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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Creative is probably not the first word that comes to mind when you think about loan modifications. There doesn’t seem to be many new ideas in the loan modification department.
The Government is definitely doing its best to reach the borrowers that need the help, especially those that reach those that can pay affordable mortgage payments. This helps “guarantee” the government is not throwing away good money after bad with borrowers that overstretched themselves and cannot afford any reasonably monthly payment.
However all signs show that these programs are not being as successful as they hoped. But how do loan modifications lower, or attempt to lower your monthly payments. The first and main way is by lowering your interest rate. Actually one of the main purposes of loan modifications is to allow homeowners whose homes have dropped drastically in price to still take advantage of the lower interest rates now available. The problems come when low interest rates are not enough. The government is currently trying to drop interest rates to around 2%. However if this level of interest rate is still too high to make your monthly payments affordable there are still some options open to you. You servicer or lender can still extend your payment term.
This means you will extend the amount of time you take to pay your loan. This idea is pretty intuitive if you owe $1,000 and you have to pay it in 10 months you have to pay around $100 plus interest. If you can pay it in twice the time your payments should be half as much plus interest. Servicers can extend the loan to up to 40 years which can have a drastic effect on your loan payments even though it keeps you in debt well into your eighties.
What if all this is not enough? What if you still can’t afford your monthly payments? Your lender or service provider can actually defer a portion of the principal (original) amount you owe until the maturity of the loan. We call this a principal forbearance. This does not mean the debt or part of it is forgiven just deferred or set aside until you sell your home or the rest of your mortgage has been paid. This option can be very effective in lowering your monthly payment but will create a balloon payment on your mortgage. This means that your payments will be lower monthly but you will have to make a very large payment at the end of the mortgage. This can be beneficial if you are planning to sell your home and cut short your mortgage anyway or if you want a break in your monthly payments now and expect your income to increase in the future.
Another option, not very popular with service providers is to simply forgive the principal owed. This is a long shot to say the least but still worth a try. Service providers are not required to do this so don’t keep your hopes too high. `
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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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