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.
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The numbers of loan modifications, foreclosures and bankruptcies we are dealing with in this credit crisis are so large they are too often hard to understand and digest. A good solution is often to downsize and see if more sense can be put into smaller models. A good model for the United States is California, the fourth economy in the world and one of the hardest hit states in the United States credit crisis. House prices have free fallen but mortgages remain the same. This has eaten up most of people’s equity leaving homeowners owing more on their homes than they are worth. Not exactly an incentive to pay your mortgage.
The sad thing is that while only 16% of eligible homeowners have received a trial loan and the vast majority of troubled homeowners are desperately trying to save their homes unscrupulous people try their best to make a profit from other people´s misery.
This is illustrated by the 1,340 open investigations into loan modification scams while last year there were only 10 in August 2008. It is quite depressing that people are willing to make a business from robbing borrowers from their last reserves of relocation cash.
This growth in loan modification investigations has caused 330 desist and refrain orders just in the past year, up from the average 80 to 100 orders last year. As depressing and upsetting as these numbers are it is not surprising that when 225,000 homes foreclosed in the State of California last year budding entrepreneurs with varying sense of morals and business ethics show their ugly faces.
For many of these scam artists, orders of desist and refrain are simply an inconvenience that they must endure in order to do business. Current economy projections estimate this situation will continue for at least 2 years, time during which homeowners will continue to be victimized.
One of the reasons for this is that real estate agents are struggling to find work and many are reinventing their career by offering loan modification services. Last year 185,000 people took the real estate licence exams in California alone while this year 25,000 are projected to apply. That is still one real estate agent for every 54 adults in California. Such a concentration of real estate agents is bound to create a pretty competitive work environment where agents are willing to bend and break rules.
The good news is that states like California are projected to make a comeback soon. In fact estimates predict that Orange County houses will increase in value by 9.5% by next year.
The only solution when the economic atmosphere is so charged and there are such an abundance of con artists is to get smart and learn how to avoid getting cheated by unscrupulous loan modification agents.
The best advice is always to contact the government and apply for personalized (and free ) advice on the best course of action for you and your family.
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Loan Modifications are a very emotionally charged issue. If you are a homeowner in trouble and want information on your chances of getting a much needed loan modification it can be a nightmare to get the right information for your specific situation. You have probable heard about the many scam artists ready to take advantage of desperate homeowners that will do pretty much anything to save their home. This is why it is best to get expert advice from one of the many government appointed (FREE) institutions.
However it is a good idea to get a general idea of your situation in order to at least make the right questions.
Let’s present a hypothetical scenario:
You are the owner of a house worth $300,000 on which you owe $400,000 you also have debt racked up on a second home. Can you get a loan modification?
This scenario is rather common. In the past years many saw wisdom in investing in bricks and mortar and buying to rent. When they struggle to find someone interesting in renting they struggle to pay both mortgages, and that’s if they haven’t lost their job.
Unfortunately, even though the scenario is common it is not a good candidate for a loan modification. The reason for this is that homeowners with two homes are too financially committed to qualify. In order to qualify for a loan modification your mortgage payments must not be over 31% of your income. If your mortgage payments are over 31% you are considered a high risk homeowner that should never have spent such a high percentage of their income on a mortgage.
The best options in this case is to try to keep payments and keep your head above water (easier said than done) and down size your mortgage payments as soon as possible in order to qualify for a loan modification.
The question is, if you are in that situation, can you carry on your primary home until the economy decides to come back?
That will depend a lot on how high your interest rates are and what type of interest (ARM or Fixed) you have. The good news is that interest rates are low right now so even the riskier ARM loans are not so bad, at least for now. The issues might come in 2011 when many experts are predicting interest rates are going to climb. For those that are already overburdened this could be what brakes the proverbial camel’s back.
The key is to plan for that very real possibility and downscale now you can plan for it. This might mean short selling your second home and putting your mortgage payments below 31% in order to qualify for a loan modification. However if it is a case of losing both homes or keeping one it is a bit of a no-brainer.
Whatever your circumstances your best option is to get help straight from the experts. The good news is that this information is free as the government is providing it as part of their loan modification program.
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A SWAT style sweep on Loan Modification and Mortgage Refinance “consultants” ended with 189 legal actions filed accusing the so-called consultants of bilking homeowners desperate not to lose their home and desperately in need of reducing their monthly expenses.
The legal actions against the loan modification consultants include cease and desist orders by the Federal Trade Commission Chairman Jon Leibowitz and the California Attorney General Edmund G.Brown were part of a nationwide sweep against conmen consultants in 19 states.
This sweep has been set as a nationwide announcement to warning to scam artists in the mortgage industry by the Trade Commission Chairman who asked homeowners to be on guard against from being exploited.
According to the chairman these loan modification consultants are “full of hollow promises designed to fatten the pockets of criminals and con men”.
What do these suits against these loan modification consultants consist of?
The charges make interesting reading, for instance the Lucas Law Center allegedly persuaded borrowers to stop paying their mortgages to pay the company’s fees that mounted up to $4,000. The main charge is to knowingly mislead customers into over paying and paying for services that were not carried out.
These suits aim to set an example of these consultants. Attorney General Brown filed suits that include claims against five firms and their staff. Brown is suing for millions of dollars in civil penalties, restitution to the victims / customers and permanent injunctions to keep the defendants from practicing in the mortgage services industry.
It is easy to say so in hindsight but by looking back at the beginning of the year you could have seen the writing on the wall when loan modification consultants popped up like mushrooms after a rainy night. All offering amazing results for a juicy fee.
What makes this a tragedy is that when the nation requires more the services of honest, hard working mortgage and loan consultants that can help put in order the mortgages of millions of people, scam artist like these put in disrepute the whole industry destroying what was already a very weak trust.
We must hope that up side of this story is that conmen nationwide and worldwide notice that fraudulent behavior will not be accepted, especially against desperate homeowners that will try next to anything in an attempt to save their home.
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