Mortgage Loan Modification - Phony Counselling Scam

Phony Counseling:

This scam has several variations. In all of them the con artist takes your money and doesn't perform any meaningful service. Here is how it works.

1. The con artist requires that you pay him an up-front fee (usually $1500 to $3000).
2. He then "advises" you not to contact your lender, credit counselor, housing counselor or attorney.
3. Sometimes, he then requests that you make your mortgage payments to him while he "negotiates"
4. At some point, he disappears with your money.

Another View About Mortgage Loan Modification

Bill Schmick, writing on www.iberkshires.com makes an interesting argument that mortgage loan modifications may be doing little more than postponing inevitable foreclosures and exacerbating the mortgage crisis. He sees the real problem being lenders' refusal to agree to principal reductions.

Plans whereby lenders reduce payment amounts for a period of time or tack missed payments onto the end of the loan may not be helpful because the borrowers have a reduced amount of time to pay back the loan after the reduced payment period has lapsed. Also, everyone involved, is betting that housing prices will rebound to a higher price than the borrower originally paid for the house.

Half of the modified loans eventually go back into default.

Finally, the National Association for the Self-Employed (NASE) estimates that 1,279,800 small-business owners have missed one to three mortgage payments by mid-November of last year. That was before a wave of resets on their mortgages was about to begin in the fourth quarter of 2008. At the same time, the economy has taken a nosedive that has really walloped the small-business owner.

When a small business fails, it affects not only the business owner but the 5-20 employees who lose their jobs. Since small business is the engine that powers our economic growth, a crisis in that part of the economy could greatly eclipse the damage caused by the subprime crisis.

Mortgage Loan Modification Companies -- Saviors or Scam Artists?

In a recent CNBC website posting, Diana Olick says the following about mortgage loan modification companies "[They] have sprung up like crabgrass in the midst of the foreclosure crisis, many of them run by former subprime mortgage brokers or real estate brokers who don’t have much work these days."

These companies charge an upfront fee to help cash-strapped borrowers navigate the red-tape of lender / servicer loan modification program, to get a payment that they can afford. Some companies are legitimate, while others are scams.

How can you tell the difference? You need to exercise due dilligence.

First, find out who is running the company. State Real Estate Commissions in California, Colorado, and a host of other states allow only those companies run by licensed mortgage brokers or attorneys to charge in advance for their services. You can find out both your states regulations, and whether a provider is permitted perform loan modification services by contacting your real estate commission.

Also, find out if the person with whom you are working is a licensed mortgage broker, or attorney. You can do this by contacting the mortgage broker licensing authority in your state for mortgage brokers, and your state supreme court for attorneys.

See if there is any State or Federal actions pending against a company. In California alone, there are over 250 active investigations of mortgage loan modification companies and several have already been shut down.

Before signing any contract, make sure that all of the fees, charges and services to be provided are clearly spelled out. If you don't fully understand the contract, don't sign it.