Last week was National Consumer Protection Week and the Government wanted to make the most of the heightened awareness to publish some general guidelines and advice. One of these releases was made by Florida Attorney General, Bill McCollum, on the issue of loan modification scams. This issue is right at the top of the list of complaints made to his office. The Attorney General pointed out how the desperation with which many homeowners are protecting their homes will continue to breed con artists that want to make the most of this desperation.
Not all loan modification companies are scams and some can provide specialized counsel in the somewhat complex world of loan modifications. However, there are some tell tale signs that we should keep alert to if we are dealing with loan modification companies. The Attorney General warned people from dealing with companies that ask for up-front fees on foreclosure rescue services. This is actually illegal and only carried out by loan modification agents of dubious reputation.
The Florida Attorney General advised listeners to contact their lenders before contacting third party companies or agents and to never pay up front for a loan modification. The Attorney General office is busy in Florida with over 90 companies being investigated and 20 open lawsuits.
The public statement echoes the words of advice shared by many experts. These guidelines highlight the main issues borrowers must be aware about when dealing with loan modification companies in order to avoid scams.
These tips include:
1) Keep well away from companies that “guarantee” they can save your home from foreclosure. This is like car salesman guaranteeing that if you buy a certain model you will get a date with the hottest girl in the class. It might help, but ultimately the decision is out of the salesman’s hands.
Only the lender can decide if a loan modification is granted or not. It is simply not true that any loan modification application method can assure your success.
2) If your loan modification agency tells you to not contact your lender, lawyers or financial counselors, RUN! This is like the kidnapper asking the parents not to contact the police. The reason why scammers ask you not to contact anybody is just as obvious.
3) Finally, if a business asks you to make payments directly to them and to stop paying your lender, you can be sure you are dealing with criminals. Run to your nearest police station and sue the crooks.
The fact is that the government has subsidized the creating of hundreds of counseling offices around the country to provide help to homeowners that are struggling with their mortgages. You are well advised to visit these free counseling agencies.
However, if you do not trust these agencies, still cannot tell the difference between an NPV test and a hardship letter, but still need a loan modification, make sure you find a reputable company that is not simply trying to take advantage of your situation.
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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.
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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 have been put forward as the great savior of the current credit crisis. Whether this is true or not is a matter of debate. I personally feel that dealing with a credit crisis by trying to fix mortgage issues is not going to deal with the big picture.
Nevertheless it is a fact that many are benefiting from the taxpayer subsidized loan modifications that are being grudgingly supplied by banks and other mortgage providers.
However many are not benefiting at all from this service, what is worse many have considerably worse off because they tried to get a loan modification and bumped into a scam artist or organization that duped him out of the little money he had left. Nobody wants to become a statistic, especially when it is the number of borrowers that are conned out of their homes by dishonest “loan modification consultants”.
What can you do? Here are 6 easy steps:
1) Know the beast. Understanding what your options are and who qualifies for aid is vital. Reading www.blownmortgage.com and other mortgage help articles will provide you with inside information about loan modifications and mortgages. Other websites that should be on your list are: WWW.hud.gov www.makinghomeaffordable.gov and www.financialstability.gov . In fact wherever you go for help make sure it is free. The best help out there on loan modifications is, believe it or not, is free.
2) Beware and be alert. If you are struggling with your mortgage you are a prime target for scams, recognize and avoid common scams.
3) Avoid fast loan modifications. Companies who want you to sign papers immediately or who claim they can save your home if you sign of the deeds of your house to them are scam artist. Nobody can save your home except you and your mortgage provider. Organizations and individuals can provide valuable information but they can’t guarantee anything because they don’t make the decisions.
4) Again, DO NOT sign the deed of your house to anybody unless you are working directly with the mortgage company to forgive your debt. In other words only sign off the deed of your house if you are selling it back to the bank.
5) Only make mortgage payments to your bank. A common scam is for a “consultant” or loan modification company to ask you to pay them so they can deal directly with your mortgagee and make the payments for you. As you probably guessed this payments stay in the pockets of the scam artists while you get deeper in debt.
6) Don’t pay anybody for advice on your loan modification or for counseling services on a delinquent loan. This is not to say they are all scam artists but even the kosher variety or not as good as the organizations that provide free counseling as a public service.
