Loan Mod or Loan Fraud?

Interesting article in the New York Times about the shady practices of a loan modification company in Southern California. It seems that former Subprime (remember that word?) and Alt-A mortgage brokers have found a new calling in the often controversial world of loan modifications.

Loan Modification companies have sprouted up like weeds in the current landscape of defaults and foreclosures. For a fee (go figure), they offer to help a homeowner who is behind or in danger of default negotiate a loan modification with their lender. They claim that their experience, contacts, and expertise can often convince a lender to lower the rate or modify the terms of an existing loan, thereby helping the homeowner avoid foreclosure by reducing their payments. While the loan modification process is certainly legitimate, there are more and more reports of abuses in this fast growing sector of the mortgage business. The problem lies in the fact that many of these companies collect their fees upfront, with a promise to use their best efforts to negotiate a modification with the lender. Often, they exaggerate their success and overstate their performance, and in many cases do very little to actually work on the problem. Many of these loan modification companies have sprouted up as “law firms” by employing a lawyer, thereby giving the firm the right to collect fees upfront as a retainer. Some have made the news recently by scamming homeowners into coughing up thousands of dollars in upfront fees, then skipping town. This is abuse of the worst kind, since they are taking advantage of people who are truly vulnerable and in need of help.

The loan modification process is certainly legitimate. And any homeowner who finds themselves in financial difficulty is wise to explore this avenue diligently, hopefully by themselves or with the help of a reputable loan modification service. If you decide to employ someone to help with your modification, be sure to read the contract carefully and understand it completely so there is no question what you are paying for, and what you can expect for your fee. Usually, there is no promise of success, but rather a promise to use their “best efforts” to get the lender to modify your loan. Of course, in these situations you pay the fee whether or not they are successful in getting the loan modified. There are plenty of resources available on the web to help you approach your lender on your own should you find yourself in financial trouble.

Here is a related video from KNTV 11 in San Jose