clear information on the consequences of taking on a loan modification. But would a troubled homeowner applying for a loan mod change his mind just because he realizes his credit will be affected? If they do, it probably means they did not really need it to start with.

Why should a loan modification affect your credit rating?

Credit scores and rating are in place to do one thing, help banks and lenders know how reliable a borrower you are. Reliability in this industry is proven by your credit history that is how good you have been at paying your debts, your income and your commitment to the security of the loan, in this case your home.

A credit score is a numeric value assigned to you that qualifies your credit history and how desirable you are as a lender. Now, let us try and detach the emotional aspect of being a troubled homeowner and think about the consequences of a loan modification. A loan modification will in the vast majority of cases mean a reduction in interest, principal balance, or both. This means the bank is losing money. Losing money the borrower agreed to pay. By applying for a loan modification the borrower is stating he or she is struggling to make the payments they agreed to make. Shouldn’t that affect their credit rating, their reliability as a borrower?

Even though applying for a modification will take a chunk from your credit rating it is probably going to shade into insignificance compared to the effect falling behind in your mortgage payments and God forbid, foreclosing on your home. These actions can leave your credit score in tatters for years, and fade into insignificance when compared with a 100 point hit.

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The media has been rife with horror stories of scam artists preying on one of the most vulnerable sectors of our population, troubled homeowners and their families. However, many homeowners just haven’t got the message so we shall revise a few of the signs that can help us spot a loan modification scammer.

These leeches of society will ask for exorbitant fees from homeowners too worried or clueless to see they are paying a thief for something they could do for free.

It must be said beforehand that, as in so many other industries, the many pay for the sins of the few, and that most loan modification agents are just trying to make a decent living providing a service.

Scam Alert 1. Charging Upfront Fees.

It is illegal in many states to charge upfront fees, or fees for services that have not been provided yet. Even for states where it is not illegal it is certainly a clear sign you are dealing with a potential scammer. Stay well away from any company that tries to charge you with upfront fees.

Scam Alert 2. They Guarantee They Can Stop Your Mortgage From Foreclosing.

This is another red flag for loan modification companies you don’t want to touch with a seven foot pole. Nobody can guarantee a servicer will provide a loan modification and stop a mortgage from foreclosing. Not even the Government has been successful at forcing servicers do that, it is unlikely your loan modification company downtown is going to be able to.

The truth is that there are free loan modification counseling agencies that will provide you with all the information you need. We are used to paying for a good service and feel that the free option must be in some way of inferior quality than HAMP counselors. These counselors are not volunteers working out of charity; they are paid by the Government, just not by you.

Scam Alert 3. They Ask You To Stop Paying Your Lender And Start Paying Them.

It is amazing that anybody would fall for this, but we do. The companies will claim that you need to be behind in your payments in order to qualify for a certain loan modification or that they will take care of the payments or any other kind of bogus explanation. Don’t believe it. You do not need to be behind in your payments to get a loan modification you just need to have proof that you can’t afford the current payments. Work on your hardship affidavit, but whatever you do don’t stop making payments. It will only make things worse by further dropping your credit rating.

What Should You Do?

Your best option is to call your state’s HOPE hotline at 877-462-7555 and ask for your closest nonprofit housing counselor or check it out yourself here.

Loan Modification Companies will tell you that you need their help to fill in forms and that nonprofit counselors don’t have your interests in mind like they do. It can be faster and easier to use a loan modification company if you can afford it. Just be careful you don’t become another mortgage modification scam statistic.

Related posts:

1. Top 5 Steps to Avoid Foreclosure without Falling Into a Loan Modification Scam
2. Loan Modification Scams And Desperate Homeowners an Explosive Cocktail.
3. How not to be a victim of foreclosure fraud

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1. Top 5 Steps to Avoid Foreclosure without Falling Into a Loan Modification Scam
2. Loan Modification Scams And Desperate Homeowners an Explosive Cocktail.
3. How not to be a victim of foreclosure fraud

The sad reality is that an estimated 4 million households will lose their home to a foreclosure this year. Of course most of them will not go without a fight and will try to reduce their monthly payments with a loan modification.