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Loan Modification Scams are high up in the priorities of the administration and public authorities. Loan Modification Scammers target some of the weakest members of our society, charging high fees for services that either are not carried out or offers no help to the ailing economy of the desperate home owners.
In the last months we have seen a number of institutions and AG’s hit loan modification scams throughout the country. The most recent AG to threaten and attack loan modification scammers is John Kroger, Attorney General of Oregon.
Attorney General John Kroger said that Oregons Financial Fraud and Consumer Protection Unit has “opened more than half a dozen investigations” into loan modification companies, two of these loan modification companies received a sanction.
How do these loan modification scams work?
The secret is to target the weak. Homeowners so desperate they will do anything to reduce their monthly payments and save their home. Loan modification companies and consultants will send official looking documents and cold call home owners they know are struggling with their mortgage payments.
This is not to say that all loan modification companies are useless. Some do provide valuable information and help clients make sound decisions with their home. However many use deceptive measures to dupe potential customers. For instance some loan modification companies will send paperwork that will make it look like they are associated with official government organizations like HUD o HAMP. Don’t let them confuse you. Only the bank can approve your loan modification and the government will not contact you through covert methods.
One of the largest loan modification companies, National Homeowners Assistance Services Inc. was also charged with using illegal and covert measures to receive payments they did not work for. In order to set things right the National Homeowners Assistance Services Inc. company was asked to pay $4,000 in legal costs besides changing their code of practice. These measures are designed to force loan modification companies to improve their standards of client service. Another measure some states are trying is demanding upfront bonds from loan modification companies of around $100,000 as a type of license and security for any problems the companies cause to borrowers and other citizens.
Whatever measures the government takes nothing can substitute common sense (not so common unfortunately). Make sure you use reputable companies that are truly experts in loan modification. There have been so many loan modification companies popping up like mushrooms that it seems impossible they are all experts.
Another giveaway for a loan modification company you want to keep away from is unreliable promises. Companies that promise and guarantees the loan modification of your dreams as long as you are willing to pay a “small” fee. These fees tend to be enormous making many homeowners get deeper into debt without getting any results.
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Loan Modifications are a matter of general interest to many of us, especially the 9 million plus in United States that are struggling with foreclosure and could lose their home. Unfortunately many don’t understand loan modifications and what is worse can’t identify crooks that are out to trick borrowers and pour more misery onto already desperate households.
Information is as always power, in loan modifications not knowing what you’re doing could spell disaster, cost you thousands of dollars and still lose your home.
This article sheds some light on some of the biggest examples of lies, scams and misinformation in the loan modification industry.
1) You have to be behind your payments to qualify for a loan modification or aid.
This is simply not true. If you can avoid getting behind in your payments without falling into poverty it is best to keep up with payments. The moment you become a delinquent borrower your credit score receives a strong blow. The government helps borrowers that are struggling with their mortgage payments before they become delinquent as long as they qualify and are willing to follow the directions of the mortgage aid plan. It has been the case of banks in the past to only allow loan modifications for borrowers that are delinquent but this is not the case with the current loan modification programs.
2) All mortgages can be loan modified.
It would be nice but unfortunately this is not true either. The government is only offering financial aid to help home owners to modify their first trust deeds (not the second, third…. Mortgages) You can get these mortgages modified, there is no law against it. However banks have no incentive to do so, and it is hard enough to get them to modify the loans they get paid for their trouble.
3) I can’t do it by myself; I must get someone else, a professional, to do it for me.
It is amazing how many experts have appeared from nowhere in the area of loan modification when only a couple of years ago it was a practically unknown sector of banking. The fact is thought, that whatever loan modification “experts” tell you nobody can guarantee you results. Only the mortgagee, the person lending the money (this is not always the banks) can approve a loan modification. The process is slow and frustrating but you don’t need an expert to do it, you can do it yourself.
It is true that “experts” can provide help on how to fill in forms and make the right decisions. However there are “free” organizations that provide that kind of help for nothing.
4) The “value” of my house has dropped so they must reduce my principal.
It is very hard to get your principal, or the amount you owe to the bank, reduced. Banks will often reduce your interest rate, monthly payments or even increase the length of your loan but getting a reduction on your principal is rare to say the least.
