Beware of Loan Modification Scams!

As if economic turmoil and a credit crunch isn’t enough, homeowners facing foreclosure are now dealing with loan modification scams and unscrupulous businesses looking to prey on their desperation and fear.

“This has not been a well-defined program from day one,” said TARP special inspector general Neil Barofsky of the government loan modification program, warning against loan modification scams. “Criminals speed on that type of confusion.”

Barofsky said that there has been in huge “uptick” in loan modification scams targeted at struggling homeowners.

Keep your eye out for these suspicious signs of loan modification scams.

• Beware of promises that seem too good to be true. Most scams and swindles operate on the often overly optimistic hopes of homeowners who are in a world of trouble. If a business offers a guarantee to stop the foreclosure process, you should automatically be wary.

• Avoid businesses that tell you not to contact your lender. If you are having difficulty making mortgage payments, your first step should be to contact your lender. Anyone who urges you to stonewall your lender, an attorney, or a credit counselor probably doesn’t have your best interests at heart. In fact, sometimes the only way to tell if a program is fake or real is to ask your lender. Some loan modification scams pretend to be affiliated with the government or your lender. Then they charge high fees and disappear with your money. Before signing on the dotted line, ask your lender if a program is phony.

• Beware of companies that ask for money up front or via a cashier’s check. Most reputable services do not ask for money before they have given you a service, so strange financial requests should be a big tip off that a company is not on the level. Some scam artists tell you that they will negotiate a deal on your behalf if you provide payment. Then they run off with your money!

• Do not give anyone money to pay your mortgage for you. This is definitely a sign that a disreputable business may be trying to get a hold of your house using disingenuous means. This type of business will tell you they are making payments, but of course they are pocketing your money. By the time you realize this, the bank may have already seized your house.

• Never sign over your property to anyone else. Some dishonest companies offer to help you dodge foreclosure by having you transfer the deed of title to them. Frequently, the house will end up in foreclosure and you will walk away with a lot of debts but without anything to show for it.

• Never sign any documents without reading and understanding them completely first. Don’t allow anyone to pressure you to sign documents before you completely understand them and know what you’re getting into. Some loan modification scams work by telling you that you are signing paperwork for a new loan modification when you are, in fact, transferring the title of your property. So not only should you read it before you sign it, you should also understand it before you sign it!

The most important thing to remember when trying to avoid loan modification scams is this: Keep your cool. Do your research. Call your bank, even if it seems scary. And contact trusted loan modification authorities if an offer seems too good to be true.

Beware of Loan Modification Scams!

For the week ending April 1, Freddie Mac reported that the average 30-year fixed-rate mortgage averaged 5.08 percent. This is up from 4.99 percent from the week prior.

The mortgage-backed securities program was intended to boost the economy; no one wanted to purchase these securities because they were seen as too risky. The program did succeed in driving down mortgage interest rates during the financial crisis. Perhaps it staved off a deeper recession.

But what will happen now?

It’s a game of wait-and-see. The Los Angeles Times noted that the ending of the program “came at a delicate moment,” with housing indicators “flat to softer in recent months.” The economy will now rely on private investors to buy any mortgage-backed securities created this year. Whether these securities are deemed safer than they were a year ago remains to be seen.

And what will happen with the $1.25 trillion in mortgage-backed securities that the government now owns? The government is considering whether it can gradually sell some; others will mature or be paid off.

First of all, remember, I’ve been in the mortgage business for over twelve years, so I understand how difficult they can be.  The bottom line is that comparing Good Faith Estimates has always been a bit difficult. For example, how can someone who does not understand mortgage terms dissect ten pages of jargon?  What about all the confusing fees?

New federal rules that took effect at the beginning of January “supposedly” will make it easier to read these Good Faith Estimates… by standardizing them and simplifying the format.  We’ll see.  They say that the new rules will help “disclose an adjusted origination charge,” and include “all the fees the lender controls as well as any points paid to lower the interest rate.”

The biggest change is that lenders will not be allowed to increase the origination fee from what is disclosed in the Good Faith Estimate. Other fees, like title services and recording charges, cannot increase by more than 10 percent from what was disclosed. Additionally, the new form requires that borrowers be informed that they do not have to accept the title insurer suggested by their lender.

While this may sound good originally, the problem is that this will cost more for the lender and in turn their “processing fees” will go up.  People always ask about the junk fees, well, many times, the junk fees are dictated by policies that don’t really serve the client base.  My opinion is that this is one of those policies.

Some experts estimate that these changes will help save borrowers an average of $700 on their loan costs.   I don’t believe that for one bit.  At a minimum, the new rules are going to create more questions about how to compare Good Faith Estimates.

A lender might be willing to grant a loan modification if you owe more than the amount for which the home can be sold. Banks also know that adding your foreclosed home to the supply of homes for sale will further depress the market, so your lender might be willing to work with you to modify your loan. However, you are not going to get a loan modification just by asking.

Can I get a loan modification? To answer yes, you must accomplish two things:

1. To get a loan modification, you need to show the bank that the modified loan is a better deal than foreclosure.
2. This brings us to the second point: You must show that you cannot afford your current loan. The lender is not going to grant a loan modification to a homeowner able to make the current payments. Lately, numerous homeowners have called complaining that their bank won’t give them a loan modification. The first question I always ask is: Are you behind on your bills? And the answer is always the same: Clients who are current on their bills are not having any luck qualifying for loan modifications.

Can I get a loan modification? The unfortunate truth is that struggling homeowners who have paid their mortgage on time are forced to choose between staying current and being denied loan modifications or improving their chances by skipping payments.

Let me repeat that… The unfortunate truth is that struggling homeowners who have paid their mortgage on time are forced to choose between staying current and being denied loan modifications or improving their chances by skipping payments.

The reality is that as long as you remain current, the lender would rather let you tough it out because recouping 100 percent of your loan is in their financial interest.

I would never advise anyone to default on monthly payments, especially because it might hurt their credit score. That said, as long as you are paying your mortgage on time, the answer to the question—Can I get a loan modification?— is probably no.