Unfortunately loan modifications are not easy to come by and only a small percentage of troubled borrowers get a loan modification trial and an even smaller percentage get a permanent loan mod. This has created a practically brand new industry overnight, loan modification companies or consultants. This industry is not regulated allowing practically anybody to hang up a sign and start “working” as a loan modification consultant. This has caused many loan modification scams to crop up. This article aims at helping you avoid the scams and take the right steps to maximize your chances of loan modification success.

Step 1.

Contact your Bank or Lender first as soon as you realize you are going to struggle to make mortgage payments. It is always better to start planning for the worse before you are delinquent on your mortgage. You will need to contact your bank’s or lender’s loss mitigation department and explain your situation.

Step 2.

Be patient. Loan modifications take time and are difficult to get because a) they require plenty of paperwork and b) banks are not overjoyed with the prospect of losing money. However pressure is mounting on banks to stop dragging their feet and some lenders are increasing their loan modification completion rates substantially.

Step 3.

Contact HOPE’s hotline at 1-888-895-HOPE you will receive free help from trained counselors in multiple languages 24 hours a day. Although loan modification companies will tell you that these counselors are not good and that you need to pay to get a good service that has your interest at heart I recommend you give them a try. They are getting paid (obviously) just by the government instead of you.

You should also contact your local HUD approved counseling agency. You can find out where your closest office is by asking at the same hotline number detailed above. It is a good idea to visit a couple of counseling agencies and comparing the counsel they provide. The truth is that loan modifications are not THAT complicated, once you understand the basics and get down to the messy paperwork most people get ahead just fine. Getting approved, well that is just another thing altogether.

Step 4

Beware of loan modification scams. Here are some signals that give them away:

1)      Avoid ANYBODY (lawyers, companies or consultants) that asks for a prior fee for ANY loan modification service. Besides being a bad idea for obvious reasons it is illegal in many states.

2)      Avoid companies, lawyers or consultants that GUARANTEE your loan modification will be accepted or that they can stop a foreclosure. At best this is wishful thinking of a naïve consultant, most likely there are lies, in any case avoid like the plague.

3)      Avoid companies that tell you to stop making payments on your mortgage and pay them instead, this is the litmus test of fraudulent loan modification agencies.

Step 5

If you see evidence of a loan modification scam, or of bad practice with a loan modification company, do us all a favor and report them to 1-888-995-HOPE (4673). Loan modification scams are spreading fast but the Government is working hard to put them out of business. Many District Attorneys’ are making it their mission to put these companies out of business.

Related posts:

1. Avoid Foreclosure: 7 steps to save your home.
2. Loan Modification Company Scams How to Avoid Them
3. Avoid Foreclosure With A Personalized Home Loan Modification

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Housing counselors, who've received more than $400 million in federal funds to help mitigate the mortgage crisis, are helping troubled homeowners avoid foreclosure and lower their monthly payments, a study released Wednesday has found.

Foreclosure, bankruptcy, unemployment are problems that seem so large as to become apparently insurmountable for many of its victims. That of course is one of the worst aspects of these crisis, they take away hope and energy out of people leaving them as shells of the people they used to be.

The situation is difficult and there are no easy fixes no matter what sleazy debt relief companies tell you however there are steps you can take to improve your situations. These steps are not magical and they will not guarantee your financial safety, they should however be part of your plan to avoid foreclosure or bankruptcy when in financially dire straits.

Step 1. Talk to your lender.
Lenders need to hear from their borrowers to have a clear understanding of their position. Imagine if you lent some money to two friends. One of them explains he has lost his job and cannot pay you as fast as he had hoped but presents to you a revised schedule with smaller but regular payments. The other friend has also lost his job but decides to ignore you and will not even explain his situation to you. Who would you be more inclined to give a break or treat kindly? Yep, banks feel the same way.

Step 2. Contact approved housing counselors.
There are plenty of debt relief companies willing to take your money to “help” you refinance or modify your mortgage. Some of them can help others are frauds. It pays to contact legitimate counselors throught the Department of Housing and Urban Development to make sure you are dealt with fairly. These counselors can help you for free and offer unbiased advice.

