Loan Modification Angst
We got a call earlier this week from a mortgage broker telling us about a phone conversation he'd had with a person calling himself a "forensic mortgage loan auditor."
The "auditor" wanted to know if the broker had clients who had been declined for loan modifications and whether he could call them up to see if he could offer them his services.
What exactly are the services this gentleman provides? And what does he charge?
The person claimed to be able to review the loan documentation originally signed by the borrower and that he could find errors made by the original lender in the disclosures.
Once he uncovers these errors in the disclosure, he said, he sues the lender for violation of mortgage lending laws.
For all this, he only wanted a sizable amount of money up front to work with this mortgage broker's clients. The mortgage broker decided not to work with him, but the incident shows the rapid changes afoot in the real estate landscape and indicates how careful consumers, brokers, lenders and others involved in the industry need to be.
Call it the bust cycle of real estate services -- and it's booming with scammers, con artists and those who claim to be able to solve the world's problems but can't.
First, loan modification companies promised results upon the payment of a fee.
Loan mod businesses have proliferated despite lenders saying that they do not give preferential treatment to loan modification applications that come through this door. But because millions of consumers have applied for loan modifications but very few permanent modifications have been granted, borrowers have become discouraged -- and loan modification businesses are preying on that discouragement.
Loan modification angst is understandable, given the fact that the federal Home Affordable Modification Program (HAMP) has been in place about a year but has produced uneven results, at best, in making temporary loan modifications permanent.
Some big banks have fallen woefully behind. Bank or America, which absorbed Countrywide's loan portfolio, moved to address the problem this week by starting an invitation-only program for Countrywide borrowers that would reduce the principal balance on the loans in order to bring the loan value roughly to current market value.
It's about time. Lenders have been reluctant to cut the principal on these loans, just as they have been reluctant to grant loan modifications.
Banks are feeling some angst as well. They have invested millions of dollars to create new software, train tens of thousands of people and basically start up a loan modification program that didn't exist.
But consumers have more to worry about. The banks initially said (and the OCC confirmed) that consumers' credit history would not be dinged during the trial loan modification phase. Yet, from the first day, lenders have reported the trial loan modification payments as "partial" payments, tanking borrowers' credit scores.
All this angst makes a fertile ground for mortgage modification scams. The company that called claims to be a "loan auditors." If you give them permission, they will comb through your original loan documents to find issues with the documents that supposedly will save your home from foreclosure.
However, as the
While there are many legitimate companies out there, including those that rightfully audit mortgage loans, there are many community groups, state agencies and nonprofit companies that will work with borrowers for free.
For those homeowners who have seen their dreams come crashing down and have been turned down for a loan modification or have received a trial loan modification but can't get the lender to commit to a permanent loan modification, the idea of getting even with the lender might be quite appealing.
But there is one rule in real estate that every person should remember: Buyer beware!
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