Mortgage Loan Modification: Be Careful Out There

by Tom Fragala   

If you're a homeowner facing foreclosure or having trouble making your mortgage payments, be wary of loan modification scams.

Scammers are always out there, but they're making even greater inroads into the mortgage market because of the many homeowners facing an imminent crisis, the big dollars at stake, and the ease with which scammers can hijack a legitimate, government mortgage-modification program for fraudulent ends. In fact, many of the same companies that once sold thousands of risky mortgages during the real estate boom have reinvented themselves into loan modification companies. Some of these firms have made hefty profits without providing any relief for desperate homeowners.

Exercise caution when mortgage scammers approach you

Above all, be skeptical of any "mortgage help"company that initiates contact with you. Lenders routinely publish foreclosure notices in the newspaper, so scammers use this information to make mailed solicitations or to call homeowners offering "help."

Many scammers also advertise heavily on the Internet, in newspapers and even on television and radio. They may go to great lengths to appear legitimate and even position themselves as agencies that have been officially endorsed by or are affiliated with the U.S. government. They may even try to fool homeowners into thinking they're part of an actual program like the Troubled Asset Relief Program (TARP) or the Home Affordable Modification Program.

The U.S. government has allocated over $400 million to offer free foreclosure counseling for homeowners in trouble. The Office of Housing and Urban Development (HUD) provides a list of HUD-approved counseling agencies that offer free assistance. NeighborWorks America, a non-profit group created by Congress, also identifies legitimate homeowner counselors.

Legitimate loan modifiers won't require payment upfront

Avoid doing business with any company, including a law firm, that requires you to pay a fee in advance for a loan modification, or to hand over title to your home. This is a new twist on an old trick called "advance-fee fraud." These are virtually always scams.

The Making Home Affordable Program

The Making Homes Affordable program was created by the federal government to offer two potential solutions to homeowners in trouble:

1. By refinancing mortgage loans through the Home Affordable Refinance Program (HARP), or
2. By modifying mortgage loans through the Home Affordable Modification Program (HAMP)

The only legitimate website for these programs is at www.makinghomeaffordable.gov; you can also call (888) 995-HOPE for more information.

HARP allows homeowners to refinance into loans with more affordable monthly payments. As many as four to five million homeowners can benefit from these loans, which are owned or guaranteed by Fannie Mae or Freddie Mac. HAMP has committed $75 billion to keep up to three to four million Americans in their homes by preventing avoidable foreclosures.

The federal website contains self-assessment tools and calculators to help borrowers determine whether they might be eligible for a modification or a refinance under the Obama administration's program. Homeowners can also connect with free counseling resources for help with outstanding questions and other useful information.

Here are other signs of a possible mortgage scam:

• A guarantee that your home can be saved. No legitimate organization can guarantee this, so walk away from any guarantees. Only a mortgage servicer can stop a foreclosure, and only your lender can truly guarantee a loan modification.
• A requirement that you sign over the title to your home in order to remain living in it. Giving away ownership rights should never be part of the deal, even with a promise to give you a buy-back right.
• Exaggerated claims of relief from your current mortgage terms.
• Advice to stop paying your mortgage or to file for bankruptcy. Doing so won't prevent foreclosure proceedings and will severely damage your credit.
• High-pressure tactics, including warnings that you're going to be kicked out on the street if you decline their help.
• An offer by a company to collect your mortgage payment while negotiating on your behalf with the lender. These may be scammers who will pocket several months of your mortgage payments and then disappear.

Many homeowners have found themselves in over their heads with their mortgages, but don't abandon caution and common sense when dealing with any company that claims it can modify or refinance your loan. If you only do business with HUD-approved counseling agencies, you'll be one step ahead of the scammers.