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The las loan modification company to have been hit by the Government is Debt Relief USA. Texas Attorney General Gregg Abbot is set to recover $4.6 million for former customers of Debt Relief USA, an Addison based company that filed bankruptcy earlier in June.
Debt Relief USA claimed, as so many other companies, to help consumers to reduce debt and monthly mortgage payments. The idea was that Debt Relief USA would use its expertise in the sector of loan modification to get a better deal for customers.
Besides the illegal business practices Debt Relief USA carried out with its customers before bankruptcy the company collected set aside money from its customers as part of the bankruptcy process. This is of course not legal. Attorney General is working to change the bankruptcy to a liquidation. AG Abbot is also seeking to enforce penalties for deceptive trade practices. Debt Relief USA had 2,500 companies which according to AG Abbot did not receive the help they paid for.
What can you do to avoid Loan Modification Scams?
Let us start by reassuring you that loan modification online can be helpful and even save you money. However if you use the wrong company you could end up in the street earlier than you thought.
There are a few signs you can spot early on to know if you are dealing with a scam artist when buying a mortgage:
1) They promise you, you will save money by reducing your debt capital. This is an impossible promise to make because it does not depend on the loan modification consultant. Banks are the ones that revise and decide on these applications.
2) They ask you to stop paying your monthly mortgage payments and to use that money to pay them. This is more common than you would expect. Before you know it you are months further in debt with nothing to see for it. The loan modification company might ask you to pay up front to get the things started. It is illegal to ask for payment for work that is yet to be done so say no to this practice.
3) They cold call you and promise you have been pre-approved. This is a very popular trick as it targets those what are so in debt they are struggling with and are less likely to a second check.
4) The government has set up advice centers that provide information for free. It is often the case that these free information providers are better than any paid for loan modification consultant. Many borrowers follow the common sense idea that paid for services must be better than the free ones but in this case it is more often than not a mistake.
5) They promise you your credit score will not be affected. If a loan modification consultant tells you that just run for the door and go home, or if they cold called you hang up. Banks only modify their loans if people can’t pay or are struggling to pay their loans. In order for a loan modification of this type to go through you need to tell your bank you can’t pay what you borrowed. Your bank is then obliged by law to report you and of course that will hit your credit score pretty badly.
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Mortgage modification scams start with a telephone call or unsolicited mail and end with an empty house, a foreclosure and a homeless family. That was the case of The Kennedy’s as published by the KNSD.
The Kennedy’s were struggling to pay their bills. Their mortgage payments slowly encroached on their monthly budget and they began to fail on their payments. Foreclosure was a real possibility. They received a phone call they thought to be their lender explaining them they qualified for a reduction of their monthly mortgage payments of fifteen hundred dollars. They were ecstatic.
Fourteen thousand dollars later they realize it was all a scam. Unfortunately the discovery occurred too late as their house was already undergoing foreclosure. This story is sadly not isolated. Hundreds of desperate home owners that are struggling under a failing Economy are being bullied and abused by a growing number of mortgage consultant conmen that take like looters after a national disaster take advantage of the misery of others.
It is cases like these that have moved the authorities to take serious measures nationwide. This has included coordinated raids on large mortgage modification consultancy companies and the proposal of radical modifications to the debt relief and mortgage modification industry.
Some feel the measures are extreme and that they will be too restricting on the legitmate business for them to carry out their business. This will, according to detractors, limit the help these very people can receive.
However it is tragedies like that of the Kennedy’s that have moved these proposals. The Kennedy’s received an unsolicited phone call, new measures would limit this. The Kennedy’s were guaranteed they had been pre-approved for a large monthly reduction in their expenses, policy changes would prohibit making guarantees when the broker cannot be sure the lender will be willing. The Kennedy’s were asked to pay upfront for services linked to the Mortgage Modification they did not receive, again proposed amendments would protect families like that of the Kennedy’s from these tactics.
The truth is that unsolicited mail and phone calls are not in themselves an evil marketing method, maybe annoying but not necessarily bad. What makes the difference is the vulnerability of desperate households that cannot make their payments. These people need to be protected from ruthless conmen that like scavengers feed on the leftovers of the latest victim.
The deadline for business members and the public to counter these and other policy reforms ends the 9th of October. Will these measures protect people from these and other scams? Maybe. Will these proposed changes put out of business legitimate business that want to make an honest profit from providing a valuable service that is desperately needed? Maybe.
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