Step 3. Don’t pay for services you haven’t received and always sign a contract.It is against the law for debt relief companies to receive payment before they sign a contract explaining the services they will provide and before they actually carry out those services. Don’t be duped by companies that promise to reduce your loan and ask for payment before they do the work.

Step 4. Do not transfer your home to a debt relief company or “rescuer”.
A popular scam the Treasury and HUD departments are warning against is being carried out by fraudulent debt relief companies. They will tell you, you need to transfer ownership of your property to someone with a better credit rating so he can refinance your home and you can later on repay it. Obviously this is a scam to steal your home and rape it of any equity it might still have.

Step 5. Only pay your mortgage payments to your lender. Some scam consultants offer to take over the details of paying your mortgage as part of their debt settlement services. There have been many reports of debt relief companies pocketing the payments without making payments.

Related posts:

1. How To Avoid Foreclosure By Declaring Bankruptcty
2. Avoid Foreclosure With A Personalized Home Loan Modification
3. Mortgage Scams: How To Avoid Them

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3. Mortgage Scams: How To Avoid Them

Mortgage Scams have been on the headlines of the news as the nationwide raid on mortgage consultants arrested high profile loan modification consultants and firms. This has created a panic among homeowners that need a loan modification creating insecurity among those that need the most help.

In response to this situation the Federal Trade Commission has teamed with local and state authorities in a nationwide crackdown on conmen consultants and loan adjustment scams.

The biggest challenge authorities have is actually reaching the people at risk from these scams before the scammers knock on their door and dupe them to pay for services and loan adjustments they never provide.

One avenue the Federal Trade Commission (FTC) and local authorities have embraced is providing videos under the theme “Real People, Real Stories” in Spanish and English. See at www.ftc.gov/YourHome.

These videos illustrate the steps homeowners can take to either save their home from foreclosure or save on their monthly payments without being taken for a ride by unscrupulous “consultants”

The FTC and the California Attorney General’s office has also put together a list of tips of how to avoid scams here is an excerpt from the the release that is worth reading:
•    The first thing anyone seeking to modify an existing loan should do is call his lender.

•    Lenders want to hear from homeowners and will probably be more willing to work directly with them than with a foreclosure consultant. Do not ignore letters from your lender. Many lenders are willing to work with homeowners who are behind on their payments.

•    Contact housing counselors approved by the U.S. Department of Housing and Urban Development, who may be able to help you for free.

•    It is illegal for foreclosure consultants to demand money before they give you a written contract  and before they actually perform all the services described in the contract, such as negotiating new monthly payments or a new mortgage loan.

•    However, an advance fee may be charged by an attorney, or by a real estate broker who has submitted the advance fee agreement to the California Department of Real Estate for review.

•    Do not transfer title or sell your house to a “foreclosure rescuer.” Fraudulent foreclosure consultants often promise that if homeowners transfer title, they may stay in the home as renters and buy their home back later.

•    Fraudulent foreclosure consultants claim that transfer is necessary so that someone with a better credit rating can obtain a new loan to prevent foreclosure. Beware — this is a common scheme so-called rescuers use to evict homeowners and steal all or most of the home’s equity.

•    Do not pay your mortgage payments to someone other than your lender or loan servicer, even if he or she promises to pass the payment on. Fraudulent foreclosure consultants often keep the money for themselves.

•    Do not sign any documents without reading them first. Many homeowners think that they are signing documents for a new loan to pay off the mortgage they are behind on. Later, they discover that they actually transferred ownership to the “rescuer” who is actually a scammer.

Related posts:

1. Mortgage Modifications: The Worst Scams
2. California trys to deter loan modification and foreclosure rescue scams
3. Avoid Foreclosure: 7 steps to save your home.

Related posts:

1. Mortgage Modifications: The Worst Scams
2. California trys to deter loan modification and foreclosure rescue scams
3. Avoid Foreclosure: 7 steps to save your home.